Big Higher Ed: Five is the New Four (& That's Just the Tip of the Iceberg)

The statistics are disappointing - the costs daunting.  


The College Board reports that a mere 41% of college students graduate in four years; only 58% graduate in six. On average, public university students take 5.2 years to complete their degrees. Private school graduates do little better, completing their studies in 4.8 years. Worse still, over 80% of undergraduates change their major, many more than once. Incredibly, 37.2% transfer schools altogether. 


Sunk costs abound. Student-loan default rates have risen to untenable highs. Campuses are closing. And students suffer – academically and financially.


Indeed, glossy brochures, flashy marketing campaigns, amenity-flooded campuses, fanatical fan bases, and vigorous capital campaigns can no longer hide the simple fact that the nation’s higher education industry is, at best, at an inflection point and, at worst, teetering on the brink of a very real crisis. This has very real implications for students searching for an undergraduate home.


It is, of course, no surprise that higher education is Big Business. What is something of a surprise, however, is just how BIG it is. Colleges, universities, intercollegiate athletics departments, alumni associations, affiliated laboratories, research centers, farms, and hospitals, textbook companies, financial institutions, state and federal governments – to say nothing of the industry’s peripheral hangers-on – account for hundreds of billions of dollars in revenue generation, spending, and – here’s the kicker – diminishing student performance. 

In total, in 2014, the nation committed about 2.6% of its GDP to Big Higher Ed. Government spending accounted for .9% while private sources coughed up the remaining 1.7%. These numbers are staggering. Government spending for post-secondary education totaled “only” $156.87 billion; families, financial institutions, corporations, etc. accounted for the remaining $296.3 billion. Written out, the number is difficult, if not mind boggling, to comprehend: $296,310,000,000. Worse still, as taxpayers, American consumers of higher education get hit on both sides of the equation. 


Big Higher Ed, then, mirrors Big Pharma, Big Finance, Big Auto, and other mammoth industries in today’s increasingly more complex and competitive marketplace. Perhaps it is, in contemporary parlance, too big to fail. Except that it isn’t. It is failing. Consider, for example, that beyond woeful student graduation rates and five years becoming the new four, twenty private colleges have closed since 2016 and forty since 2010. The University of Wisconsin system has consolidated from 13 institutions to 7. The University of Georgia system is also in the middle of a comprehensive reconsolidation and reorganization. The state of Alabama, too, has moved to consolidate its community college campuses. Increasingly, small, regional colleges – both two- and four-year, public and private – face existential threats and must resort to drastic measures either to survive as independent institutions or combine in an effort to stabilize or address fiscal realities. 


Just last year, Moody’s predicted that, for the foreseeable future, fifteen private colleges will close each year, an increase from an average of eleven per year between 2002 and 2016.  More troubling, in April 2017, noted Harvard Business School Professor Clayton Christensen confirmed once again his assertion that virtually half of today’s colleges and universities will either be shuttered or bankrupt within the next ten to fifteen years. Who pays the price? 

Increasingly, Big Higher Ed has been pushing the financial burden of this crisis upon consumers. Tuition rates skyrocketed for a decade before slowing their ascent somewhat in the last couple years. Nevertheless, tuition, room and board, fees, and associated costs – often unpublished and unpublicized – continue to rise. Take, for example, the Big Pharma-like explosion in textbook costs. Astoundingly, even with the proliferation of digital media, alternative leasing programs, and other grass-roots and professor-driven initiatives, between 1978-2013, textbook costs rose a whopping 812% - four times faster than inflation. By comparison, over the same time period, medical services rose 575%, new homes by 325%, and the Consumer Price Index by 250%. With dominant corporations like Pearson, McGraw-Hill, Scholastic, and Cengage leading the way, the textbook industry rakes in $7-10 billion a year – a burden borne solely by students. 


And then, of course, there’s tuition, room, board, and fees. Here, the numbers get no less troubling. For his part, Christensen laments that an HBS MBA can cost as much as $400,000. He correctly notes that, even with grants, scholarships and the fact that few students pay full retail, only a very small percentage of the nation can afford such exorbitant costs. Undergraduate costs can be equally alarming – especially for working, middle, and even upper-middle class families. 


Consider the average 4-year “retail” costs for tuition, room, board and fees (excluding books and travel expenses). Data provided in The Condition of Education 2018, published by the National Center for Education Statistics (NCES), offers a stark perspective of the total costs for a four-year undergraduate degree. In-state universities range from $112,000 - $132,000. Out-of-state expenses range from approximately $132,000 - $162,000. Private schools tend to run between $239,000 - $264,000. This equates to paying between $76 and $90 each and every day until an in-state student graduates to between $164 to $181 a day for a private school undergraduate. 


But, of course, this only applies if the student graduates in 4 years – which does not jive with the national average. Considering the average 5.1 year graduation rate, the costs range from $143,374 for a moderate in-state university student to $337,022 for a high-end private school student. In “actual” costs, the ranges are a bit more palatable – but still extensive: In-state: $19,458 - $20,770/year: $105,927 (total); Out-of-State: $34,031 - $35,420/year: $180,642 (total); Private: $43,921 - $46,950/year: $239,445 (total).


Private and out-of-state universities are more expensive but tend to offer more discounts, as well. A recent survey of 174 private colleges published in the Chronicle of Higher Education on 14 November 2018 notes that 19% of private institutions offer a 60% discount off their “retail” rates. The median discount rate is 39%. The average value of aid packages for families at public universities is about $6,490 versus $21,220 at private institutions. In-state schools offer less because, for fiscal reasons alone, they prefer out-of-state students. In fact, many state universities and colleges service in-state students at a loss. 


Big Higher Ed is a business. Students and their families are consumers. As with all such imbalanced relationships, consumers must advocate for themselves, lest they end up suffering the second- and third-order consequences of gross mismanagement (Big Auto and Big Med), hubris (Big Finance), and mind-blowing greed (Big Pharma). If students do not advocate for themselves, conduct deliberate research into the institutions and programs to which they apply, and prepare diligently both inside and outside the classroom for undergraduate success, they run the very real risk of unknowingly succumbing to and perpetuating a system that privileges billions of dollars of research grants, corporate-sponsored laboratories, big money intercollegiate athletics, and campus rock walls and lazy rivers over teaching its students and delivering upon its ostensible contractual obligations.

Five is the new four. But it doesn’t have to be. It’s time for a change. 



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