A cautionary critique of higher education

B Y - Z E L L - M I L L E R - ( A B '5 7, M A '5 8 )

"America's education governor"—and newest U.S. senator—takes a hard look at the changing fiscal and political climate and concludes that higher education faces both the winter of despair and the spring of hope

More than 100 years ago, Charles Dickens began A Tale of Two Cities with one of the most eloquent sentences in English literature: "It was the best of times; it was the worst of times; it was the age of wisdom; it was the age of foolishness; it was the epoch of belief; it was the epoch of incredulity; it was the season of Light; it was the season of Darkness; it was the spring of hope; it was the winter of despair; we had everything before us; we had nothing before us."

Of course, he was describing the days of the French Revolution, but it is a pretty accurate depiction of where higher education finds itself on the cusp of the 21st century.

Public doubt and criticism are high; the news media regards higher education with the same skepticism and ignorance they once reserved for government. Government regulation and political forces are encroaching on us even as our public financial resources have been dwindling away.

By these measures, it is the season of Darkness, the winter of despair.

At the same time, however, society is beginning to realize that higher education is no longer a luxury; it is an economic necessity. The future prosperity of both individuals and society depends on higher education as never before. Distance learning technology is opening new markets.

By these and other measures, it is the season of Light, the spring of hope—a time of incredible opportunity.

Throughout the 20th century, the United States has had the world's finest system of higher education. But the 20th century is now over, and we are entering a time of profound debate about higher education, a time when we need to rethink its role and its structure. For the first thousand years of its existence, higher education has allowed change to evolve gradually at its own pace, but today that luxury is no longer ours. If we do not take the initiative to change ourselves pretty quickly, the marketplace will do the job for us. And if you want a feel for what it would be like when the market takes control, look at what has been happening in health care. It isn't pretty.

But before we get to the challenges and opportunities of the 21st century, I'd like to examine some of the factors that brought us to where we are today. One factor is public disgruntlement with institutions in general and higher education in particular. Unfortunately for us, this coincided with a time when tuition costs were rising faster than personal income, so the effect was magnified for higher education.

STUDENTS AND THEIR FAMILIES didn't mind the rising cost of tuition as long as their income was keeping pace. Over a recent 15-year period, the cost of attending a public university has risen from 9 percent to 20 percent of average family income, and the cost of a private university has risen from 20 to 40 percent of average family income.

Some claimed costs were out of control. Professors, protected by tenure, were portrayed as caught up with research or even loafing around the ivory tower, while undergraduates paid record-high tuition for a second-rate education at the hands of graduate assistants. Universities were accused of over-spending for administration, when in reality the administration of the most top-heavy college is almost precariously lean compared to business overhead.

This public climate has produced some interesting ironies. U.S. News & World Report, for example, is a critic of higher education costs for 50 weeks of the year, but in one issue in March and another in August they publish widely touted rankings of colleges and universities that are driven to a large extent by how much money they spend per student or faculty member. At the same time the magazine is criticizing the high cost of education, it is helping to drive up costs.

Of course, one of the reasons tuition was rising so fast, at least at public institutions, was dwindling state support for higher education, and that is another important factor to consider. State budgets are weighty tomes of hundreds of pages, but what they boil down to is an expression of how the state will carry out three basic responsibilities: education, public safety, and federally mandated human services—primarily welfare and health care.

A quarter of state funds are tied up in entitlement programs that must be run according to federal decree. Public safety is also a necessity, and we have seen a growing demand to crack down on crime. K-12 education is a requirement for all citizens, and here we have also seen public demand for costly improvements.

By comparison, higher education is viewed as a discretionary expenditure, and for virtually every state it is the largest discretionary category in the budget. Most state budgets must be balanced; unfortunately, they are often balanced on the back of higher education.

Although the past decade has been a time of strong economic growth, it has also been a popular time for tax cuts. Candidates have found tax cuts a foolproof campaign issue, and George Bush's experience proved the necessity of following campaign rhetoric with concrete action. From 1996-98, at least half of the states enacted significant tax cuts. Thus, even though we have been in the longest peacetime economic expansion in American history, little of the potential tax benefit has come higher education's way.

State funds for higher education have declined as a percentage of both the state budget and public higher education's budget. Nationwide, during the past 20 years state spending for higher education dropped from almost 14 percent to 10.5 percent of state tax revenues. Among the states covered by the Southern Regional Education Board, state spending dropped from 15 percent of state tax revenues to 12.5 percent. Only Mississippi bucked this trend; only Tennessee held its own (see chart below).

MOST STATES TODAY provide 30 percent or less of the public higher education budget. As public funds for higher education were decreasing, public scrutiny was increasing. This trend is all the more interesting because it runs counter to the deregulation of other industries in the public interest, like transportation, utilities, and communication. Today, federal regulation encompasses nearly every aspect of university life. Its thorny tangle of sometimes duplicative and even contradictory rules can ensnare even the smallest private college.

At the state level, more and more elected officials contend that they deserve a say in the operation of institutions that receive tax dollars, even if it is only 30 percent of the total budget. Accountability, which has become a buzzword in state capitols, is too often a more respectable facade for what amounts to meddling. Legislators intervene on behalf of constituents, and develop a proprietary interest in the institutions in their districts. Powerful legislators skew funding to favor "their" colleges, and drive college priorities by procuring pork-barrel building projects.

OPEN RECORDS LAWS once reserved for government are extended to higher education. It wouldn't be so bad if the sun merely shone on candidates for the presidency of public universities, but the media all too often attempts to manipulate the process. Increasingly, they feel a need to do background stories about candidates, and make editorial recommendations. And higher education has not always helped its case. From the perspective of state government, higher education often looks secretive—too ready to use academic freedom as an excuse to avoid accountability.

But there is more to this accountability business than just a cover for political meddling. During the 1980s, there was a shift in the state funding mindset from "inputs" to "outputs." It picked up momentum during the recession of the early 90s, which for state government meant an increasing demand for human services at the very time when revenues tapered off. As a result, expenditures of all types were more closely scrutinized. Both business and state government pulled themselves through the recession by downsizing and streamlining. The watchword was "reinventing" government, as momentum built for measuring and rewarding results.

ACCOUNTABILITY WAS WIDE during the 90s, but not deep. To get the cooperation of public colleges and universities, government left the details to them. However, higher education, which we have to confess is incredibly good at criticizing the endeavors of others, was not prepared to be very critical about itself. Faculty held to the traditional view that quality was measured by the level of your resources and your reputation, and accountability was viewed as an unnecessary imposition of red tape.

DISINTEREST BY CAMPUSES did not discourage state government, however. By 1990, three-fourths of the states required performance reporting from public higher education. The most common indicators institutions were required to report related to undergraduate education and enrollment, incoming SAT/ACT scores, graduation rates, job placement rates, transfer from two-year to four-year colleges, and faculty teaching loads. Some also required sponsored research numbers.

The next step was performance-based funding, which connects funding to achieved results rather than to promised results. Three-dozen states now link some degree of public funding to results on designated indicators, with a half-dozen more moving in this direction. Most of these states use performance-based funding only at a very limited level, but the trend is toward becoming more stringent.

Part of the difficulty with accountability involves multiple constituencies to be accountable to. As state funds dwindled, colleges and universities not only raised tuition and fees, they also increased solicitation of other sources. They conducted alumni campaigns, competed more fiercely for federal research funds, solicited private industry, and, in the case of research universities, sought an income stream from patents, licenses, and other technology transfer. As a result, higher education now has a host of constituencies all wanting to be reassured that their money is being well-used.

Colleges and universities have also cut back on expenditures and postponed long-term facility maintenance in hopes of better fortunes. But all of these measures have been merely fine-tuning the old financial paradigm. As we enter a new century, we are beginning to realize that we may need a different approach to funding and to our education, research, and service missions.

THE FIRST REALITY of the 21st century is cold and hard. State financial support of higher education is not likely to increase. State Policy Research Inc. recently did a study for the National Center for Public Policy and Higher Education that examined state revenue structures and expenditure patterns. What they discovered was that state revenues, especially sales tax revenues, which are a major source, are not keeping pace with growth in income. If you think about it for a minute, it is not hard to figure out what is happening.

People are making more money than ever before, but they are also working harder than ever before and spending long hours at the office. So they use their additional income for services that make their lives easier. They send their shirts to the laundry, hire a cleaning service for their house, and do their shopping over the Internet. None of these activities generates sales tax revenues. It has not yet become obvious in this time of economic strength, but most states have a built-in deficit in their tax structures that will average about a half a percentage point a year over the next decade.

The study found that only 10 states have a tax structure that is keeping pace with growth: Iowa, Nebraska, North Dakota, Ohio, Kentucky, Connecticut, Michigan, New York, Maine, and Minnesota. Massachusetts is breaking even; the rest of us are losing ground.

Higher education, like many other endeavors, has a tradition of operating on a cost-plus basis. We assume that whatever we are doing is both worthwhile and necessary without really bothering to evaluate it. We take the current funding levels for existing programs as a given, and decide on additional amounts to address inflation, enrollment increases, and program expansions. Then we add up our total expenditures and look for revenues to support them.

With so many constituencies to please—government, industry, donors—higher ed has no choice, says Miller, but to do a better job in the area of accountability.

AS RESOURCES SHIFTED over the past decade, it has become clear that this approach is no longer acceptable or even feasible. We need to recognize when a program's time is past and shift our resources to more timely efforts. If we do that, we will be constantly shifting our resources toward the future.

Taking the initiative on internal accountability sends a message that we care about public trust and serving public interest. If we do it, external accountability will come into line with our internal accountability, documenting our progress and reinforcing for our constituencies the value, effectiveness and quality we provide.

There is a deeper reason for higher education to take the lead on accountability. We not only have many constituencies, but they tend not to ask the right questions. Without deliberate internal accountability measures to keep us focused, we are in danger of reacting to too many pressures from too many constituencies—losing sight of our priorities and core missions in the process.

IF YOU ASKED PARENTS for their agenda for higher education, they would say: freeze tuition. Alumni, upon whom we increasingly depend for philanthropy, want us to sustain the status quo and win at football. Corporations that hire our graduates and help fund our research think of higher education from the perspective of maximizing their own profits.

Elections and changing political agendas make it hard to raise long-term questions. Politicians often demand accountability and tougher standards without taking time to decide what, exactly, they want higher education to be held accountable for. The crucial question is what higher education's agenda should be for the 21st century —and how we should pay for it.

MANAGEMENT GURU PETER DRUCKER has predicted that the traditional university will be extinct within 30 years. Our tendency toward continuing hidebound traditions without asking the deeper questions may prove him right. But he has also suggested that society needs to change the way it thinks about paying for college. We think of it like buying shoes or soap—you plunk down the money and walk away with the goods. But higher education is not a consumer product. It is an investment that pays dividends for an individual and for society.

The president and the nation's governors should use their bully pulpit to reaffirm higher education as one of the most important investments our nation can make. Each generation of Americans has benefited from the investments their parents made, and we should be willing to do the same for our children. That is the model for social progress. However, as I have already noted, government taxation and budget patterns do not bode well for this approach.

A second possible approach is to remove the convoluted and often hidden subsidies for higher education and allow its cost to be shaped by the market forces that are increasingly coming into play. Being more up-front about the true cost of a college education and allowing costs to rise to what the market will bear would allow us to better utilize our increasingly limited public resources. However, those public resources are already provided from the tax dollars of many who never attend college; if we move farther in the direction of asking those who cannot afford college to pay taxes to subsidize those who can, we will end up with welfare for the rich at the expense of the poor.

The third approach, which Drucker favors, is to shift the cost of college from the front end to the back end, from a time when most students have little money and next-to-no earning power to a later time when their incomes are sizable and growing. This approach characterizes a college education as an investment opportunity that pays future dividends, rather than a social obligation. It is in tune with a society that recognizes the direct relationship between higher education and future prosperity, and at the same time resists the idea of providing increased tax support for it. The responsibility of paying for college would shift from parents to students. Federal loans already function this way to some extent; Drucker suggests expanding the idea to become more commonly accepted. Payroll deduction mechanisms would make it attractive to a wider range of lenders.

IF WE ARE NOT RESPONSIVE and do not change to meet society's needs, someone else will take over our role. That is already happening. For-profit companies see tremendous opportunities presented by increasing demand combined with distance learning technology that makes higher education a widely marketable commodity. And we can learn from business.

During the 90s, American business and industry recognized that to compete, they had to be better, cheaper, and faster. One of the tools they used was "unbundling." They examined everything, and outsourced things not central to what they were trying to accomplish. That may be a model for higher education. We are highly complex and cumbersome with a host of responsibilities. In addition to our core missions, we run residence halls, dining services, retail operations, parking, sports franchises, and student entertainment. Maybe it's time to come to terms with our strengths and strategies, and outsource functions for which we do not have a unique advantage.

But even as we try to do what business did in the 90s, business has moved on to the next stage. Today's rapidly changing high-tech global market is not about competition, but innovation. The reason we are seeing private sector competition emerging around us is because the potential is so tremendous. As society moves farther into the age of knowledge, higher education is being called upon to address a wider range of workforce needs than ever before.

TODAY'S COLLEGE GRADUATES will change careers several times, returning to us each time for new and updated skills. The market for education today is "K to gray." Our greatest growth potential is in nontraditional students who cannot conveniently make it to campus when class is in session. They are taking classes and working on degrees by satellite, video, and Internet. The Internet also opens the door for higher education delivery to become more international. Considering that half the world's population is under 20, higher education may be the most significant export America has to offer.

As state subsidies and federal research funding dwindle, private sector funding is stepping in to replace it. But it is not philanthropic; it is market-driven investment in economic development. Along with the recognition of the increasingly crucial role of higher education in economic development will come pressure to make these dollars count, to produce a visible return.

This runs counter to much that is integral to higher education's ingrained traditions. Our faculty are used to dictating what is taught, and how and where. The market demands a move from a faculty-centered to a student-centered environment.

As we move into the 21st century, market pressures will replace public policy as our most powerful external shaping force. How can we balance workforce needs with our higher calling to serve the public good and produce enlightened citizens?

These are just some of the concerns we must address as we reshape our educational enterprise in response to the rapidly changing world around us.

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