Full Tilt

Private higher education's increasingly "wicked problem" might require saintly solutions

Private higher education has a classic “wicked problem,” in which several interrelated factors are at play and for which there is no easy solution. Affordability, access, demand, and accountability are just some of the sector's most pressing issues. This article, part of a special issue on valuing education, presents an in-depth discussion of rising costs, tuition discounting, the value of a liberal arts education, increased expectations about quality, and unconventional solutions.

By Andrea Jarrell

Something can be expensive yet well worth the price. That's what experts in private higher education say when policy makers point out that tuition increases are rising faster than the Consumer Price Index. The policy makers' solution is to force institutions to hold down costs. The educators' solution is to provide more aid to maintain accessibility. Both seek to benefit the public, but neither is satisfied with the other's solution, believing that it fundamentally misses the point. And that might be because the point is much bigger than cost, value, accessibility, or even that other "A" word, accountability.

The issue, characterized by multiple factors deeply embedded in the social and economic circumstances of U.S. higher education and society, has all the signs of being a "wicked problem"—a term coined by University of California, Berkeley, policy theorists Horst Rittel and Melvin Webber in 1973. David Mathews, president of the Kettering Foundation, who's studied wicked problems, says they are societal problems in which "the diagnosis or definition is unclear, the location or cause is uncertain, and for which any effective action to deal with them requires narrowing the gap between what is and what ought to be—in the face of disagreement about the latter."

In his monograph For Communities to Work, Mathews goes on to say how, when faced with such problems, unfortunately a community "acts in a fairly predictable fashion, almost as though … following a formula: It cuts the problem down to a manageable size, finds a plausible solution, delegates responsibility to an accountable institution, gets busy with visible activity, [and] sells the public on what the leadership has decided is best. … The problem that appears most soluble usually provides the name we use to

characterize the whole difficulty." Looked at through this lens, it is easy to see why higher education leaders become frustrated when the cost-value-access-accountability problem becomes a "tuition" problem. Wicked problems increase in seriousness despite the best unilateral efforts of campus, advocacy, and philanthropic leaders to solve them. Rather than business as usual, wicked problems require unconventional wisdom to be solved.

With more than 1,600 private colleges and universities in the United States, according to the National Association of Independent Colleges and Universities, and 3.1 million students—21 percent of all college students—attending them, pundits urge both private and public campus officials to think anew to solve the problem from within before an outside solution is imposed. Many campuses are doing just that.

The cost vs. value argument

In the Chronicle of Higher Education's second Survey of Public Opinion on Higher Education, released in May, nearly 93 percent of respondents agreed that higher education institutions are one of the United States' most valuable resources, but 68 percent also think campuses could reduce costs without hurting quality. In general, private colleges and universities have responded to these beliefs in two ways: by showing how affordable they can be in terms of net tuition and by illustrating students' and families' return on investment.

Sticker shock. According to NAICU data, the average published tuition at private colleges and universities in 2003–2004 was $19,710; undergraduate students who receive grant aid, however, pay an average of 60 percent of the published tuition. NAICU also reports that during 1999–2000 (the most current data available), 84 percent of dependent undergraduates received some form of aid; the average annual aid award was $13,700. Thus, the average net tuition was $8,900 for those who received aid.

These institutions further bolster the affordability argument by explaining how time to degree can affect price. NAICU has shown that private colleges' higher tuition actually can be a better deal when students consider the time it takes to earn a degree at a private institution versus a public one. Seventy percent of private college and university students complete their bachelor's degree in four years or less, compared with 49 percent at public institutions. In its publication Twelve Facts That May Surprise You About America's Private Colleges and Universities, NAICU calculated lost income during the additional years of schooling to arrive at the comparison of $35,600 spent at a private institution (average net tuition x 4 years) versus $70,200 spent at a public institution (average net tuition x 4 years, plus two years of average lost income).

The idea that private institutions are a better deal is certainly at the heart of the return-on-investment argument. "I don't like students to graduate with huge debt burdens," says Doug Bennett, president of Earlham College and incoming chair of NAICU, "but is it a good investment for them to have made relative to cost and value? You bet." When students lament a debt burden of, say, $60,000, Bennett says, they have to consider that they're going to earn (according to U.S. Census Bureau statistics) a million dollars more than they would have otherwise as a consequence of that education. "Was that a good investment? You couldn't find a better investment."

Enduring value. An Earlham education, like that at many of the most high-priced private institutions, is a liberal education—the most relevant and practical kind of education for today's complex world, according to the Association of American Colleges and Universities. The 2002 AAC&U report Greater Expectations: A New Vision for Learning as a Nation Goes to College argues that a contemporary "liberal education for the new century looks beyond the campus to the issues of society and the workplace." Liberal education—as an educational philosophy rather than a specific body of knowledge, set of courses, or type of institution—is particularly appropriate given the highly dynamic nature of today's workplace, says Debra Humphreys, AAC&U's vice president for communications and public affairs. "The truth is that today's college graduates are likely to change jobs and careers many times in their lifetimes and specific skills will go out of date very quickly. This makes liberal education—which provides lasting skills and the ability to learn and transfer knowledge from one arena to another—especially relevant."

Humphreys says that although AAC&U strongly believes a liberal education is well worth the investment, she thinks too many policy leaders see it as a luxury, wanting institutions to provide more "practical"—by which, she says, they mean more vocational—education to students. But Humphreys, Bennett, and many other advocates of liberal education say that approach assumes the purpose of a college education is preparing students for their first jobs. "A liberal arts education prepares students not only for their first job but for their last job," Bennett says. The problem isn't that it costs so much, he says, but that society doesn't look at it as an investment. "Years ago we created a fabric to finance the purchase of homes on an investment basis, but we still have not figured out how to do that for a college education," he says. "Whether we're looking at that as a publicly financed investment that would keep the rich mix of public and private institutions we have [now] or if we're looking at it as an investment that individuals finance over the course of their lifetimes, I don't know."

Feeling the pinch. Even advocates of liberal education such as Patrick Callan, president of the National Center for Public Policy and Higher Education, say the high cost of private education actually might cause students and families to view college as a narrow investment toward a first job rather than a lifetime investment. "People in higher ed, especially in the arts and sciences, tend to be quite critical of students for being so focused on jobs, but maybe one of the reasons [they are] is because higher ed is so expensive," Callan says. "I never worried about whether any specific courses I was taking were going to get me a job. Yet I've been in the homes of parents who I think are quite responsible and caring, and when their students come home with their first set of grades, these parents say, 'I don't see anything here that is going to help you get a job.'"

The public is trying to say something, Callan says—not about what colleges and universities are worth, but about there being some limits to what they can pay. Families see that higher education is eating up a larger and larger share of family income, he says. "Even when you take into account all the things college [leaders] say—that there's a lot of financial aid out there and that nobody pays the posted price—at the end of the day it's harder to go to college than it was 20 or even 10 years ago," Callan says. "All but the [people at the] highest level of incomes have seen this happen."

Tony Pals, NAICU's director of public information, counters that the media's focus on rising sticker prices misleads the public. In fact, at private colleges, the average tuition—minus grant aid and adjusting for inflation—has declined over the past decade. But Jerry S. Davis, vice president for research at the Lumina Foundation for Education, says although actual costs might not have increased, families' ability to pay has decreased. In preparing for a panel discussion at the 2004 annual meeting of the Association of Governing Boards of Universities and Colleges, Davis divided the median household income from 1980 to 2003 by number of working days to determine the mean number of days per year needed to cover net tuition for each year. He found that it took low- and middle-income families almost twice as many days of earnings in 2003 as it did in 1980 to cover the greater net charges.

In an upcoming Lumina project, Davis and his colleagues will try to address the significant differences between financial aid programs' calculations of student and family ability to pay and their willingness to pay for college. Davis says an unpublished 1990 study in New Jersey revealed the willingness-to-pay threshold was about 17 percent of annual family income regardless of income level. Davis says he believes the need-analysis systems institutions use greatly overestimate student and family ability to pay for college and that many families are asked to spend more than they reasonably can afford.

Cost and quality. Callan says families believe that college is a good investment, but they also believe that campus leaders should be more sensitive to issues of cost and price. "There's not a big debate about why a Mercedes is worth [its] price, but there's also a reason why we don't all drive Mercedes."

A Mercedes is exactly how some educators might characterize the education they provide, however. "At private institutions, the tuition increases have been driven by cost increases, but the cost increases reflect an increase in the quality of the education students are receiving," says Ronald G. Ehrenberg, director of the Cornell Higher Education Research Institute and author of Tuition Rising: Why College Costs So Much. "In a competitive society, the nature of the product has to keep evolving. So, although we're still turning out B.A.s and, the resources and the quality that go into these degrees have increased dramatically." Institutions have added new disciplines like information science without eliminating classics like Greek, for example, and they now provide Internet-wired student suites instead of double or triple rooms with a single telephone and a bathroom down the hall.

 "It is very difficult to cut anything because we feel that everything has enduring value—so we're constantly adding new things and not cutting old things," Ehrenberg says. "Public institutions have to cut. But although our trustees are businesspeople who would like us to hold down our costs, when we point out that doing so would lead the institution to fall relative to its competitors, CEO trustees grudgingly give into the increases because they want the university to be great." Ehrenberg calls it an arms race exacerbated by the U.S. News & World Report rankings. He believes that if any institution were to voluntarily reduce or hold down its spending it would fall in the rankings—with dire results. His research with James Monks, associate professor of economics at the University of Richmond, shows that if an institution falls in the rankings, it gets fewer applications, which makes it look less selective. In turn, fewer applicants will accept the institution's admissions offer, which also contributes to it looking less selective. "You end up having to give students more financial aid to get them to come," he says, "which decreases an institution's net revenue. And the average test scores go down because the most academically talented students choose to go where selectivity is high. If institution leaders understood that those things would happen, they would be crazy to unilaterally hold spending growth."

Ehrenberg's solution is to ensure access by increasing aid. Callan, however, worries that access is just what's at stake when institution officials equate costs with quality. "There just isn't a robust discussion inside and among colleges and universities" about cost and quality, Callan says. "My preference would be to see the leadership come from there rather than to wait to have it come from somewhere else."

Unintended consequences

Just as one sign of a wicked problem is an unclear diagnosis, another is unintended consequences of the solutions to it. In the Lumina report Unintended Consequences of Tuition Discounting, Davis writes about the effects of tuition discounting, or merit aid— the standard practice at U.S. four-year institutions of using institutionally funded grant aid to help defray students' college expenses and to influence their enrollment decisions. "Since coming into vogue in the late 1970s," he writes, "tuition discounting has become an integral part of enrollment-management strategies that colleges use to try to build enrollments, increase net revenue, and shape incoming classes to fit institutional missions and preferences." Davis says tuition discounting helps many campuses improve their enrollment and financial situations, but at other campuses, discounting "is having the exact opposite effect, increasing their financial instability by reducing net tuition revenue and making it harder for lower-income students to afford the costs of attendance."

Davis points out that when institutions divert too much of their tuition revenue to financial aid rather than to core needs such as instruction, academic support, student services, and faculty development, the overall quality of the institution erodes, which can lead to enrollment losses and ultimately to institutional closures. "When a college president effectively balances quality, access, and affordability," NAICU President David Warren says, "he or she places the institution in a golden triangle. When these variables are out of balance, the institution can slide into the Bermuda Triangle. Overwhelmingly, private institutions succeed in avoiding the latter."

The Lumina study also found that the growth in merit aid is benefiting middle- and higher-income students more than lower-income students. Between 1995 and 1999, institutional grant aid for private college students with family incomes below $40,000 increased by about 16 percent, while aid for students with family incomes above $100,000 grew by 145 percent. "The inequity in the growth rates in combined institutional and noninstitutional grant aid is especially problematic for private college students with family incomes below $40,000," Davis says. "Their average increase in total grant aid from all sources covered only two-thirds of their average tuition and fee increase. For their more affluent student peers, increases in grant aid covered 110 percent of the tuition hikes."

Earlham's Bennett says, "I hate every dollar we spend that isn't need-based aid. But given that others are doing it, we'd get ruined financially if we didn't do it. What's rational for an individual institution is a practice that harms the whole. I would be the first in line to sign a treaty that said we will give no merit aid."

At a recent AGB meeting, Davis presented Lumina's findings and suggested just such a treaty to trustees and presidents of mostly private colleges. "I asked them to consider how their pricing policies affect the entire marketplace rather than just their own institutions and suggested that they consider making collective agreements with colleges with whom they compete for similar students," Davis says. "They didn't buy it." 

Cornell's Ehrenberg says the U.S. consumer's quest to buy the best complicates the whole question. "There is an increased variability now in the earnings of college graduates, and there is lots of evidence that, other factors held constant, those students who go to the most selective private colleges and universities on average earn the most." So, Ehrenberg says, "parents and students believe that to enhance their chances of becoming 'winners' students should attend the best private institution they can get into. If students are behaving that way, then institutions will respond by wanting to be seen as the best."

Markets work for people who have the resources to be players in them, Callan says. "You have to ask yourself, how did U.S. News come to have the influence that it has? It has something to do with us, not just what they print." Callan says there is a temptation for colleges and universities to act like for-profits and capitalize on the seller's market to realize ends of their own, rather than broader societal needs. But he adds, "Markets don't work so well for such things as access or equity. And we're not doing well on either of those issues right now. We have not closed the gap between low- and high-income students in terms of college participation over the last 25 years at all. I hate to be preachy about it, but this is sort of about the soul of the enterprise: Is admissions policy and the use of financial aid simply about institutional aggrandizement? Or are there some broader public purposes that have to be reconciled with the need to keep improving institutions? My own view is that that conversation has gotten way out of kilter."

Unconventional wisdom

Whether it's Harvard announcing the elimination of parent contributions for families earning $40,000 or less or campuses simply opting out of the game of merit-aid chicken in which some institutions fear blinking first, some pioneers are crafting new cost-value-access models.

"I drew the line on the rapid increases in financial aid back in 1994," says Roger Perry, president of Champlain College in Vermont. "I knew everyone was going in the opposite direction, but I felt it was just the wrong way to go, and I think the research has borne that out." Champlain's tuition is close to $13,000 for all students with an average of $2,500 in need-based institutional grants per student. Perry says if lower-income Vermont students take a federal Stafford loan, state aid and Pell and institutional grants cover the remainder of their tuition. He admits that Champlain's strategy does exclude lower- and lower- to middle-income out-of-staters, but it's a tradeoff Champlain is willing to make to keep tuition at a level that covers 95 percent of the college's costs.

"We're a nonprofit, but we focus on rate of return on investment. We did a lot of reallocating in which we resisted tenure, cancelled varsity sports, and eliminated fiscally unviable programs," Perry says. "Our student-to-employee FTE will always be much higher than many private colleges and universities. We just don't have the extra personnel. It's a whole different paradigm."

Muskingum College, a liberal arts institution in Ohio, slashed tuition in 1996 by 29 percent, to $9,850. BusinessWeek magazine reported in the April 28, 2003, issue that, "Since then, applications have doubled, the student body has grown 60 percent, and Muskingum is doing so well financially that it's putting up its first new academic building in 30 years. 'Higher education has to find more creative ways to make their product reachable,'" Harold Burlingame, chair of the Muskingum board of trustees and former AT&T executive vice president, told the magazine. "We felt that the re-pricing we did increased the capacity for people to have access to Muskingum," Burlingame said when interviewed for this article. "We're fairly remotely located in rural Ohio, but we have been able to attract a diverse student body."

Whereas Callan characterizes private higher education's wicked problem as a struggle for the soul, Earlham's Bennett likens it to a cowboy western in which the heroes are surrounded, and one says, "'You hold 'em here, and I'll go for help.' NAICU and others are holding 'em, but I'm not sure who's gone for help," he says. One urgent need he sees is for higher education to ensure quality so that it truly can make the value argument. "I think students do learn, and that by and large we do a terrific job. But I say to my board all the time, 'You want to know what really gives me the willies—it's going home from a day of talking to alumni or parents with the sound of my own voice ringing in my ear about how terrific we are. And then having the social scientist in me ask, 'How do you know any of that's true?'"

Bennett and others cite the National Survey of Student Engagement as a tremendous step forward. Launched in 2000 by George Kuh at Indiana University's Center for Postsecondary Planning and Research, NSSE polls students annually to gather data in five areas: academic challenge, active and collaborative learning, student-faculty interaction, enriching educational experiences, and supportive campus environment. NSSE's goal is for institution leaders to use the survey data to improve the quality of education by modeling best practices. At the same time, the data give prospective students, their parents, and guidance counselors a better idea of what those practices are. 

Still, Bennett believes higher education needs to go further to develop the tools necessary to prove "value-added." NSSE queries freshmen and seniors, but it's not designed to question the same students over time to track their development and the contribution the institution they attend has added to that development. The expertise to design such instruments exists, Bennett says, but what's lacking is the will and the mobilization of the needed resources. "If we developed the right tools, we would have something that would substitute for U.S. News," he says.

According to Kettering's Mathews, private higher education faces a real dilemma in making a mission statement. "All higher education institutions seem caught between being effectively managed businesses accountable to consumers and being civic agencies with a history of service to democracy. I believe that liberal education is civic education, so its value is what it does for the state of civic life in this country." Various studies suggest that the priority given to the civic mission of higher education has been declining in importance for some time. Now the fact of an institution's existence seems to be a sufficient enough civic mission to some. That is not the way colleges and universities once served the public, he says. They didn't just exist; they produced tangible outcomes, such as generations of leaders educated with a deep sense of civic duty. Mathews warns that if higher education is not going to become purely vocational, then it must retain some sense of a democratic mandate. "Most of the colleges in this country were not established for purely academic reasons. They were established for religious, social, and political reasons. Institutions are responsible and accountable to the people who founded them for the reasons that they were founded," he says.

"I don't think there will be one answer for everybody," Callan says. "While Harvard may have the resources to fix its problems by itself, I'm not sure everybody can do that." Lumina's Davis agrees. "Solving the college affordability problem requires the collective and cooperative efforts of colleges and universities, governments, students and families, financial aid providers, foundations, and the business enterprises that benefit from an educated citizenry and workforce. Lumina's new college cost project intends to encourage and enhance such efforts."

"What we really need," Callan says, "is more people inside higher education who are willing to talk with each other about these issues and make them public issues. We have people who are smart enough and perceptive enough to figure this out."

This article is from the July/August 2004 CURRENTS.