News & Insights

Higher Ed’s Spring of Scandal and Accelerating Disruption

By Amy Binder

Aerial view of people in graduation caps.

The annual college graduation season is upon us, with the stately strains of “Pomp and Circumstance” carrying across hundreds of U.S. campuses as graduates joyfully accept their degrees.  But this year, the congratulatory smiles of robed administrators and academic leaders on the dais may mask a higher-than-usual level of trepidation about the future.  The reason: Rarely has the reputation of higher education been more pummeled in the headlines, or its business model come under more stress and scrutiny, than in the first half of this year.

News reports have called into question the integrity of the admissions process, piling up details of scandalous behavior by affluent parents, consultants and university staff.  Less noticed amid the celebrity-driven scandal coverage have been signals of an acceleration in the disruption of today’s higher education model.  Taken together, these two streams of media coverage in the first half suggests that changes in the “brand message” of higher education – the promise it makes to its customers and the purpose it claims to serve in society – needs substantial work.

To be sure, colleges and universities are accustomed to serving as battlegrounds in the culture and political wars.  Debates over affordability, fairness and access are perennial issues.  Higher education managers have also long been working to address the impact of technology and demographics on their schools’ programs and finances.

The difference, reflected in the media coverage in the first half, is that these pressures are building at a significantly faster pace.  The closing and consolidation of a number of independent colleges in New England prompted U.S. News and World Report in March to declare a coming “higher education apocalypse.”  The magazine noted the forecast of Harvard Business School Professor Clayton Christensen that as many as half of all universities may close or go bankrupt in the next 10 years.

The issues in higher education are not all financial.  The reputations of some of the most prestigious, prosperous institutions have been badly tarnished by the Department of Justice charges this spring that wealthy parents paid bribes through a consultant to gain admission for their children.  In addition to manipulating athletic scholarship programs, the consultant also advised some families to falsely claim students were members of racial minorities, according to one report.

In bringing charges, the DOJ also recounted several cases of brazen cheating in SAT testing.  The Wall Street Journal quickly followed with a report on how mostly affluent parents manipulate high school testing protocols, winning exemptions that give their children more time or more favorable settings in which to take the SAT or ACT.

In the middle of a public outcry over such practices, the SAT’s publisher announced introduction of an index designed to place students’ test scores in the context of their socioeconomic advantages or disadvantages.  Quickly dubbed the “adversity” index, both critics and defenders of affirmative action found flaws with the approach.  Some saw yet another way to “game the system.”

Beyond the admissions scandals and test score debates, media coverage also brought evidence that many mid-tier private colleges and universities were being squeezed financially more than ever.  Their response:  increased discounting.  The gap between the “sticker price” and the actual cost to students and their families is growing.  While that’s positive news for college affordability, it’s also a sign of the revenue pressures on these colleges and universities.

Discounts on tuition for first-time, full-time freshmen rose to a record 52.2% in the current school year, according to The National Association of College and University Business Officers survey of 405 private, nonprofit schools. The 2018-2019 figure compares with 50.5% in the previous academic year.

The association says the average institutional grant for first-time freshmen has nearly doubled in the last 10 years, to more than $20,000 from about $10,600 in the 2008-2009 year.  Some 90% of freshmen received grant aid from private colleges and universities in the 2018-2019 year, according to the study.  Those discounts, on average, cover about 60% of the tuition and fee sticker price.

Not surprisingly, many schools’ net tuition revenue trend line is flat or declining. While critics bemoan the rise in college costs over the last decade or so, the facts are that the tuition growth at private institutions has, on average, not kept pace with inflation over the past few years.

Schools are keenly aware that the demographic trends are not in their favor.  A significant drop in the U.S. birthrate after the 2008-2009 financial crisis has limited growth in the potential pool of future students.  “Scholars estimate that nearly 2.3 million fewer babies were born between 2008 and 2013, which, when combined with an expansion of higher education offerings in the decades preceding that, means too many slots compared to the number of applicants,” noted U.S. News & World Report.

Those trends come through in the latest figures on college enrollment.  The National Student Clearinghouse Research Center reported last month that U.S college enrollment dropped 1.7% in the spring, the seventh consecutive annual decline.

Further complicating the picture is the sharpening public debate over how to address the high level of debt incurred by current and former college students.  Borrowers now owe a cumulative $1.6 trillion of student loan debt according to the U.S. Federal Reserve.  A significant number of a generation of former students are trapped in debts that they have little prospect of ever paying off, preventing them from saving or acquiring housing or other assets.  How to address that debt load, widely seen as a drag on the economy, will no doubt be a significant issue in the approaching political season.

As tuition pressures build, policy makers are moving to increase transparency of education costs, borrowing and compensation after graduation.  The New York Times columnist Kevin Carey reported recently on the administration’s release of data showing the average amount of debt incurred by graduates of different academic programs at each college and university in America.

“This focus on programs, rather than institutions as a whole, is gaining favor among political leaders and could have far-reaching effects,” wrote Carey.  “Program-level information has the potential to alter how colleges are funded, regulated and understood by consumers in the marketplace.”

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