Who will save 
higher education?
 How schools benefit while students drown in debt

In 1980, tuition, fees, and room and board averaged $2,550 a year at public four-year universities and $5,594 at private universities. Last year? Public school costs ballooned to $17,860 a year, and rose to $39,518 at private universities, a 600 percent bump.


Over that same period, inflation clicked up only 180 percent and the average household income in the United States rose 220 percent, meaning that the sticker price of a college education blew up nearly three times as fast as the amount of money families bring in annually. 

How did college get so expensive?


Is it due to a decline in public funding for universities? Or should we blame the big business of college football which, despite billions of dollars from TV networks, still relies on student and public funds to stay afloat? Is the government responsible for a predatory student loan program that subsidizes higher education’s excess, leaving students to foot the bill? How did we dig ourselves in a $1 trillion student loan hole? And are there any viable alternatives?


In this Explainer Music/PandoDaily explainer we seek to find out. What you learn may surprise you. 


THE AGE OF 

FREE COLLEGE

Believe it or not, there was a time when many institutions of higher learning were free, the first being Baruch College in 1847. Even California’s university system, today one of the most eager tuition raisers in the country, abolished tuition three months after it was founded in 1868.


So what changed? A major nail in the coffin of free tuition came in the 1960s when the tax-averse California governor Ronald Reagan increased student registration fees for the state’s university system, though tuition, as it were, was still free. The 60s brought on a massive increase in college students, as enrollment grew from 45.1% of high school graduates in 1960 to 53.3% in 1969, bolstered by larger numbers of women and non-whites attending college, as well as those who enrolled to avoid the Vietnam Draft.


But many publicly-funded universities lacked resources to serve all these students. The City University of New York made a go of it in the 1970s, keeping tuition free while opening up enrollment to all applicants, regardless of race or economic status, so long as the student had a high school diploma. By 1976, however, with New York City on the verge of bankruptcy, the school’s Board of Trustees voted to end free tuition. As GOOD’s Anya Kamenetz puts it, “It seemed that citizens could support free education, or open education, but not both.”


As a result colleges were forced to start charging tuition, although that doesn’t explain why they have gotten so expensive so fast. 


TUITION 

EXPLODES 

Some cost hikes are understandable. There’s inflation, but we’ve already noted that tuition costs have grown three times as fast as inflation. What about public funding? Over the past five years, public funding for universities has sharply declined. According to the State Higher Education Executive Officers Association, 48 states have cut appropriations for higher education since 2007, and 15 of those states made cuts of 30 percent or more.


You could blame the recession, but this trend has been going on for decades. In 1980, over 75 percent of the per-student cost of an education was covered by public funding. In 2011, only 57 percent was, with students assuming the rest of the burden.


Universities also have more expenses than ever before. Part of the problem is that enrollment continues to rise. The National Center for Education Statistics estimates that a record 21.8 million students will go to college this Fall, compared to 5.3 million in 1980. The number of degree-granting institutions has also gone up, although not fast enough to keep up with enrollment. In 1980 there were 3,056 degree-granting institutions and by 2010 there were 4,495.


Understandably, with more students, colleges face more expenses. But it’s debatable that the extra cash universities spend works in students’ best interests. 


ARE YOU READY 

FOR SOME FOOTBALL? 


Instinctively, everyone knows that colleges spend a lot of money on athletics. A recent study from the American Institutes for Research (AIR) gets at just how out-of-whack spending on athletics and academics really is. The study found that in 2010, the 120 principal football schools (known as the Football Bowl Subdivision or FBS colleges) spent $92,000 per athlete and only $14,000 per non-athlete. As for the other 220 Division I colleges (the “lesser” football schools), athletic spending still outpaced academic spending with around $38,000 going to each athlete and only $11,800 going to each student.


But sports are a huge source of revenue for colleges, bringing in lucrative TV deals and sponsorships, right?


Not always. The AIR study tracked revenue data for 97 of the top 120 FBS colleges and found that three out of four generated less money than they spent for six straight years, from 2005 to 2010. In 2011, the Wall Street Journal found that only 19 percent of all FBS football programs turned a profit. That forces universities to dip into student fees or general funds to make up the difference. For the big-time programs of the FBS, your Penn States and Alabamas etc., 17.7 percent of their athletic budgets are covered by student fees and public/institutional funds, which theoretically should go toward furthering students’ education. The situation is much worse for the other 220 Division I teams, which don’t attract as many eyeballs on Saturday afternoons. At these schools, more than 70 percent of the athletic budget is paid for by students, the general collegiate fund, and the state. Meanwhile, the number of colleges with football programs has increased since 1980 from 497 to 629.


To ease the burden (while lining their own pockets, naturally), television networks will inject $25.5 billion into college athletics over the next 15 years.


Will any of that money benefit academics? 


Possibly. First off, it’s worth noting that athletic departments are becoming more expensive to maintain. The Wall Street Journal estimates that the costs of running a Division I athletics program will increase by $12 billion over the next 10 years. Part of the reason is that head college football coaches are making more money than ever (in fact, the top-paid state employee in nearly every US state is a head football or basketball coach).


Even if you offset rising costs that’s still more than $13 billion that will be injected into Division I athletics. And, indeed, some schools feed a portion of that money back into academics. Louisiana State University

recently agreed to funnel $7.2 million dollars a year in sports revenue to academics.  But LSU is one of those rare golden geese, a storied and beloved program that raked in more than $50 million in ticket sales and donations alone last year plus $6.9 million in media rights.  Compare that to Ohio University, which grabbed less than $4 million in ticket sales and donations and, with no national following, reported no revenue from media rights. How did it pay for athletics? With $18.3 million in student fees. While athletics adds to the college experience, an unprofitable program led by a coach making $430,000 a year will likely take more than it will give from the academic side of the institution. 


ACADEMIC EXCESS 


We can’t blame all of the university system’s woes on a lack of public funding and too much spending on sports. After all, tuition at private universities without big athletic departments has shot up too.


So who’s the culprit? One major cause is a huge increase in administrative roles. Since 1980, the number of administrative positions at colleges has doubled, and between 2001 and 2011, administrative positions increased 50 percent faster than teaching positions, according to the Department of Education. And now some schools have just as many administrators as they do teachers. According to the Delta Cost project, between 1998 and 2008, private US colleges increased spending on instruction by 22 percent while increasing spending on administration and staff support by 36 percent.


Witness the explosion of administrative roles at the University of Minnesota: The school now has 1 employee for every 3.5 students, which would be great if they were all instructors. But over the past ten years, the number of administrators grew twice as fast as the number of students, with obscure titles like “Assistant Dean of Students for Substance Education” and “Classification Consultant.”


So what do these administrators do? Benjamin Ginsberg, a political science professor at John Hopkins University, writes:


“Today’s full-time professional administrators tend to view management as an end in and of itself. Most have no faculty experience, and even those who have spent time in a classroom or laboratory often hope to make administration their life’s work and have no plan to return to teaching. For many of these career managers, promoting teaching and research is less important than expanding their own administrative domains. Under their supervision, the means have become the end.” 


"BUYING YOUR WAY" 

TO PRESTIGE 


Former NYU president L. Jay Oliva once said, “There's no way to get excellence, other than buying your way into it.” And that’s exactly what president John Sexton has done over the past eight years, spending billions on expansion into Greenwich Village and into neighborhoods in other boroughs, and launching satellite campuses in Abu Dhabi and Shanghai. The $2.5 billion in donations and interest making up NYU’s endowment is a fraction of the cash held by Ivy League universities like Yale ($20 billion) and Harvard ($32 billion), so the university dips into tuition fees to pay the bill. While Sexton, who announced he will be stepping down in 2016, has overseen major fundraising efforts during his tenure, tuition fees have risen $18,000 since he took over, making NYU students the most debt-saddled graduates in the country.


That said, the higher a university’s prestige, the better its graduates’ resumes will look. And indeed, 90% of the class of 2010 was either employed full-time or in graduate school. 



OTHER WASTE 


This month, in a truly worthy listicle, Mother Jones compiled a list of the worst examples of spending excess at universities. Some of the most egregious include a $1 million loan to New York University president John Sexton to help him buy a summer home, a $200,000 payment made by the City University of New York to General David Petraeus for teaching a single seminar, and, perhaps worst of all, a $2.9 million payment to ex-Penn State president Graham Spanier after he was fired in the wake of the Jerry Sandusky scandal.


Rising athletic costs, the hunt for prestige, and expansion of administrative roles have all contributed to tuition increases. So where’s the extra money coming from? How do students pay for it? As we’ll see in the next section, the government’s student loan program has all but subsidized universities’ ability to grow uninhibitedly. And as much you want to blame athletics or administrators, the real reason colleges have raised tuition so dramatically is because they can.



It’s not difficult to understand: an increase in demand and a decrease in public funding means universities need more cash than ever to operate. Instead of cutting spending, though, universities spend more than ever on athletics, salaries, renovations, and perks. The bearer of this dual burden has fallen on students who must pay higher tuition fees. And how do students pay for this? Federally-subsidized student loans. $1 trillion dollars worth, to be exact

Yet, the value of a Bachelor’s college degree continues to drop, although college graduates are still expected to earn almost twice as much than those who only complete high school. With the risk of defaulting on these loans so high, however, what’s the incentive for the government to continue to offer them with such zeal?


Because it can make money off defaulted student loans. A study by John Hechinger shows that the federal government collects on average 100 percent of the loan principal, plus an additional 20 percent in fees and payments when the loan defaults. The government says that’s high, stating that after the labor and contracting involved in collecting these fees and payments, the rate of return is more like 80 percent of the principal. But others argue that the government does indeed net a profit off the student loan program.


Senator Elizabeth Warren estimated that the government will make $51 billion in profits off student loans this year.  "That's more than wrong, Warren said at the Make Progress National Summit last July. “It's obscene." The Department of Education projects it will collect almost $185 billion over the next ten years on its student loan program. While deficit hawks may take comfort in the influx of cash, it comes at the expense of middle- and lower-class individuals, some of whom have been driven to suicide attempts because of their dire debt situation. 


FOR-PROFIT COLLEGES 


Along with the rising costs of traditional public and private institutions, the last ten years has brought about the rise of “for-profit colleges” like University of Phoenix and DeVry. They are exactly what they sound like: colleges operated by private, for-profit businesses. But enrollment has gone way up over the past decade even as the value of these degrees, at least when compared to public and non-profit private schools, is seriously in doubt. According to a report from the US Senate, the number of students enrolled in for-profit higher education increased from 766,000 to 2.4 million from 2001 to 2010, which outpaced overall degree-granting education enrollment nearly eightfold.


Any notion that for-profit schools are a bargain must confront some unsettling statistics. The average sticker price of a four-year education from a for-profit college is $63,000, compared to $52,500 for the same degree at a state school. Meanwhile, 96 percent of for-profit students receive student loans and the median debt is $32,700, whereas at public schools only 48 percent take out college loans and have a median debt of $20,000.


The return-on-investment leaves much to be desired. According to the National Bureau of Economic Research, for-profit students are more likely than public or non-profit private students to experience unemployment, and on-average they post lower earnings six years after starting college. The study also notes, “The for-profit sector disproportionately serves older students, women, African-Americans, Hispanics, and those with low incomes.”


And yet for-profit colleges have also reaped the benefits of the federal government’s predatory loan practices. USA Today found that at 117 for-profit institutions, students were more likely to default on loans than to graduate. The government also offers significant amounts of student aid to for-profit students, giving out $7.5 billion in federal Pell Grants during the 2009-10 school year. That’s considerably lower than the $18.4 billion that went to public school students, but it far outweighs the $3.9 billion given to students at non-profit private universities.


How do for-profits get away with it? Maybe because they aggressively lobby the government for favors. In 2011, after a big PR push, the House voted to block a rule that would limit federal student aid to for-profit schools whose graduates had high debt-to-income ratios and could not repay their loans. The following year a federal judge also chose to block key parts of the rule. The Department of Education opted not to appeal the decision and plans to revisit the topic later in the year. But they’ll be facing a group that’s spent $40 billion on lobbying since 2007.


The federal student loan program began in earnest when Lyndon Johnson passed the Higher Education Act of 1965, an attempt to bridge the gap between those who want to go to college and those who could afford it. This was a natural result of state-funded institutions’ inability to support the massive enrollment increase that came in the 1960s. But instead of using this as an opportunity to empower students, universities have taken advantage of the massive influx of student loan money to artificially inflate prices, while the government has worked to maintain the status quo and continue collecting interest. All at the cost of students.


part III: startup saviors
 Can technology save higher education?
"'Fail fast and often' simply won't fly when students' futures hand in the balance" 


Famed VC John Doerr has a radical idea for the future of education: Without leaving their home, students will use tablets as “simulation engines” that will transport them to any classroom around the world. They’ll watch lectures through the tablet’s camera, take notes, and even participate in class discussions. Sure you might miss out on the frat parties and football tailgates, but with no room and board, nor a need for a physical presence, the cost of entry would go way down.


That’s just one of the many many ideas the new technological elite has for saving higher education. It’s no surprise Silicon Valley is attracted to the problem. College is big, expensive, but also very important, and that makes it ripe for, ahem, disruption.


Unlike, say, the music industry, which fell apart organically thanks to the Web, universities have only gotten bigger and more expensive since the dawn of the Internet. It’s true that there’s a wealth of free knowledge online, just like there’s a wealth of free music. But people’s education habits haven’t followed the same track as their media consumption habits. It might be a discipline issue or a cultural issue or maybe the numbers simply weigh in favor of the old ways: after all, as we pointed out earlier – but it bears repeating – college graduates still earn far more than high school graduates. It’s a reason students are trapped in the process.


Here we’ll take a look at a few of the alternatives to traditional higher education, and whether they have a chance of making a difference: 


MOOCs 


MOOC stands for Massive Open Online College. Check out our full explainer here but, in short, they are exactly what they sound like: Open to anyone and conducted online. There are shades of grey here; some place caps on enrollment, others don’t. Some are free while others cost money. Some even offer bonafide university credit. But in general, MOOC has become a stand-in for the new breed of online education startups.


They’re extremely well-funded. Some of the biggest include Coursera, which has raised $16 million in venture capital, Udacity with $22 million in VC funds, and edX which attracted $60 million from Harvard and MIT.


Affordable and open, the MOOC, in theory, is a wonderful idea, which is why they’ve been so hyped over the past few years. But there are significant questions. Completion rates are miniscule. According to one comprehensive analysis, MOOC completion rates are less than 10 percent, and that came from a veritable MOOC enthusiast. Another study from Times Higher Education put the number as low as 7 percent.


One MOOC that inspired high hopes for observers was an online-only collaboration between Sebastian Thrun’s Udacity and San Jose State. The program strained the definition of a MOOC, capping some classes at 1000 students and charging tuition, but it balanced these inconveniences by offering college credit. And the fee, at $150 a class, was a bargain compared to the University’s yearly $7,089 tuition. Here we have affordable, online education that you could apply toward a Bachelor’s Degree.


So why did San Jose State suspend the program only six months after it launched?


According to the San Francisco Chronicle, over half the students failed the final exam, which doesn’t inspire much confidence considering the classes were standard introductory fare like “Introduction to Psychology” and College Algebra.” 


THE PROBLEM WITH 

ONLINE CLASSES 


A new study funded by the National Science Foundation blames email glitches, confusing websites, and participants with limited Internet experience for the failure of the San Jose State-Udacity program.


One student in the study said, “Before the exam [the email] would go to my spam and then the day before the exam they told me I never registered because I did not know about it. I could not take the exam.” Only 39 percent of the students had taken an online class before, and over half the students were unaware that support services were available.


On one hand, this is good news. It means the problem is technological, and not necessarily endemic to the MOOC format. And if there’s one thing the disruptors in Silicon Valley know, it’s how to solve technological hurdles. It’s also worth noting that despite the low pass rate, 83 percent of the students stuck with the program, a massive improvement over the 7 percent MOOC average.


But on the other hand, the findings bring into question whether the MOOC format is ideal for those most in need academic alternatives, like low-income and at-risk students. Disadvantaged and remedial students performed the worst. That said, Thrun is unaware of this and plans to retool the program to fit the non-traditional students he’s looking to serve:


“The traditional-semester pacing of the classes didn’t work well with the lifestyles and time-demands of the students in the program. Work, families, other classes, and high school schedules demand a more innovative approach to pacing and we’re committed to figuring that out with SJSU over the fall.”


As with all innovation, it’s a process. But while “fail fast and often” may be a sound strategy for a startup with a seemingly endless wealth of venture capital, tell that to a student with a full-time job who just dropped $150 on a class and couldn’t take the exam because of an email glitch. 


THE FUTURE OF COLLEGE


As the MOOC revolution progresses, the more the word has morphed to include anything from free lectures on YouTube to traditional collegiate programs conducted primarily online.


One affordable option that has been around for decades is getting its own resurgence in the Internet era: Extension schools. At the Atlantic, Theodore Johnson writes about getting a graduate degree in International Relations from Harvard for the (comparatively) bargain price of $25,000 (a two-year Master’s degree at Harvard proper would run a student $90,000).


Another exciting option comes courtesy of (again) Sebastian Thrun and Udacity. Georgia Tech University now offers an online $6,600 Master’s degree in computer science. (The cost of a traditional graduate degree at the school is $21,000 for in-state students and $45,000 for out-of-state students).


Is this the new economy of college, just as we saw a new economy for music? A song is worth $0.99, and a computer science degree is worth $6,600? That’s great for students but schools, like record labels, have a big incentive to keep costs up. And with the federal student loan program at their back, what’s to stop them?


It’s too early to say with certainty whether an online program filled with thousands of students can reasonably compete with an in-person program of hundreds. The sample size is still too small. And of course some programs, like nursing or medicine, will always require a live component. And finally, there’s the question of how MOOCs will make money delivering quality degrees at low low costs. Udacity’s Georgia Tech partnership stands to make a profit of $240,000 but that’s with the help of a $2 million cash infusion from AT&T.


It's also true that many of these programs target individuals who already have undergraduate degrees and fail to serve 18-year-old high school graduates. For them, the most attractive option is still a degree at a university with ever-expanding costs leading to higher and higher student loan debt. That’s why people like LinkedIn founder Reid Hoffman want to rethink not just instruction, but the very idea of a diploma. Instead of a piece of parchment you either have or don’t have, Hoffman envisions a living document that is a rich and updateable as new skills are acquired. 


WHERE DO WE GO 

FROM HERE? 


Affordable, online programs are great, but they should benefit the students who need them most. And while we’re still at the experimental phase, “fail fast and often” simply won’t fly when students’ futures hang in the balance. On top of that, programs that don’t offer class credit stand little chance of supplanting traditional universities anytime soon, meaning the cooperation of the old education gatekeepers is crucial to these programs’ success.


But will more big colleges like Georgia Tech and San Jose State play ball? Maybe, but for now maintaining the status quo benefits the universities. Meanwhile, the government has shown some initiative in disrupting the too-easy kinship between universities and its student loan program. This Summer, Congress passed a bipartisan bill to prevent student loan rates from doubling, though preventing something absurd from happening isn’t the same as helping.


What’s more promising is Obama’s pitch to implement a college rankings system and tie federal student aid to those rankings. By threatening to restrict student loan money, colleges would theoretically be forced either to be more accountable for their students’ education (no more Master’s Degrees in Social Media?) or else cut costs and tuition. But experts expect universities to launch a big lobbying push against the measures, many of which must pass Congressional approval before implemented. And as we saw with attempts to reform for-profit schools, the college lobbyists have the muscle to block measures that hurt their bottom line.


The difficulty of fixing education lies in this tenuous balance between the government, universities, and upstarts who would look to challenge the status quo. Universities need the government’s student loans and aid, which have essentially become a subsidy for higher education. And as long as people continue to value actual degrees, startups need to partner with universities for accreditation.


SOMETHING HAS TO GIVE.
BUT WHAT?


One radical idea is for the government to nationalize higher education. (I can see the opposition’s talking points now: “ObamaSchool”). The government could create an affordable “public option” for universities that any American can take if they choose. In theory, this would cut down on the number of students who enroll in expensive public or private schools and could lead to lower tuition prices at these institutions. After all, with fewer students taking on enormous amounts of debt to attend pricy colleges, operating costs at these schools would decline. In addition, expensive schools would have a harder time convincing students to join when more affordable options exist.


But the plan could backfire. Would employers take these “public option” universities seriously? Or would the employment gap only increase, with students who shelled out big bucks for paid universities at a greater advantage than ever?


The key to any plan is to cut off the frivolous lending that allows universities to spend their way to athletic or academic prestige, line the pockets of administrators, and charge exorbitant amounts to keep the whole oversized beast afloat. In that sense, Obama’s college rankings plan may be the best option on the table. That is, if it passes Congress and if the rules are enforced appropriately and aggressively, two big “ifs.”


And while we debate, the money continues to flow, from government loans to universities, from venture capital firms to startups. And all the while students are the ones saddled with the bill.

 

GRAPH CREDITS: 


-HUFFINGTON POST


-THE NATIONAL CENTER FOR EDUCATION STATISTICS [1] [2]


-COLLEGE DATA


-THE UNITED STATES CENSUS BUREAU


-PHOTOS FROM WIKIMEDIA