I’ve recently returned from the Education Innovation Summit 2013, hosted by Arizona State University (ASU) and GSV Advisers (and, of which, DLA Piper is a very proud sponsor). I will have more on the conference — and suggest you read this piece from the folks at University Ventures — but suffice to say, it is one of my favorite conferences of the year. I always return home energized, knowing that we can educate our students and that technology will help us educate them better, more efficiently and at lower cost.
For me, however, my week began and ended with two articles that not only bookended my attendance at the conference, but served as a bookends for the conference, defining, in part, the challenges faced by the industry and why the work is so important.
The first article, “Why some small colleges are in big trouble: Money is tight. Competition is brutal. Are some Massachusetts schools on the road to ruin?” is an interesting and depressing read. It explores the issues facing private liberal arts colleges in Massachusetts, New England and elsewhere that have closed their doors or are failing financially. In essence, these tuition-dependent colleges are seeing fewer applicants and, because they are forced to discount tuition more deeply than in the past to attract students from this smaller pool of applicants, their business model is becoming unsustainable.
Unfortunately, the number of institutions with unsustainable business models is increasing. As explored in “The Financially Sustainable University,” a study conducted by Bain & Company, unless an institution has the pricing power of an elite university, or possesses a strong, well-managed endowment to absorb reductions in enrollment, that institution is likely on a path to failure. This is a crucial problem for higher education. The nation needs the capacity these institutions provide. If we are to meet the President’s 2020 Goal, we need institutions that will provide post-secondary training. Letting them fail — and then requiring them to become re-accredited, re-licensed and re-approved for Title IV — doesn’t make much sense. In addition, it is important to have many different types of institutions. While public research colleges may be the right home for some, a private liberal arts education may be the place for others to grow and become productive. We have an interest in the preservation of these types of models as well.
The Bain report notes, “In addition to growing debt, administrative and student services costs are growing faster than instructional costs. And fixed costs and overhead consume a growing share of the pie.” Considering this, it seems natural for institutions to leverage subcontracting to produce these administrative and student services at a lower cost. While ancillary functions, such as financial aid administration and provision of student services, could be provided by third parties, regulatory provisions and accreditor standards typically require functions that are central to the core academic mission of the institution must remain under the direct and exclusive control of the institution and could not be delegated to and performed by other parties. A good example of this would be Arizona State University, which contracts with Pearson to support ASU’s online students. Under that agreement, ASU faculty designs and teaches every online course as well as establishes and enforces all instructional and academic policies. In turn, Pearson provides a learning management system for delivery of the courses, and various tools to report on and analyze student performance trends.
Even if institutions realize savings on the costs for providing administrative and student services, however, the cost of providing instruction is still the lion’s share of any institution’s budget. While this is as it should be – this is, after all, why students go to institutions in the first place – if there were efficiencies to be realized in the area of instruction, it might have the greatest overall impact on the finances of institutions.