8:30 a.m. – MORNING KEYNOTE: A Critical Look at the Business Model of Higher Education

Presentation

Richard Staisloff, Founder and Principal of rpkGROUP

Richard Staisloff presented a Critical Look at the Business Model of Higher Education. He dove into the session by posing fundamental questions that must be considered: Why talk about the business model in higher education? He began by defining “Cost” as institutional cost. He notes that it is time to shift from cost-cutting and focus on return on investment- what do I et for what I spend in terms of people, time, what we do with our time, and what is the value. Why are we shifting? We have had two big jobs: 1) Access… in all areas we have gone up. The job is not done, but we have done well here. There are still people who need our help but access has helped. We have the other issue of 2) Attainment: Are we doing the job that we need to do to get them to the finish line based on their educational goals? The world is different and the rules of the game have changed – have we caught up? We must make a shift from a focus on spending to really thinking about investment. Changes in infrastructure and culture- the way we think about what our jobs and roles are.

So why talk about the business model?

Four key concepts:

1. Value proposition: what is the job that we are trying to do? What is the job to be done, how
2. Resources: People, technology, etc. The things that we
3. Processes: Link resources to value proposition
4. Margins for Reinvestment: How do we invest enough to continue to get the job done.

What is the Problem in higher education? We get stuck in the processes and resources. Instead of thinking how we link these to a changing value proposition.

Considering what happens during the budget process. In most cases we are focusing on how do we do next year everything that we did this year? We don’t think about if we are connecting resources to student success. We must redefine the goal- get away from spending and budget balancing and redefine investment in terms of how it supports student success. We should look at what we get for the money we spend and if there is a way to redistribute to support goals.

Staisloff continued by examining how spending relates to completion. Efficiency in producing completion has varied over the last 10 years. Two-year schools are doing well. The re is a decline in the private, 4-year space. We are “buying” fewer completions for the money that we spend. How do we re-frame our business model to get the job done?

If what we want to do is increase efficiency and productivity while maintaining quality, how do we do that? We need a new set of tools to adopt a “return on investment” lens. We need to understand where our economic engines are so that we can make the right decisions about economic allocations.

One step is to consider NET revenue – not GROSS. What is left at the end of the day after we do the job that we set out to do. This is a question of sustainability. Next, we need to take apart our academic and service portfolios. Think about it the same way as a retirement portfolio. We invest in multiple things. An academic portfolio is the same way- each piece should do a different thing. We also need to look at services and how they fit into the equation. This helps support understanding our next best investment. We tend to focus on content and quality- but we should ask what is the next best thing we should do as we focus on student success, allocation, and reallocation.

Staisloff reiterates- we do not want to sacrifice quality or our mission. We do want to ask, What is the number one revenue opportunity that you have at your institution today?Considering the money that we have – do we know how we are using it and what we get for it?

Next, Staisloff shifted to net revenue, sharing a high level model of an institution that identifies every penny spent and earned to determine net. The campus believed that the undergraduate program drives gross revenue and is “where the mission is”. But as they began to drill down into the undergraduate program, they found that it wasn’t what they thought. Despite 80% of facility investment, technology, faculty, etc. placed in the undergraduate area, the return was not as great. They asked could they invest more appropriately around other programs and change thinking about the undergraduate program. More specifically, with declining enrollment, more faculty, programs, courses, and sections, they were diluting themselves. They completely changed their dialogue and focus when they understood where the economic engines were and made changes. Ultimately, they actually improved quality while focusing on students.

A scorecard-based approach to an academic portfolio review connects the dots between demand, yield, outcomes, and net revenue. Things that people may want may lose money, despite the perception that a lot of people want that particular program. The point isn’t that we need to pay attention to profit, but rather we need to know where net is. There will be some things that won’t cover their own costs- and that is OK. We just need to know what we are subsidizing. Myths drive perceptions. If we are operating from the myths and not looking at the data, we may not make the right decisions.

Cost “Pers”- we need to get down to the level of unit costs (cost “pers”):

• Costs per completion (what does it take to get students to the finish line?)
• Cost of student credit hours completed
• Net revenue impact for every 1% change in retention
• Cost to achieve gateway course completion

The best way to reduce cost is not to cut cost, but to increase completion. You can spend more depending on what you produce for that.

Next, Staisloff shared thoughts related to Business Pro Formas, asking What’s in it for me?

Pro Forma analysis benefits stakeholders:

• Sets expectations for analysis
• Creates milestones throughout the process (go/no go)
• Resource are identified up front to support the initiative
• Creates accountability

He asserts that you always have money; it is just a matter of what choices you are willing to make. Mission, market, margin- preservation/enhancement of quality can be achieved with new tools. Before you start the conversation, however, you must have a shared vision about what the institution will look like in 10 years. Staisloff concluded with an examination of the key question, “How can we jump from one curve to the next?” Part of the breakdown is that when we get into design thinking, we “pretend” that we can just change it up. We don’t understand our current model, so we cannot figure out where we need to go next.

9:45 a.m. – PRESIDENTIAL PANEL: The Presidential View of Cost, Price, and Value

Catharine Bond Hill, President, Vassar College

Barry Glassner, President, Lewis & Clark College

Hill began by referencing the keynote from last night (blog), emphasizing that there really shouldn’t be any question whether college is worth it or not. She noted that while it is not “just about earnings”, it would be a mistake not to talk about it. She pointed to job security, health, benefits to society, and the relationship between education and social/economic mobility.

Higher education should continue to make the case about earnings- most families do care about this, especially as we diversify the student body that come to institutions. The only people who don’t care about money are the ones who already have it!

She notes the “education bubble” and “college is not for everyone” comments typically come from folks who are not talking about their own children. The accountability issue is a challenge. What drives it is maybe not uncertainty about the value of higher education, but concerns about access. In the past, people didn’t care about this because it didn’t matter as much. Today, the stakes are much higher. The higher education degree has a much higher impact on the standard of living.

US College attainment rates have stalled. Recessions tend to push rates up. Other countries have passed us by. Whereas we were ranked number one in the world, we are now between #11 and #14. Other countries are responding to a need for skilled labor and in the US we are not responding as well.

Related to attainment is who gets to go to college. Who goes depends on race and income, not just merit. Rates also differ based on gender, income, etc. If we want to increase educational attainment, we need to get it up for the groups for whom attainment is low. Students of color, low-income, and men need to be targeted.

Turning the attention to cost, Hill warns, we must distinguish cost, price, and net price. It is amazing how “cost” is used generically for all of these things, which confuses the discussion.

Cost– what it takes to teach a student (faculty salaries, lights, paper clips… not financial aid.).

Price- Price is the sticker price. This often goes with cost but doesn’t have to do so.

Net Price– What we ask financial aid students to pay.

The conclusion is that cost, price, and net price are up. Society has decided to shift the responsibility of higher education to families, which is not good from an access perspective.

Solutions: Other societies are dedicating more resources to higher education. It is not looking like that will happen through the public sector in the United States any time soon. Thus, families will take on the costs. Hill notes that because the returns are private, it is fine that families bear the cost, but we do need to make sure that low-income families have access. We do allocate quite a bit of public resources, but we need to make sure that they are appropriately allocated and it would be very wonderful if there were some kind of technology fix. MOOCs got us off on the wrong foot- we all thought this would be the solution. That said, some answers might lie in new technologies that help educate greater numbers while controlling costs.

Barry Glassner followed Hill, emphasizing a need to focus on macrosociological forces at work. 70% of students at selected privates come from the wealthiest 20% of families. Glassner continued by identifying effects of income and equality, and their increases, have strong effects on health outcomes, civic participation rates, throughout the society (not just those who participate).

Glassner discussed income and equality as they relate to financial aid. He describes his institution, endowment covers 8% of financial aid (endowment per student is very small. Even if the endowment were to double or triple, they would still be highly tuition dependent. The effects of income and equality are felt very strongly.

The small percentage of families that can afford the full sticker price are being courted by everyone else. Wealthy schools have advantages, as they have larger and higher paid admissions staff, better amenities (fancier dorms, better food, climbing walls!), and haggling! The most disturbing form is increasing pseudo merit scholarship to students from wealthy families in anticipation from calls from families looking to save- pitting deals from schools against each other.

One option, as noted by Hill, is to cut back on financial aid for lower income families. At Lewis & Clark, they have not yet done that. Other strategies include gapping (we don’t meet the full need), increasing the number of high-income and upper middle class students (increasing these allow schools to not cut financial aid for low-income students, but these are the students involved in haggling). Gapping means 2^nd and 3^rd jobs for families or the students themselves- which means delayed degree attainment.

There are silver linings. The challenges provoke possibilities. Lewis & Clark has expanded their horizons by assigning a full-time admissions officer to the east coast, with an excellent result, including both diversity and net revenue. It has also resulted in revenue positive Masters and summer programs.

10:30 a.m. – MORNING SESSION: The Evolution of Student Aid, Where it Has Been, and Where it is Heading: Implications for Students and Families

Presentation

Georgette DeVeres, Associate Vice President and Dean of Admission and Financial Aid, Claremont McKenna College

Shirley Ort, Associate Provost and Director of the Office of Scholarships and Student Aid, University of North Carolina at Chapel Hill

Youlonda Copeland-Morgan, Associate Vice Chancellor for Enrollment Management, UCLA

Georgette DeVeres began the panel discussion with a look at the evolution and history of federal and public aid policy. Over time, the federal and state partnership has resulted as the state having a diminished role. Public institutions are forced to rely more on tuition revenue and receive less from state subsidy.

Another element worthy of examination is the creation of Needs Analysis. What is the method for identifying a family’s need to pay?

The federal government, Keppel Task Force, examined a uniform methodology, then congressional methodology, and now federal methodology.

Rethinking student aid, DeVeres continued, includes examining what federal student aid should do:

• Help those who are unlikely to meet the educational goals without help
• Provide federal grant aid adequate for a four-year degree objective for all qualified students
• It should be transparent and simple
• Communication should be early and straightforward
• Make use of IRS data

DeVeres continued with an examination of the past, revisiting past principles (please see presentation slide deck).

Next, Shirley Ort continued the presentation with a look at “The Future, in Retrospect”. She described the Higher Education Act of 1965, as Masterpiece in American Higher Education. Ort detailed the personal benefits she enjoyed, and how it led to her pursuit of further education. She said borrowing $100,000 to fund her education was a privilege, as it opened up opportunity to her. She said that to her, the support meant that she was worthy. Someone thought she was worth the investment.

Ort shifted her focus to the changing landscape. The drivers of change including demographics shifts, growth in the non-traditional student population, pressures to contain college costs, questions about the sustainability of current models, rapid advances in technology and data/information exchange, and openness to new ideas, new modes of instruction. The problem we face, however, is a largely static student aid delivery system juxtaposed against dynamic changes within higher education.

As Ort shifted the conversation toward a look forward, but paused to share a thought about predictions from an article she read recently:

“Predictions are some people’s future hopes and other people’s present fears”

Looking forward, Ort predicts that Aid Delivery may become more direct between the Department of Education and the student. College cost, branding, accreditation are other notable areas of focus as we look ahead.

Youlonda Copeland-Morgan next presented, “A New Roadmap: Same Values, New Directions. She underscored the importance of maintaining a focus on values. It is critical, as without it we run the risk of ending up in a place that we do not want to be. One of the challenges with a new roadmap is considering what we keep and what we change.

Copeland-Morgan described her fear that the good that we are doing is not going to be enough to move the needle. The way forward is to make drastic changes- and perhaps be “unreasonable”. When external forces challenge us and force us to do things, change occurs more rapidly, even when we don’t like it. Why? Because it is required. Are we, however, strong enough to make that change today, without that external force?

Copeland-Morgan outlined many current programs and future challenges (see slide deck), asking how do we move forward among these challenges? Copeland-Morgan suggests:

We need an exit strategy; we must be willing to take ACTION:

• Acknowledge that we have a problem
• Consider the viewpoints of thet
• Trust in the principles and underpinnings of the aid system
• Identify new ways of achieving old values
• Own the solutions
• Never give up!

1:15 p.m. – MASTER CLASS I: The Current Landscape of Financial Aid and How Families Pay for College

Sandy Baum, Senior Fellow at the Urban Institute, Professor Emerita of Economics at Skidmore College

Presentation

Baum framed her session with a key consideration: When we talk about affordability, we need to ask, affordable for whom? And we need to focus on resource before, during, and after college. We also need to ask what we mean by how do people pay for college? Are we talking about tuition and fees, books and supplies, living expensive, foregone wages? Which postsecondary options? What expenses would you only have to pay if you went to college? Food, for example, is not a real cost of going to college. Living expenses is a “stand in” for forgone earnings, you can’t count both or you are double counting.

The public dialogue wants the question to be simple, but it is not. A lot of what they pay with is future earnings, while others pay through their parents. We should be focusing on the STUDENT. How can the STUDENT afford to go to college?

The key question is will the long-term standard of living be higher after paying for college?

We must get people think differently about what they are “buying” – this is not just a consumer good.

How are people paying for college and what are they paying for?

The College Board Trends in College Pricing publication (http://trends.collegeboard.org/college-pricing) shows current tuition, room and board, etc., for various types of colleges. There is such huge variation, which makes the whole conversation much harder. When we have a national conversation about paying for college, we don’t take into account the variation between states. Dramatic differences exist between states.

How do people pay for college? You have to start by asking:

• Where did they enroll?
• Where do they live?

There is also an entirely different story when looking at community colleges as compared to private four-year schools. Thus, how do they pay for college becomes a very different question.

Another issue related to how we pay for it relates to state appropriations on a per-student basis. One way to pay for college is to pay taxes. That is one way to pay for your own college and that of others. As a society, we are paying less as taxpayers per student and we are paying less of the resources that we have. Could we afford to pay more? If we pay higher taxes, we would put more students through college (who will then pay higher taxes)?.

Baum also asked the asked for a consideration of net budget before, during, and after college. What were the resources before, during and after college?

Next, Baum examined the average published and net prices for various institution types (see slide deck). For community college students from families making less than $30,000, 85% pay ZERO net tuition and fees. Another 5% pays less than $1,000. 16% came from the top income quartile ($106,000).

Driving back to the question of what students have to pay for, we need to be able to ask questions to answer this better. The national average per student doesn’t take into account differences between states. Where you live makes a big difference in how you pay.

Baum also dispelled the idea that “loans have replaced grants”. Grant aid continues, but we are chasing a higher price. Institutional grants are more and more important, but, again, it depends on where you go. In public doctoral institutions, for example, 35% received grant aid in 2002-2003, in 2012-2013 it was 51%.

When examining how people pay for college, we must consider personal resources. Tuition has risen, but family incomes are stagnant. The personal savings rate has dropped significantly. The post-college earnings trend is bleak. We are making a big push for people get degrees, but we must be mindful of which degrees pay off. If earnings is the goal, we need to be more specific, rather than just saying go to college.

2:45 p.m. – MASTER CLASS II – Understanding Federal and State Government Funding of Postsecondary Institutions

Nicholas Hillman, Assistant Professor, University of Wisconsin-Madison

Ozan Jaquette, Assistant Professor of Higher Education, University of Arizona

Presentation: Hillman

Presentation: Jaquette

Hillman began with a look at “Understanding federal and state government funding of postsecondary institutions”. He examined the shared responsibility between students, government, and philanthropy (see slides). States are big funders of public higher education, the federal government is a big contributor, students contribute, and endowments are contributors. It is a $300+ billion enterprise, or 2% of US GDP for 19 millions students (Fall 2015). Net tuition alone out of the $300,000 billion is 120 billion.

Hillman asks, do we have a cost, subsidy or price problem? Costs rise very slowly- maybe 1% over inflation. The costs of delivering education are not going up, but students’ share of the costs is rising quickly. When will students cover the majority of the expenditures?

State appropriations per students are dropping. As appropriations drop, student costs rise. What are the consequences of rising prices? More student loan debt, longer time to degree, pressure on the aid program, alternative revenue generation are among the consequences.

Hillman turned to Performance Based Funding. Currently 32 states use it, although there is some disagreement about who is really doing it. There has been renewed interested since 2009. Today, 52% of community colleges operate in a state that operates through these mechanisms. Performance Based Funding provides incentives to encourage colleges to increase completion. We see versions of performance based funding (PBF) proposed or implemented at the federal level: American’s collge promise, College rating system, gainful employment, cohort default rate, risk taking and the Pell grant. Next, Hillman walked through exemplars (see slide deck) and his conclusions.

Next Ozan Jaquette began a presentation of research related to public institutions’ looking for out-of-state students. He shared his own experience going to Oxford and being surrounded by Americans, and his related disappointment. He was at Oxford during a time when the university tried to cover a budget gap. International/American students were recruited because more money could be collected from them. This aligned with, and triggered Jaquette’s research interest in, what was happening within states.

His hypothesis was that as state appropriations go down, the non-resident student population goes up. They found that a 10% decline in state appropriations is associated with 2.7% increase in nonresident freshman (all public universities), research universities had a 5% increase, and Master’s universities show a 2.1% increase.

Another study examined “Tuition Rich, Mission Poor”. Nonresident students generate more revenue. They score higher on standardized test scores but not necessarily higher GPAs, and tend to be white or Asian.

The results of their studies can be seen in the slide decks.

One on-going research question is does the nonresident student “crowd out” the residents?

We don’t really know much about where public universities are recruiting when we see a dramatic increase in nonresident students. This is an area of future research for Jaquette. If we understand where universities are actually recruiting, that is a big statement about what students they value. Jaquette continued to elaborate on future research interests that we can expect to see in the next few years

7:00 p.m. – EVENING KEYNOTE: The Politics of Student Aid and College Costs

Barmak Nassirian, Director of Federal Relations and Policy Analysis, American Association of State Colleges and Universities

Nassirian congratulated Jerry for the extraordinary and substantive conference and then moved into what he described as broad and contextual concepts related to politics. He noted that we are involved in an agenda creating process that gets quickly hijacked by competing priorities and conceptual mistakes. It is important to understand both side- all have attempted to reach positive goals. In the old days we had a trust in polity where the public trusted institutions- and some institutions (military, police, for example) still hold this support. Virtually all of the institutions that you identify as trustworthy (churches, colleges, university) are below and congress is below them all.

There is an erosion of public trust. You end up with “amateur” hour, where politicians end up in things that they shouldn’t be engaged in at that level. The advocacy for higher education represents a more structural failure that we cannot speak with one voice and we don’t have a single response. We simply do not have a good narrative. It appears that we don’t know the answer. He asks, is college worth it? And answers his own question, “Of course it is worth it!”

Curriculum, instruction and assessment- higher education has been merciless in terms of trying to squeeze the faculty and show discipline on the cost front. There are factors that are beyond our reach. Archibald and Feldman‘s work on college cost, he notes, makes a number of important points, including  the impact of the macro economy. If good jobs are disappearing, the best education or credentialing system would not be able to sustain itself without subsidies. We don’t have a cost escalation problem as much as a cost-shifting problem as the state investment is shifting. The cost of education has become a private responsibility. For those who are able to get a good education, it pans out. But we just don’t know who they are.

Another significant issue is that the temporality of issues. Higher education is like an annuity. You incur the cost of education and it is supposed to pay off over the decades. There are some real theoretical issues with regard to how we forecast out need and squeeze more efficiency, but the problem that we run into politically is the tendency to seek easy, Utopian solutions. Several years ago, the internet- distance education- was supposed to solve everything. Of course, we managed to get distance education and we learned that it requires enormous infrastructure costs and it only works on scale. And it is not the same – there are expensive pedagogical changes. MOOCs were there for a nanosecond. The idea that everyone will have a Harvard professor for free did not pan out. The odds are the people that we need to educate, students from varied backgrounds, etc., are not going to be the beneficiaries of these new approaches- easy solutions.

The sky isn’t falling, Nassirian notes, but when you see income stagnation for 4 decades, the notion of student debt, putting the debt onto the student, and betting on student earnings, means you must assume that the student will have a different wage trajectory than their parents.

Next Nassirian turned his attention to Washington, nothing that we are lucky to have Senator Alexander. He is thoughtful well-intentioned, serious, and of good worth. He managed to get NCLB reauthorized, which is phenomenal, stunning!  But, he jokes, “that don’t mean nothing” to HEA because there are some things that work with NCLB that don’t work with HEA. NCLB became a political hot potato for both parties for different reasons. Teachers and teacher unions and parents hated it because “the pig don’t get any fatter the more you weigh it”. But, NCLB did not involve an enormous sum of money- it was ideology.

HEA has difficult problems that we don’t have answers to. He reflects his boss telling him that there are 3 ways to lobby:

1-Show up with money

2- Show up with vote

3- Show up with just enough technical knowledge that they need you in the room to accomplish whatever it is they want to do.

The third strategy has typically been higher education’s role. We have a lot of tactical knowledge, but we are not good at strategizing. We don’t have an affirmative solution- even if they gave us the power. What is it that we want from college? Higher education basically seems to be saying the system is extraordinarily expensive and we are choking under micromanagement- but please don’t change anything. There is a belief that change can only mean bad things.

Nassirian concludes with a discussion on the financial aid system, using his cell phone as a metaphor. He points out that a cell phone is easy to use, but it is a complex device. My message, he said, is that to simplify student aid, we need to complicate the back office. It can be complex, but must be easy to use.