College costs have been rising quickly during the past two decades, and tuitions are rising even faster-much more quickly than family income. Such widening gaps cannot be sustained much longer, and our entire postsecondary education system may have to change radically to survive this economic upheaval. Our response to the current crisis will determine what kind of system develops in its wake. To envision a truly reformed system, we have to consider what has happened in recent years, what is likely to occur if we remain on our accustomed course, and what we must do differently. Prices have been rising even more quickly than costs. For several decades, prices-mainly tuition and fees-have risen by approximately 3 percent per year more than the Consumer Price Index (CPI). Moreover, federal and state appropriations and other subsidies have not risen as quickly as the costs they defray. Those two trends-rising unit costs and a growing share of those costs being borne by consumers-explain the scary price escalation of recent years.

As prices rise, institutions do more discounting-student aid-to maintain enrollments, access, and diversity. Fewer students pay full tuition, and posted prices grow increasingly distant from actual or net prices. As institutional aid grows more quickly than external aid programs, universities spend more on student assistance, and each tuition hike generates less net revenue-creating ironic pressure to raise tuitions even higher. Fewer people can afford college out of current income, so individuals and institutions try to spread those costs over more years through prepaid tuition schemes, tax-advantaged savings plans, and, of course, loans, loans, and more loans. Instead of four or five years of payments like an auto loan, today’s students will be burdened with something more like a thirty-year mortgage.

Nonetheless, the schools have to recruit enough bodies to keep the revenue flowing. Admissions offices become marketing centers, and schools lure students with new programs, amenities, and services which push costs even higher.

To sustain enrollments and serve social justice, the impulse to widen college access continues unabated, but as a growing fraction of each age cohort is allowed in, the colleges have to teach rising numbers of poorly prepared students. This has already changed higher education significantly: many colleges are now providing the sort of education that should have been provided in high school, and the willingness to accept ill-prepared students undermines their dedication in elementary and secondary school. That, in turn, exacerbates the preparedness problem and increases costs for the colleges.

Cost and price escalation are affecting enrollment patterns, shifting students from private colleges to heavily subsidized public institutions, to community colleges, and to nontraditional schools that manage to charge whatever the federal grants and loans provide. The industry is starting to display a distinct market segmentation. Brand-name institutions are selective, high-status places that cater mostly to full-time students from traditional age groups and that have traditional academic values. Their students usually graduate with conventional degrees in the traditional number of years. This group comprises institutions such as Duke, Williams, and Berkeley.

The “mass provider” institutions are not selective, and they enroll many students, including nontraditional ones and part-timers. They do not have high status, but they emphasize traditional degrees in fairly traditional fields, and they subscribe to the familiar academic values. The “convenience” institutions are highly user-friendly and responsive to market forces. This category includes community colleges, technical institutes and some branch campuses of more traditional institutions. It also comprises unconventional providers of just about any collection of skills and credentials anybody wants to obtain at practically any time through just about any medium of instruction. These schools serve many nontraditional and part-time students, and their values derive more from the business culture than from academe. The price burden is accelerating these changes, and the convenience providers grow ever more varied. A consumer can now get the desired skills and knowledge, and often the credentials, from corporate training schemes, audio and video courses, Internet courses, and adult education programs delivered through school systems, nonprofit organizations, and for-profit firms. Eventually, educational entrepreneurs will find ways to serve students who want to take exams and submit papers via e-mail to earn degree credit and marketable credentials without ever coming near a college campus.

Clearly, higher education is changing rapidly, and there is more to come. The following scenario outlines what will probably happen during the next decade if higher education continues on the course it has taken in the past twenty years. Barring major productivity enhancements, mission shifts, or external constraints, college costs will continue to soar. State and federal policymakers will be reluctant to raise subsidies to cover those costs, and prices charged to higher education consumers will therefore ascend even more rapidly. As prices rise, enrollment in traditional institutions will stagnate or decline. College enrollments today already exceed the nation’s total high school enrollment, and although it is too early to infer that the nontraditional market is saturated, it is clearly approaching that state.

People will seek affordable alternatives. Community colleges and other institutions that keep their prices down-or even cut them-should enjoy enrollment gains. Convenience campuses will thrive. The brand-name colleges will look after themselves, though they may experience some slippage. But the public and private mass providers-places with traditional values, rising prices, not much prestige, and no great convenience-will encounter trouble. Some will try to boost themselves up the status ladder; others will behave more like convenience institutions. Those that do neither can expect significant grief. For those attending traditional institutions, our jury-rigged student aid system will struggle to provide access, and Congress and state legislatures will undergo annual battles over grant and loan expenditures. Loans will become larger and longer-term, and parents will shoulder even more of the load.

To get their kids through college, fifty-year-old parents will rifle their retirement funds and life savings-thereby worsening the burden on Social Security, Medicare, and other such safety nets. Employers and government agencies that pay for a person’s education will have a hammerlock on that employee for a decade or more afterward.

The traditional college degree will lose allure except at prestige schools. College graduates still earn more money over their lifetimes than those who do not attend college, but this edge is starting to narrow, at least for men. Universal access will erode it further. Thus, competition for entry into the prestige universities will increase. The market will favor two categories: brand-name institutions and convenience schools. The craving for students will increasingly shape each college’s decisions about what it is, does, and teaches. If students cannot afford to major in comparative literature, classics, and Asian history, those departments will wither, and those disciplines will languish or migrate to think-tanks and research centers. Tough-grading professors who cannot attract students will be replaced by ones who give automatic A’s. Demanding core curricula that frighten off large segments of the market will have to be forfeited. And if two-thirds of the students want to study business, the college will allocate its faculty, scheduling, and other resources accordingly.

Life on campus may grow more pleasant thanks to numerous amenities-recreation centers, food courts, and the like-but campus life will become much less a life of the mind. The proliferating amenities, student-centered culture, and enrollment-driven marketing demands will transform the average university into something akin to a resort or entertainment center-part multiplex theater, part guest ranch, and part love boat, with the occasional uplifting lecture or brow-furrowing seminar thrown in for no extra charge. Higher education will continue evolving toward a two-tiered faculty, especially at the mass-provider institutions, and schools will devote more of their budgets to non-teaching staff who deliver counseling services, tend those recreation centers, and enforce regulations. The convenience schools already feature such a bifurcation: their faculty know that they are paid to teach, not do research. At the prestige schools, professors will retain the traditional academic values, teach on the side, and aspire to a named chair at Harvard.

Institutional governance will be a shapeless mess involving continual power struggles among four sets of forces: diehard supporters of collegial faculty governance; modern marketers pushing the university to respond to shifting demand and community needs; diverse campus factions seeking greater resources and status for their sectarian interests; and external regulators and funders pressing for greater efficiency and lower costs while imposing costly requirements. These trends, of course, need not continue. The following seven recommendations provide an alternative scenario for the future-not a coherent master plan, just a few ways by which providers could serve students better and create a more rational system.

Institutions should embrace mission differentiation. The prestige campuses and convenience schools know what they are about and are likely to continue in their accustomed mode. But the mass providers, torn between their aspirations toward traditional status and their obligation to respond to shifting markets, desperately need to clarify their mission. This may be a heresy, but it would be best for all concerned if the mass providers agreed that their mission is to impart knowledge, not create it, and that their mandate is to impart it as effectively as possible at the lowest feasible cost.

Schools should set serious academic standards for both entry and exit. Real admissions standards may curb enrollments, but probably only temporarily.

Upon exit, institutions should confer meaningful degrees and certificates, perhaps including a warranty. An employer or parent should be able to trust that a degree signifies bona fide intellectual attainment, and students might be willing to pay more for one that is worth more in the marketplace.

To make these credentials meaningful, each school should adopt a reliable academic assessment system. Many academics fear such measures, preferring to gauge quality by expenditures rather than results, but this attitude boosts costs, and prices cannot continue to go much higher.

Then we should begin to view higher education in terms of paying for results-what students learn and (on certain campuses) how much knowledge the faculty produce. This is how virtually every modern enterprise, public or private (with the possible exception of churches), is coming to view its finances and management. The prestige institutions will probably continue to think of themselves as churches, and the convenience institutions already see themselves as businesses. The mass providers should be schools, organizations accountable for how much and how well their students learn.

After taking that conceptual leap, other changes become conceivable. Institutions could pay attention to actual costs rather than only prices. Administrators could outsource campus services-perhaps even some instruction-to more efficient providers. They could base hiring, promotion, and compensation on teaching effectiveness. They could close down surplus facilities and base their budgets on customer demand rather than producer preference. They might also adopt differential pricing, charging less for, say, liberal arts studies and more for professional and technical subjects. Prices should be based on a program’s cost and market appeal. Schools could also break down the term bills to allow payment only for services that consumers actually use. Rather than require everyone to support that fancy recreation center, for instance, an institution could sell memberships in it, like a health club. And schools could sell discounted blocks of tuition “tickets” to packagers, wholesalers, and families with several children.

Public sector schools should continue the current trend toward full-cost pricing coupled with adequate need- and merit-based aid to students. This trend concurs with the common-sense notion that the primary beneficiaries of higher education are the students and that they should pay for it. If the government wants something-such as better special education teachers, research into nuclear waste disposal, or the mapping of the human genome-it should intervene in the marketplace with a subsidy targeted toward that specific result.

Educators-and states-should nurture new kinds of institutions. We have some variety today, but to encourage innovation and experimentation we should establish the postsecondary equivalent of charter schools. Innovation on existing campuses is hindered by outmoded governance mechanisms and budgetary assumptions that view all new ideas as cost add-ons rather than substitutions. “Charter colleges” should be free of customary restrictions and regulations and invited to innovate in curriculum, technology, budget, and other areas.

Finally, we should foment a revolution in institutional structure and governance, to yield productivity gains like those in industry, health care, and lately even in government. This involves decentralizing authority to the units of production, paring away middle management, and deregulating procedures while beefing up accountability for results. Schools should also consider altogether new forms of institutional structures and governance. Hospitals are merging and consolidating to gain crucial economies of scale, and we should encourage colleges and universities to do likewise. Imagine a high-prestige university, a dozen mass providers, and a couple-dozen convenience schools consolidating to produce organizational efficiencies and better customer service.

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