Thursday, January 15, 2009

Universities as Starbucks

by Andrew Gillen

My recent post, which highlighted the fact that actual spending is out of all proportion to reasonable costs of instruction, has not been well received by some in the higher ed establishment. As far as I can tell, the thrust of the critics is that universities have to spend all that money on various things, and that there is just no way around it. This is kind of like observing the price of a cup of coffee at Starbucks, and concluding that it’s not possible to provide a cup of coffee for less than $5.

But just as the $5 price tag at Starbucks includes amore than just coffee, the per student spending figures at all levels of education contain a lot of other spending, such as ritzy dorms, unnecessary staff, $13,000 Sushi robots, funds to upgrade closing schools, and (ironically for this post) unused cappuccino/espresso machines.

To say that I’m naïve about the financial needs of modern higher education may be true in many respects. But it is just as naïve to treat a process that results in such wasteful spending as sacrosanct. Moreover, it misses my point completely. The amount of money spent per student is out of all proportion to the actual cost of providing an education. And this matters because college has become a huge financial burden for many students and families.

Lucky for me, Rich has already expanded on my point for me:
Too many of today's colleges and universities have lost focus -- they try to do too many things --run entertainment enterprises, have conference centers competing for the convention trade, run food and lodging operations, TRY to spur economic development (almost always unsuccessfully), engage in commercial technology transfer, etc., etc.

By all means, continue coming up with dubious rationalizations (like the example here) for maintaining the status quo. Just don’t be surprised when students that are not getting a good deal stop showing up.

This has already happened to Starbucks and many expensive private schools are getting a taste of this right now:
The question about how much one should stretch to pay for college — and a new clear-eyed realization that loans must be repaid — are making officials at some private schools nervous.

Even less expensive schools that are so far unfazed would be well advised to think long and hard about if their spending patterns are wise. In the age of Google, Wikipedia, and video lectures from top practioners, it may not be long before they too come out on the wrong side of potential students’ cost benefit calculations.


capeman said...

"The amount of money spent per student is out of all proportion to the actual cost of providing an education."

As I indicated earlier, this just isn't true. A good brain and/or a half-hour tutorial on understanding college budgets suffices to understand this.

As for Sushi robots and the like, I haven't seen one at the place where I work. (Most of the examples cited were in large K-12 systems; I don't see what they have to do with higher education.)

As for the dorms, maybe Princeton has luxury dorms (mostly paid for, I would wager, by private donations, not student dorm fees).

Here where I work, $30/day or a bit less is about what room and board costs. That doesn't sound too fancy to me; it's a whole lot less, by a factor probably of 2, than staying at the local Motel 6 and dining at McDonald's. After freshman year, the students are welcome to live off campus, if they so desire. Most do, but as a lot of parents find out, that doesn't necessarily mean a better deal financially.

Admittedly, the guys sleeping under the bridge and eating out of garbage bins get by on less.

Is this what the good folks at CCAP have in mind for college students?

capeman said...

Oh, one more thing.

"Even less expensive schools that are so far unfazed would be well advised to think long and hard about if their spending patterns are wise. In the age of Google, Wikipedia, and video lectures from top practioners, it may not be long before they too come out on the wrong side of potential students’ cost benefit calculations."

Here where I work -- a "flagship" variety state university with about average in-state tuition and tuition set at whatever the out-of-staters are willing to pay -- enrollment is way up, even with the recession. Apparently the students still think it's a pretty good deal, or at least one worth the money. Maybe things will change -- especially if the legislature cuts the higher education subsidy and we have to jack up tuition -- but so far, the problem is accommodating the heavy demand.

RWW said...

Bravo Andrew! When parents have to get second mortgaes and borrow to pay for a "4-year" higher education - something is wrong.

Comparing hotels and McDonalds to room and board for approximately 8 - 9 months out of the year is a canard. Who stays in a hotel room for and eats at McDonalds or Taco Belch for the duration of a school year? This is a perverted comparison.

John Pearson said...

Speaking as a financial advisor and financial columnist whose main practice and focus is to counsel families who are looking for help in paying for college, I can tell you that there is many a family that is sacrificing their retirement on the altar of providing a college education for their children.

And, by making school so expensive that the students who do have to borrow have to carry inordinate amounts of debt, their ability to set up their own households is postponed. The debt service destroys demand for the major purchases that would go into setting up that first apartment.

And since many of the soon to retire adults in this country are counting on selling their homes to create cash to supplement their retirement as they move to a less expensive region, they are now discovering they have fewer people to sell to, since fewer and fewer young people are able to assemble the $$ to put a down payment on a home... because they are already buried in student loan/credit card debt.

Is this all colleges fault? No. Parents themselves are to blame as well, by being unwilling to be financially responsible. But colleges are certainly a willing accomplice.

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capeman said...

John Pearson -- I would not recommend that many people sacrifice their retirement to finance their kids' education.

I wonder how many people are doing this unnecessarily. Here at the fairly modest state university where I work, the child can enroll for about $6-$7 thousand tuition per year (for in-state students).

A degree here won't get you appointed to Obama's cabinet, or likely the Supreme Court, but it's a decent start in life, and in fact, most or probably all graduate schools are open to you if you do well enough here -- if you absolutely need that Ph.D. or law degree from Harvard or Yale.

I don't think that is beyond the means of most families, if they start to plan and save well in advance, if the child works some, and perhaps if a reasonable amount of loans are taken.

Of course, room and board are not free -- why would anyone expect that? -- and books cost some money.

If the parents insist that their child or children go to $50K/yr. schools, and if they sacrifice their retirement for that, I don't feel too sorry for them.