The Rest of the Story

Growing up, I was a huge fan of talk radio. One of the voices I remember quite fondly from my childhood was that of Paul Harvey, whose well-known program The Rest of the Story would present the little-known facts of an otherwise well-known story. As the president of a small, private university, I pay close attention to media reports of the rising cost of college and recognize there is so much of the story that remains untold, particularly for institutions like mine.

The College Board recently published a new report, Trends in College Pricing. Most of the data presented throughout the report focuses on published tuition and fee trends. While dramatic increases in the sticker price of college makes for exciting sound bites and compelling headlines, the published tuition price of a university is a relatively meaningless number. These increases in published costs are most dramatic for 4-year private nonprofit colleges. Among the priciest private institutions in the country, published costs well exceed $60,000 per year, and many of those same institutions are supported by endowments in the hundreds of million to several billion dollars. Add to this the fact that for all but the highest income families, the average income was lower in inflation-adjusted dollars in 2013 than it had been in 2003. Based on these figures alone, it’s no wonder that the media, legislators, parents and students believe that a college education, particularly at a private institution, is becoming more and more out of reach.

But there is more to this story than meets the eye. In 2004-05, while the average published tuition and fee price of 4-year private nonprofit colleges was $25,000, the net price (what the average student actually paid after institutional scholarships, grants and discounts) was less than $15,000. Ten years later, in academic year 2014-15, while the sticker price had risen to $31,000 (an increase of 24% over ten years), the net cost had decreased to $12,000. Yes, you read that right. The actual cost the average student paid to attend a private nonprofit college has actually gone down over the last decade –by 21%!

For most private institutions, this decrease in net tuition isn’t made up for by endowment income. The College Board noted that just ten private doctoral universities hold 45% of the total endowment assets of all private nonprofit four-year institutions combined. That leaves 900 other institutions sharing the remaining 55% of endowment assets. Of those institutions with a billion dollars or more in endowment, the average spending rate is 4.8% compared to 4.1% for institutions whose endowment is less than $25 million. If you do the math, you’ll see that for an institution with a $25 million endowment, just over $1 million a year is generated to support the overall operating budget. For a rich institution with a billion dollar endowment, that annual supplement is a whopping $48 million.

I’ve been president of Oglethorpe University in Atlanta for almost a decade. Despite the narrative of rich private colleges getting richer at the expense of middle class families, the reality is that most private colleges in America look a lot more like Oglethorpe than Columbia or NYU (two of the highest sticker prices in the nation, and endowments of $9.2 billion and $3.5 billion respectively). In 2014, our net tuition was just over $12,500 per student, close to the national average. A decade before, we were hovering right at $10,000. In that regard, we have been counter-cyclical; where most small privates have faced a declining net tuition trend of over 20%, we have experienced an increase in that same range. Yet either way, up or down, most private colleges and universities whose organizations operate close to the $12,000 net tuition number have struggled mightily over the last decade to continue to provide the kind of quality education we are known for across the globe.

Just consider the 20% increase in the CPI in the last ten years. With close to half of most colleges’ budgets devoted to payroll, just keeping pace with inflation for faculty and staff has been nearly impossible. This doesn’t take into account, of course, concurrent increases in utility costs, technology expenses, insurance rates and so on. As I have said many times to anyone who will listen, higher education is as tough and competitive a business as it gets, and there are and will increasingly be winners and losers.

I don’t worry much about the top fifty or one hundred institutions; ten years from now, they will all still be among the top fifty or one hundred. Collectively, however, they educate a very small slice of this country’s students. The real question concerns the economic survival of the rest of us who together educate many, many more times the number of students (and often students who come from less privileged circumstances).

The question I pose is this: are there solutions to this conundrum of falling net tuition, rising costs, and declining family income? One solution (that I have no hope of becoming a reality) is recognition by federal and state governments that higher education is an investment they ought to be making on behalf of young people and our society as a whole. Precisely that kind of investment is happening in almost every other country, but right here at home, we are dis-investing from education. It’s hard to imagine this strategy will turn out very well, but we certainly seem committed to it. So, if that’s not in the cards, what other positive solutions can I offer? I know some heartening stories from other colleagues who lead institutions like ours, but I know our story the best and I think within it lie some universally applicable lessons.

At Oglethorpe, we are addressing these challenges in two ways. The first is focusing on our core enterprise and unique value proposition, learning to make our curriculum both rigorous and relevant. Most institutions that stand a chance of thriving over the next decade bring something unique to the table. Those that don’t will need to come up with something, and fast. It might be a set of programs that are in high demand –Warren Wilson’s focus on integrated work and service is a good example. It might be a location or setting that naturally attracts young people (Oglethorpe is blessed with a beautiful campus in the dynamic and growing city of Atlanta, which is a hotbed of experiential learning opportunities). It could be a religious affiliation that provides a unique value proposition, like at Hillsdale College. It might be a signature curriculum like the Great Books program at St. John’s College that is widely recognized as providing great value. It might even be signature athletic programs, such as Kenyon College’s swimming programs. Whatever their value proposition, every school must be clear and precise about what their value is, and how they will deliver and expand on that unique promise.

All that said, even an excellent manifestation of your differentiating principle is not likely to provide sufficient ballast for institutions lacking a large endowment. In order to survive and hopefully thrive, I believe most schools will need to create alternative or additional routes to supplement their core business, which is the second way we are addressing today’s challenges—through partnerships.

At Oglethorpe, we have pursued three such strategies. Two of our new ventures are directly tied to our strategic vision of becoming a more global community and the third to our plans to grow enrollment. All three have rapidly achieved significant scale through the formation of partnerships with outside companies.

In the fall of 2012, Oglethorpe partnered with the world’s largest language learning provider to open an English language institute on our campus, designed to attract college age students from across the world to Atlanta and to our university. The program has grown from seven students in October, 2012 to 260 in the fall of 2014. More than a dozen of these students are transitioning this year from the English program to full-time status as Oglethorpe freshmen. Thanks to this partnership, we are successfully growing our international student population, realizing a consistent revenue stream, and have renovated two academic spaces and a residence hall.

At the same time as this inbound program began, we opened a new outbound study abroad program through a second partnership. In the summer of 2014, over 200 students from more than thirty different universities enrolled in an Oglethorpe-branded study abroad program. These students are taking Oglethorpe-designed courses, taught by Oglethorpe faculty, for Oglethorpe credit in one of three cities: Cape Town, Rome and Athens, and we are on target to add a fourth site in the summer of 2016. Between these two programs, Oglethorpe’s identity as a global university has grown and our bottom line has improved by well over one million dollars.

The third partnership is of a different nature, but also with an external partner –a joint real estate development deal that has accomplished two goals of the university: endowment growth and expansion of our on-campus housing stock. The university has entered into a long-term land lease with a private developer who is building 340 distinctive apartments on a seven acre parcel which our Board of Trustees designated some years ago for this purpose. These apartments will be available for lease to upper-class students and will serve to satisfy our residential housing requirement. The partner we selected through this process not only paid the university an up-front fee that served to grow our endowment by more than 50%, but also made significant improvements to the campus, including a new classroom building being built as part of the complex.

Of course, there are as many different solutions to the problem of stagnant or even declining net tuition revenue as there are colleges and universities. But I’d suggest that one thing these solutions will have in common is an entrepreneurial approach that expands the definition of who we are as institutions and what we do. Net/net, it’s both an educational and a survival strategy.

To echo Paul Harvey, “and that’s the rest of the story.”

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One Response to The Rest of the Story

  1. aperry530 says:

    Longer than your usual post, but very instructive. Thank you.

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