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In the great football film North Dallas Forty, a disgusted lineman blows up at National Football League hypocrisies, calling out the coach with a tirade that includes the now famous line, “Every time I call it a game, you call it a business. Every time I call it a business, you call it a game.”
The quote came to mind when I read Molly Corbett Broad, outgoing president of the American Council on Education, rehearsing, once again, the dogma, “that college graduates are happier and better off in virtually every way, economically and socially, than the average noncollege graduate.” While there is evidence to support it (she cites the College Board’s impressively detailed Education Pays 2016), what caught my attention was her wide-eyed incredulity that focus groups “perceive higher education as merely a commodity, and an overpriced one at that, not the excellent value and force for public good and intellectual advancement that we in higher education are certain we offer our students and society as a whole.”
Those charged with meeting enrollment goals, as higher education leadership must be well aware, routinely speak in terms of commodity, customers, net revenue, yield funnels, econometrics, automated behavioral marketing, creative destruction, signaling, outcomes, positioning, disruptive adaptation, and obligations ratios. If they fall back on pieties of public good and intellectual advancement, they are quickly brought to heel by business-honed trustees.
Take for example the financial aid matrix, a microeconomic, price optimization tool designed to distinguish the difference between the ability of a student to pay and her willingness to pay. Matrices offer some version of student academic ability standing as a proxy for willingness measured against student financial ability, a sometimes gross but standardized calculation. The results provide institutions with micro-assessments over time of the price elasticity of their admitted pools -- the same pricing technique taught to M.B.A.s and commonly used by corporations for commercial products.
Lofty ideals can suppress the industry’s growing paradox: wealthy families are more able and less willing to pay for college while the poorer families are more willing and less able. Only 44 percent of respondents to a recent 2016 Tuition Discounting Study from the National Association of College and University Business Officers said their discounting strategies are sustainable in the long term
The shrinking segment of wealthier families have options that drive down their price to attend and their willingness to pay. The growing segment of poorer families pay what they can, and must, but cannot provide enough revenue to sustain institutional aspirations. The core question of whether there is enough aggregate revenue to meets the needs of institutions remains in doubt.
“Baumol’s Cost Disease,” a theory offered in the 1990’s by economists William Bowen and William Baumol, is relevant here. By using the example of a string quartet, they argue that the services of highly-skilled workers will always rise faster than the general rate of inflation, even in labor-intensive industries resistant to productivity gains. The reason: when highly skilled employees in some industries of growing economies are rewarded with higher wages, observant employees in other industries where productivity lags still demand more pay, or move to those industries.
You can’t increase the productivity of a Mozart string quartet by playing faster or cutting a violin. And you can’t simply manage or automate productivity gains for the labor-intensive work of faculty members.
For higher income families, the value proposition is more a calculus of their willingness. I have been party to more than one family’s reckoning on this matter: “Sure, we’ll pay to send our bright first daughter to a brand name and pay the freight,” the reasoning goes, “but for our younger, not-so-gifted son, we’ll either demand a discount from his tier 2 choices or send him to the more modestly priced regional alternative.”
For the lower income family the value math is more basic. Their information level and financial options are typically more limited, and even as their willingness is set on “high,” their choices are highly constrained by what they can actually afford. A Ferrari 488GTB at a 75 percent discount may be a very good deal, but it’s still so far out of reach as to be meaningless for most car buyers.
This paradox results in financial aid dollars flowing uphill, where wealthier families are routinely over-aided and the most acute need is “gapped” the greatest. One answer to the problem is, as with your symphony or opera, patronage. Non-tuition revenue sources can fill the gap between the money families will not or cannot pay and what colleges require to operate.
But in 2015-16 just 12.4 percent of total institutional grant aid was funded by endowments. Colleges that are truly sustainable are those with the shiniest reputations and $250,000 of endowment per student. The rest hunt their admitted pools for prospects willing to pay a bit more, panning for shiny slivers of gold in their financial aid matrix sieves, to make next year’s budget.
Financial aid choices are rational at the institutional level, yet have resulted in a Darwinian fight for survival and concentration of wealth among fewer and fewer institutions — undermining higher education as a “force for public good and intellectual advancement that we in higher education are certain we offer our students and society as a whole.”
Molly Corbett Broad also notes that “half of borrowers indeed owe less than $13,000.” But it is also the case that 63 percent of families in the lowest income quartile have debt over $20,000. Lower income families borrow relatively more, and complete at lower rates.
We all agree that the ends of higher education must be the public good. But the means to securing the revenue toward that end are as sophisticated as any in the corporate sector. The leadership in higher education should not underestimate the public awareness that colleges and universities are purposeful about their bottom lines, and that real higher education gains go disproportionately to the wealthy. A recent New America survey finds that just one in four agree that higher education is functioning fine the way it is. Not that they can do much about it.
The anti-hero star of North Dallas Forty, Phil Elliott, remarks as his huge teammate gets disruptive at a raucous party: “Jo Bob is here to remind us that the biggest and the baddest get to make all the rules.”
“Well, I don’t agree with that,” says his love interest, Charlotte.
“Agreeing doesn’t play into it,” Phil replies.
