With skyrocketing college tuition and dwindling state budgets, how should the United States produce more college graduates while simultaneously focusing on reducing costs? AEI education research fellow Andrew P. Kelly and Kevin Carey of the New America Foundation have commissioned eleven new studies that unearth promising approaches and obstacles to cost containment as well as the implications for state and federal policy.
From Baumol’s Cost Disease to Moore’s Law: The Transformation of Higher Education
This introductory paper sketches out the imperative to dramatically reduce the cost of providing postsecondary education, using data on college spending and costs, student debt, and state support of higher education to make the case that the current model is not sustainable. The paper emphasizes the consequences of continued cost increases for higher education access and sets the stage for what in the other conference papers: the need and possibility for radical solutions to the college cost problem, including the wholesale overhaul of existing colleges and universities and the development of new markets and organizational models that break the higher education experience down into components that can be customized and reassembled by students into affordable experiences and credentials that fit their specific needs.
Higher Education Governance as a Barrier to Cost Containment
Robert E. Martin
Colleges and universities operate within a network of incentives shaped by public policy, market forces, and higher education’s status as an experience good. Unfortunately, few of these incentives promote cost containment, and many run in the exact opposite direction. This paper lays out the various components of this network to illustrate just how difficult it will be to encourage or coerce existing colleges and universities to become more cost effective. It covers the various cost theories that purport to explain the rise in college costs and documents the perverse incentives that are often unleashed by government policy.
Value-Based Education: A Vision for a Higher Education Business Model
Richard G. Jewell and Stewart E. Sutin
This paper discusses successful examples of self-reliant business paradigms implemented at existing institutions at both the four- and two-year levels, offers a framework for a new university business model that has cost containment as a central tenet, and explores the conditions under which these types of innovations are likely to take root. How can higher education leaders leverage new ideas to rethink existing institutions? Is it even possible to do so within existing colleges and universities? What would a new business model for higher education look like? How can institutions be encouraged or compelled to experiment with new ways of organizing?
Bain Goes to College: What Management Consulting Has Learned about Reducing College Costs
Jeffrey J. Selingo
The cost structure of the American higher education system faces unprecedented challenges in the decade ahead from new competitors, government regulators, and price-conscious families. The task of untangling a legacy business is often too complex and politically risky for most college leaders. One way to diagnose the problems confronting institutions is to bring in outside consulting firms, such as Bain & Company. In several high-profile engagements, Bain has identified the inefficiencies across institutional budgets, suggested solutions to unlock millions of dollars in savings, and laid out ideas to help persuade skeptical faculty and staff members of the need for change. But on nearly every campus, Bain has faced opposition, and as a result, consultants were largely kept away from the academic side of the operations. Even so, Bain has seen the inner workings of the academic bureaucracy and has plenty of suggestions about how institutions can stretch their dollars much further. This examines what happens when management consultants arrive on campuses, what they typically find in budgets and reporting structures, and how they would fix the problems facing many institutions, in both the administrative and academic departments.
Disaggregating the Components of a College Degree
This paper uses research, argument, and anecdotes to provide an overview of how the various components of a college education might be unbundled, the providers who are capable of delivering these stand-alone services, and how this unbundling can contain or reduce college costs. It looks at why bundling tends to drive costs upward in any sector (but especially in higher education) and includes discussion about the various components of a degree and independent providers delivering on similar value propositions.
Now that we've unbundled the various components of higher education and found ways to deliver them for less money, how do we bring them together into a coherent pathway that is less costly to students while still serving them effectively? What are the critical pieces of this puzzle? The paper reflects on how Southern New Hampshire University (SNHU) has evolved since it first adopted an innovative approach and uses that as the entry point to discuss the new ideas. Did the early innovations in online delivery and competency based learning go far enough? Did they reduce costs to students in a significant way? What did SNHU learn that brought us to this latest, more radical approach? What are the obstacles to this kind of rethinking? What components are easily disaggregated and reengineered, and which might be better left intact?
Using Student Services to Enhance Outcomes and Reduce Costs
Ari Blum and Dave Jarrat
This paper looks at student services as an avenue to cost reduction, arguing that cost-effective support services enhance the productivity (cost per degree) of colleges and universities, generating cost savings that can be passed on to students. It examines the need to update the current student services model to account for demographic shifts (more students online and first-generation, low-income, part-time, working adults) and demonstrates how by applying technology and leveraging economies of scale in service provision, universities can deliver the necessary services cost effectively, saving the money that is lost in student attrition and churn. The paper also examines the importance of measurement and accountability in the student services function and provide examples of universities and third-party providers who deliver cost-effective and robust student services.
Beyond the Classroom: A Path Is Emerging for College Credit Earned outside of College
Paul Fain and Steve Kolowich
This paper examines alternative modes of assessment and credentialing in higher education with an eye toward how these developments could “unbundle” and lower the cost of a college education. The paper describes why alternative modes of assessment and credentialing could be disruptive to traditional higher education, then analyzes some of the models and providers that are emerging. The authors will describe approaches that allow students to work toward credentials outside of college, such as through prior learning assessments and portfolios, competency-based learning like Western Governors University, disaggregated course providers (Khan Academy, StraighterLine, and MITx), and the budding badge movement. It also looks at approaches that could alter course delivery and credentials within traditional institutions—notable examples include stackable credentials, use of prior learning assessment credits, and corporate training partnerships. Last, the paper discusses primary challenges of unbundling: Will employers respect alternative credentials? How will academic quality be preserved? Will a large number of students pay for new models? And could such models lead to further class stratification in higher education?
This paper examines how different institutions are developing high-quality online coursework that can be delivered at scale and a low cost. The traditional model of course development and delivery—each stage of which runs through an individual faculty member—is expensive to offer, requiring faculty time, physical space, and a fixed time period. Colleges recoup those costs by charging a small group of people (those physically enrolled) a high tuition to attend and receive credit. Placing instruction, content, and assessment online presents an opportunity to recognize economies of scale by attracting hundreds or thousands of students, allowing providers to recoup the cost of course development and delivery while driving the price of courses down. This paper profiles three online course providers—two very different public institutions and a lean for-profit start-up—to shed light on the approach taken by each institution at a time of growing demand for affordable access to postsecondary degree programs. It aims to shed light on what quality online courses look like, how faculty are trained, how curriculum is chosen, how data are used to monitor student success, and how current and prospective financial models differ across the various providers.
Venturing to Affordability
Vance H. Fried
This paper uses the concept of “venturing” as a potential avenue toward affordability in higher education. Venturing is the use of new ventures to drive innovation through a whole industry. The paper argues that new ventures, not established institutions, are the source of disruptive educational innovation and that successful ventures will force established colleges to become more affordable to survive. Higher education ventures stressing affordability are already gaining market acceptance, and “smart money” is flowing to these ventures. From a policy standpoint, federal money is unnecessary for affordability ventures. Rather, the federal government should make its accreditation system venture friendly. States should similarly adopt venture-friendly accreditation and articulation. Ultimately, the paper contends, higher education will require substantially less government funding.
To better understand why college prices continue to rise well beyond the rate of inflation despite the widespread adoption of much lower-cost means of delivery, this paper starts by examining the fundamental assumptions of the American postsecondary regulatory and financing model. It argues that the current regulatory and financing structure was established to subsidize a single organizational model of college in a market that would not have otherwise supported it. Though possible organizational models have multiplied and the market has grown exponentially, the regulatory and financing mechanisms remain the same. Substantial regulatory change is resisted by many traditional higher education institutions because it would not be in the best interests of those currently regulated to adapt the model to enable new providers. The paper explains why colleges tend to support cost reduction initiatives and why these initiatives never result in lower prices. It looks at both ineffective and effective price-based strategies and argues that the creation of a regulatory model to capture the market dynamics of higher education will require a much more radical rethinking of higher education finance than most colleges are willing to consider. It concludes with a handful of concrete policy ideas, such as required articulation, course-level accreditation, and higher education vouchers.