Data says: Higher Ed Destroying Value by Passing Debt to Recent Grads to Fund Waste and Administrative Inefficiencies
A revolution can be neither made nor stopped. The only thing that can be done is for one of several of its children to give it a direction by dint of victories. ~Napoleon Bonaparte
Funding an extremely inefficient higher education model is harming our society. It’s increasing the burden to all tax-payers by funding a huge amount of inefficiencies in a system we perceive to have high value. The truth is that higher ed is destroying value because it thrives off an inefficient and mistaken belief. Graduates in non-technical fields are not in high demand in our society, but university budgets and tuition have continued to increase. This is a clear mismatch of economics and the data clearly shows we will experience a revolution in higher education sooner than later. Here are some hard facts and my conclusions:
1. University Endowments are huge and growing, but can’t sustain operations.
The average university endowment is $500 million and growing 18% a year, net of all withdrawals, deposits and fees. 76 Universities have over $1 billion in endowments. See data tables. Presumably higher ed pays 5% of its endowments back to operations, but needs to raise more money every year to fund “budget shortfalls.” What university will ever say they have enough money in their capital campaign?
2. Administration, fundraising and professional staff are ballooning, demonstrating huge inefficiencies in scale.
"In 1975, colleges employed one administrator for every eighty-four students and one professional staffer—admissions officers, information technology specialists, and the like—for every fifty students. By 2005, the administrator-to-student ratio had dropped to one administrator for every sixty-eight students while the ratio of professional staffers had dropped to one for every twenty-one students." See this article. That’s a 24% growth in administrators and a 140% growth in professional staff on a per student basis. This is in spite of a larger customer base (75% of college grads in 2005 vs 51% in 1975) and indicates they are achieving no efficiency with scale.
3. Debt is fueling the waste and being transferred to students... and students are delinquent.
Student debt has doubled for under 30s, from 150 billion to 300 billion in the last five years and totals 900 billion (NY Fed). Of this debt, approximately 29%, or $80 billion is past due, ie delinquent with an average of about $23,000 per student [ref].
4. Universities are adding little value to their graduates.
A University degree is sold as a “necessary for a wage earner in today’s society,” but extremely out of line with its cost. If any business continued to raise prices while decreasing service levels, it wouldn’t exist for long.
- Universities need to share in the risk of debt they transfer to their students. If they provide a promise, but then can’t deliver, they should be held accountable. After all, the bubble is driven by their tax-free status and other government subsidies. They have an obligation to society and they aren’t delivering.
- Growth of online learning and skills based programs.
- Resurgence of trade schools teaching tech and other demanded skills.
- Mandatory reductions in non-teaching staff.
- Realization by donors that they are funding wasteful spending and a broken model. If donors don’t hold schools accountable, how will higher ed ever figure out how to run efficiently and create value for students?