Higher Education at the Crossroads

Over the last decade, the affordability of a university education has become a more pressing problem that ever before. Net Tuition has climbed 12 percent, while median household income has declined 6 percent. Student debt has increased to $1.2 trillion, a number higher than all credit card debt combined. Certainly this is not a sustainable pattern for the vast majority of schools—specifically schools without huge endowments.

How did we get here? At the conclusion of World War II and the Korean War, millions of soldiers returned home. Remember, the Great Depression was still fresh in the minds of the public and private sectors. Stock values would not return to 1929 highs until 1952. The war effort had created millions of temporary jobs, but now the war was over, and there was deep concern that if the returning soldiers were set loose to look for jobs, we would return to high unemployment and chances of a shock to the economy leading to another depression or severe recession.

To combat this possibility, Congress passed a bill that made perfect sense under the circumstances. Send the soldiers to college to learn skills and then gradually return to the job market. This was the GI Bill of 1944. The great colleges and universities were in place and there were plenty of seats at most.

The GI Bill was a law that provided a range of benefits for returning veterans. Benefits included cash payments of tuition and living expenses to attend university, high school or vocational schools, as well as one year of unemployment compensation for those who had served during the war years for at least 120 days and had not been dishonorably discharged; combat was not required.

By 1956, roughly 2.2 million veterans had used the GI Bill education benefits in order to attend colleges or universities, and an additional 5.6 million used these benefits for some kind of training program. In the mid ’60s and early ’70s, colleges and universities dug very deep into their own pockets to provide grants and other forms of student financial aid in partnership with the new federal programs.

The GI Bill was a major success and the huge increase in the workforce was instrumental in speeding up economic growth, which remained historically high through the end of the 20th century. The only question was how fast colleges could expand facilities and how fast we could create colleges.

The Higher Education Act of 1965 was established to govern federal student aid including all federal student loans and grants. It has since been reauthorized multiple times by different administrations, but it was the 1992 reauthorization of the Higher Education Act that set into motion the influx of students and created the modern day mess of admissibility and affordability.

The GI Bill was a major success and the huge increase in the workforce was instrumental in speeding up economic growth, which remained historically high through the end of the 20th century. The only question was how fast colleges could expand facilities and how fast we could create colleges.

The act changed the formula for Expected Family Contribution (EFC), thus increasing federal grants and made federal loans much easier to obtain, including, for the first time, the unsubsidized federal loan. So the 1990s represented a period of strong economic growth, reasonable federal balance sheets, and the federal and state governments could subsidize the universities through student grants and student loans.

So What Went Wrong? 

As university endowment funds grew and university expenses to operate and provide solid educations were well under control, universities began to compete aggressively for students. Elite universities like Harvard, Stanford, and others on the top of the various questionable rating systems had no problem admitting students without factoring in need, as their multibillion-dollar endowments provided generous grants for the middle-class and poor. Getting into any Ivy League school or other elite private colleges with a huge endowment and having a family income of less than $60,000 meant you could pretty much expect a free ride.

Then there’s the rest of American higher education: the 95 percent of schools that have small endowments and thus are almost completely dependent on tuition. This included many of the state universities.

To compete, more administrators and top research professors were hired with lucrative salaries. Many of the schools began to expand and modernize campuses. Upgraded athletic facilities were built to lure the best athletes and become elite athletic programs. This would be one way to lure students.

The “lazy river” syndrome took hold at many schools. This refers to other campus additions including new research facilities, new or modernized classrooms, and “lazy rivers” running across campuses. “Lazy rivers” became a synonym for schools that were spending heavily to beautify campuses and create amenities.

Schools began to raise their sticker prices which meant that the Net Price—after-tuition discounts—also had to be increased. Inflation in college prices has just about doubled the economic rate of inflation in these years.

Universities then began to chase rankings, the most well-known being the U.S. News and World Report rankings. The rankings have become a self-perpetuating system. Schools at the top would leverage aid to “recruit” the best class money could buy and also marketed heavily for applicants.

More applications meant more rejections and low acceptance rates. This would actually improve a schools ranking. The higher the ranking, the more expensive the school. These rankings, however, have always been seriously flawed. First, they rely on information provided by the school that is not always accurate. Then, it was college presidents who voted on the rankings, most of them not at all familiar with schools they were voting on.

Government cutbacks also contributed to the problem, and contracting state support has played a critical role. This has especially been the case today, with post-recession budget austerity and major state budget cuts. States continue to give schools significantly fewer dollars per student than they were 15 years ago.

So between discretionary spending to attract students and lack of state support, many schools began having financial difficulties. And someone has had to make up the difference, namely, college kids. As long as obtaining student loans was easy and universities continued to chase rankings by leveraging aid and beefing up campus amenities, published prices continued to rise along with tuition discounts.

The Invasion of the Enrollment Managers 

Enrollment management is an organizational concept and a systematic set of activities designed to enable educational institutions to exert more influence over their student enrollments. In reality, it is more sinister than that, but a necessary evil for colleges to stay above water financially.

Colleges have become businesses for the most part. They engage in huge marketing efforts and have brought in these outside Enrollment Managers to do the heavy lifting when it comes to which students are admitted and which are not. Enrollment Managers have the task of knowing what the “average net price” needed from an incoming class is in order to maintain their financial strength while providing the best education and student amenities possible.

The aim is to have the strongest incoming class possible without sacrificing average net price. This meant that if there was an unusually high amount of aid distributed in a certain year, then the school must look to full-pay students, out-of-state students, and other high-pay students.

Colleges will even offer “merit aid” to the wealthiest families as an inducement to attend. This certainly was not the intention of merit aid. It is not uncommon today to see out-of-state students getting preference to an equally competent in-state student. We see students from high net-wealth families getting accepted over better qualified, but not top students who will need financial aid.

So How Can We Fix It? 

We would all love scholarships for our kids, but that does not happen to most. This weak economy of ours is forcing institutions to limit their generosity in scholarships and financial aid, so the average student takes on way more debt than the generation before. It is already out of hand, and it seems unsustainable.

College costs are at an all-time high, yet access to knowledge is cheaper than at any other point in human history. Online learning and competency-based options that favor knowledge and skill acquisition over seat time are laying the groundwork to significantly lower college costs and increase access for students.

In order to harness the potential of new learning modes, free higher education must change the current degree system and look to certifications or other designations that indicates a student has the necessary aptitude and skills for a particular discipline.

Community colleges should continue to see growth, as well as on-line courses taught by established college professors and concentrating on specific skills and disciplines. Private enterprise must also provide skill training via the Internet, and schools must react quicker to teaching 21st century needed skills, which tend to change and grow quickly.

MIT and Harvard were the first schools to begin to offer MOOCS, (massive on-line open courses) at no cost. Looking further out, new ways to identify aptitude, strengths, and weaknesses of a particular student and be able to place them in the appropriate courses will prevail.

Critics of MOOCS point to the lack of social interaction as a major weakness. This, however, is not necessarily true. Internet classrooms involve plenty of interaction among students, discussion and collaboration. Liberal arts and college life will not die out, but we should see more concentration on the teaching of specific skills, making the graduate more prepared to enter the workplace soon after graduation. In essence it is the unbundling of the “bundled university” that should reduce the college expense while simultaneously creating highly skilled graduates

Advice for Applicants in Today’s Environment 

As long as colleges use enrollment management techniques, full-pay families and out-of-state families with borderline applicants should not be hesitant in applying to “reach” schools: the present system is skewed in your favor. But middle-class students have to rack up huge debts to attend college, especially if they want a post-graduate degree, which many desirable jobs now require.

The link between parental income and a child’s academic success has grown stronger. This is not at all what Thomas Jefferson envisioned. Jefferson drew a distinction between a natural aristocracy of the virtuous and talented—which was a blessing to a nation—and an artificial aristocracy founded on wealth and birth—which would slowly strangle it.

The good news is that these are current trends and the real future is unknowable. Education matters more than it used to, because the demand for highly-skilled brainpower has soared. The potential rewards are greater than they have ever been for the college graduate who is trained and ready to take on the monumental problems we face today.

In the future, it is anticipated that a greater proportion of these graduates will come from lower income families who, up to now, have had a tendency to not even apply to elite private colleges because of the misconception that they cannot afford it. But it is these elite privates that give the most aid, often 100 percent.