@exterous
Thank you for taking the time to share all those thoughts. May I ask you a few questions since you appear to be entrenched in the business:
1) Do you think there will be a continued growth of online degrees and if so how do you think it will affect brick and mortar institutions?
2) Schools have been outpacing inflation for decades. Other than some IT equipment the process of educating people has been the same since we had schools. Why was education so much less expensive 15 years ago as compared to now?
3) In your opinion, do you think there is a ceiling in how expensive education will be and how far off are we?
Certainly!
1) I do think there will be continued growth but the effects will vary by degree as online degrees benefit even brick and mortar institutions. Lets take social work as an example. A required component of social work is field work so schools must place applicants in organizations before they can graduate. This imposes a very real geographical and capacity constraint on the school. No matter how good the school there are only so many local placement options to go around. By expanding a brick and mortar only program to include online education you are no longer restricted to what your local geographical area can absorb. The twist of this is that you will need to increase your admin staff as you need more people to coordinate and run placement in disparate locations.
I think we're likely to see hybridized scenarios where long standing institutions offer online options along side their physical environments. There are also people who do far better in a structured physical environment free of the distractions of a room or coffee house when learning. There have been some interesting attempts to address this with renting office space in other cities and tying in remote lectures or providing 'hoteling' space where a student can use a rented cubical or office for a set period of time designed to listen to a recorded class\do classwork. (Basically you walk into one of those 'rent an office for a hour\day\week places - show your ID and get to use a space for a set amount of time.)
I think schools, whether they are high schools, online colleges or I guess we'll call them physical colleges, are still trying to figure out the best way to offer online education
2) This is a tough one to answer as it varies by school but I will try and hit some of the points I think stretch more broadly across institutions:
Benefits: Universities have not cut back on benefits nearly as much as the corporate world. Many still offer pensions and, for the ones that don't, high defined contribution matches like 2:1 (University puts in 10%, employee puts in 5%). Other causes: no high deductible plans, free dental or vision, more PTO, sabbaticals, included long term disability with many of these offered for retirees\emeritus staff. Professors and high level admins often still do work for schools in retirement or have a level of prestige associated with them so taking care of employees after they leave is common.
Building costs: This one can be
huge. College towns are typically heavily developed within close distances to campus (ie walking distance) so land acquisition is expensive. An alternative is to build vertically if there is space available but that is more expensive than the more traditional 3-5 floor buildings that were built on campus for a long time. Densification like this also puts a strain on utility services like sewage and electricity along with drainage, parking and public transit. Retro fitting buildings is a huge expense as well as these 80-150 year old buildings weren't designed with today's electrical, data, HVAC etc in mind. Code compliance is a huge issue too. 100+ year old buildings aren't great examples of ADA compliant structures and carving out the space needed for elevators, ramps, widening hallways etc is expensive. Older construction styles tended towards dispersed column support as opposed to core support (So lots of large columns running through the building for support instead of fewer huge columns clustered in the center) which complicates remodels. Keep in mind these aren't stud and drywall construction but plaster and concrete or stone so this is not a small task. Sometimes the legislature makes this even more complicated. Roughly 11 years ago the state of MI lowered the classification to be a skyscraper by a few feet (10'?). The result was that Universities in MI suddenly found themselves with double digits of buildings that now had an entire new set of codes they were not in compliance with.
Salary\Compensation: For certain groups of professors there is a slow spiraling up of salary or compensation offers as schools try and outbid for talent
Decreased state\local support: In may areas state financial support has dropped by quite a bit. Very YMMV though
Fear: Universities have gone through some financial shocks in recent memory. Depending on how quickly they learned from the investment shocks of .com bubble and the Great Recession they may have gone from spending everything that comes in to rolling 5 or even 7-10 year averages. I've seen several budgets showing history from 2001 or 2006 that showed the schools had basically zero reserves to deal with crises so they've used increasing tuition costs to help build the clearly needed reserves. As the landscape becomes a bit more hostile towards the cost of education schools are building up more reserves in case state and local funding falls even further. However we're reaching a pendulum swing point (IMO) where too much is being built up but inertia keeps it going. For some schools its even a source of pride. "Look how big our endowment is!" (Pay no attention to the 4.5% increase in tuition this year)
Mismanagement\lack of caring may also be another area but I am typically not involved enough to get much of a sense of how widespread this is. But I have seen a lot of units that don't really know where their money is going or think its being recharged but is actually not. Or departments sharing accounting codes so its incredible difficult to tell who is spending what money without investing a lot of time into it. I do get the impression that talking about budgets is an undesirable conversation to have
I would also circle back to the cost of compliance (Federal, state and internal) being a growing cost that is not just related to IT. To be honest I am not sure how much of one but its not negligible and takes a larger toll on smaller schools compared to larger schools. Think of all the types of compliance data they have to deal with: FERPA, HIPPA, PCI, GLBA, ITAR, CUI, FISMA, PII, SIHSR. Just HIPPA data takes a lot of compliance work but because many schools offer loans they must also comply with Financial Institution requirements in GLBA.
Edit: I found a study on the cost of compliance:
The study, which was conducted by the Boston Consulting Group, indicates regulatory compliance represents 3 to 11 percent of higher education institutions’ nonhospital operating expenses, and that faculty and staff spend 4 to 15 percent of their time complying with federal regulations.
The study estimated that higher education institutions report to approximately 18 different federal agencies and comply with approximately 30 different areas of regulations and more than 200 federal laws and guidelines.
https://news.vanderbilt.edu/2015/10/19/regulatory-compliance/3) I think its likely we'll reach a ceiling. However I have noticed a sharp increase in the number of politicians promoting 'free' college for people and (if a plan actually exists) they usually have little enforceable restrictions in place for limiting cost growth. This seems extremely misguided and would just serve to mask the issue which would mean reaching a ceiling would likely be quite a bit farther out.
Absent that I do think we are getting close to a limit. We are already seeing institutions having difficulties sustaining themselves due to lower enrollment. Universities are aware of the problem and that it is growing. Their attention has been slow in coming and action is likewise slow but there is a growing trend of trying to limit increases. 2016-2017 and 2017-2018 tuition increases averaged 1.9% for private schools and 1.3% for public 4 year schools
https://www.insidehighered.com/news/2017/10/25/tuition-and-fees-still-rising-faster-aid-college-board-report-showsAs an aside that I thought was quite interesting (and somewhat ties into 'increased admin costs') was the extent to which some school have to spend time managing donations. I learned today that a University with 18,000 enrolled students has over
10,000 gift accounts. (Basically accounts where people gave money to the school to be used for specific purposes). These accounts must be managed, tracked and invested and could have very narrow scopes of uses. If the designated goal is no longer relevant the school has to track down the heirs to get it modified - which can take years especially if no heirs can be located. It may no longer be relevant because the degree no longer exists or is offered at that school, the intended use is no longer relevant or there were no students to use it on (ie "Money is to be spent on someone from this geographical region." Well if no one from there applies then nothing can be done for that year.)
