Those on the Inside Know Colleges Are in Deep Trouble

The 2014 Inside Higher Ed Survey of College and University Business Officers was just released. You can read about it here (and also find a link to the full report).

As with most of these kinds of surveys, there really aren’t any surprises. There is merely confirmation of what we already knew — in this case, that college and university administrators who are responsible for the financial affairs of the institution are fully aware of the financial crisis enveloping the industry.

The vast majority of the institutions’ chief financial officers concede higher ed is in the midst of a financial crisis. And the majority isn’t confident of their institutions’ ability to whether the crisis with their current financial model.

Yet they’re not doing much about it. Sure, they’re tinkering around the edges, saving a few bucks here and there. But few are seriously considering a revised model, and few are willing to take the significant cost-saving measures necessary to change the equation. (By the way, I can’t blame them, given the lack of support and mean-spirited resistance such measures would surely illicit at many institutions.)

It’s one of the reasons I’m not bullish on the prospects of many institutions to reform themselves. There is simply too much resistance and too little awareness of the reality on the ground and what it means for the long-term prospects of the institutions.

Indeed, most chief financial officers correctly observe that the majority of faculty members aren’t realistic about the financial challenges colleges face. Personally, I think administrators and boards have done a poor job over the years of educating faculty and keeping them fully informed of the issues. But that’s not the full story.

When I was a president of a college, I was incredibly transparent and eager to share all kinds of data and information with the faculty. Yet I  found that many weren’t interested.

The power of inertia and the status quo is unbelievably strong on most college campuses. Sadly, this power will be the cause of the undoing of many of these institutions.

It takes vision and courage to change course. Both are in short supply in the world of higher ed.

Of course, many chief financial officers continue to think they can save their institutions by recruiting more students. I liked the comment of Kent Chabotar, retired president of Guilford College, who was quoted by Inside Higher Ed as saying, “It almost feels like there’s 4,500 Persians chasing 300 Spartans called full-pay students — good luck.”

Fighting for a larger slice of the same sized pie is a common characteristic of an industry in decline.

Again, there is nothing new to be learned by reading this survey report; it’s simply additional confirmation of what we already knew, which is unfortunate. It would be nice to see more evidence of a willingness to adapt and evolve.

Many of the institutions that are in a downward slide could reverse course and improve their prospects if they could muster the courage to fight for what they know must be done. But perhaps they’re right. Perhaps it isn’t worth their trouble. Perhaps it isn’t worth the personal risks. Perhaps they can individually hang on long enough and won’t be drowned by the tidal wave that’s hitting the sector and many of their institutions.

Meanwhile, the strong will get stronger and the gap between the haves and have-nots will continue to widen. And the kids who can’t afford the wealthy private colleges or high-priced flagship universities will bear the brunt of these decisions. As will the multitude of faculty and staff who will see their prospects diminish and their incomes stagnate.

 

 

The problem is the students, not the colleges. Really?

Libby Nelson in this Vox essay claims the problem isn’t the colleges; rather, the problem is America’s students.

This isn’t the first time I’ve heard this claim. In fact, you’ll hear it quite often if you hang around faculty meetings.

My reply is always the same: if the students aren’t good enough for your college, then don’t admit them.

Of course, admit them they do. Why? Because the colleges want their students’ money. They’re quite willing to take their money even if they think the students aren’t up to snuff.

Personally, I hate cultures of excuses. It’s too easy to ignore your own shortcomings if it’s always someone else’s fault.

When I served a college as its president, my position was simple: once we let them in, they (the students) become our responsibility. If they aren’t prepared to handle the work, then it was up to us to find ways to help them close the gap. It was up to us to inspire and motivate them. It was up to us to establish high expectations and maintain high standards. It was up to us, as the experienced adults on campus, to foster a vibrant, engaging, relevant learning experience that significantly improved our students’ odds of success.

Above all, it was up to us to care. As I’ve mentioned before, my expectations of faculty and staff were clear and simple: care deeply about the students, care about the institution and be really good at what you do.

Would all our students succeed? Of course not. Ultimately, each student must make a choice: to commit to succeed, or not.

As we know, many don’t succeed. Many drop out, often with debt. Many graduate but without the experiences, knowledge, skills and judgment they need to succeed in a hyper-competitive global marketplace. But let’s be real: one of the reasons there is so much failure in the system is because many colleges aren’t very good at what they do.

I’m certain of one thing: students who attend a college that tolerates the view that the problem is the students will have less chance of success than those who attend an institution that accepts the challenge without excuses and refuses to blame students.

If you don’t love the students, find something else to do with your life—something that will do less harm.

 

Private Colleges Treading Water At Best

From the annual survey of private, nonprofit, four-year colleges conducted by the National Association of College and University Business Officers (NACUBO), we learn that:

  • the average discount rate for first-time, full-time freshmen jumped 1.6 points this past academic year and now stands at a record 46.4% (meaning that, on average, private college freshmen are charged only slightly more than half of the published tuition);
  • the average discount given to all undergraduates was 40.9%, up from 33.9% just 10 years ago;
  • net-tuition revenue grew by only 1.1% and, over the past 13 years, has essentially been flat; and
  • undergraduate enrollment was down at half of the colleges surveyed.

What’s this mean for students and colleges? Continue reading

Choosing a College Means Managing Your Finances First and Foremost

The level of consumer debt in this country (as a percentage of GDP, per household or any other way you care to measure it) is scary, as is the amount of student-loan debt we’ve accumulated. It’s a recipe for disaster. And, indeed, we’re experiencing one such disaster, which was triggered by the collapse of the housing bubble, and may be on our way to an even worse one. Or not. I’m not in the business of financial or economic forecasting, but I do appreciate risks, which are quite substantial.

So what’s this have to do with choosing a college? A lot.

If your choice of college means you’re going to be incurring an unreasonable amount of debt considering your field of study and job prospects, then your choice is a bad one. Debt is risky, especially when it doesn’t have a high probability of leading to an income stream sufficient to comfortably service the debt.

Yet that’s what’s routinely happening. Students by the hundreds of thousands aren’t fully considering the risks associated with student-loan debt when they choose the college that’s “right” for them. Consequently, their “right” college is actually the wrong one.

A financial and economic train wreck is inevitable when economic fundamentals are lacking. It’s already happening. The train wreck is in its beginning stages, with large numbers of defaults on student-loans and large numbers of college graduates who are financially dependent on their parents long after graduation and who are unable to launch their careers and households in the way possible by their parents’ generation.

The answer on a micro-basis is simple: if you can’t afford the college, don’t go. Find one you can afford. If you can’t afford any just yet, there is nothing wrong with working a year or two and saving for your education. And if you can’t swing the cost even with savings, at least make sure you pursue a field of study that promises to generate sufficient income to cover the debt service.

It’s hard to get an 18-year-old to appreciate the risks associated with debt. For heaven’s sake, it’s hard to get many older and far more experienced people to understand these risks.

But whether you understand them or not, they’re real. And if you poorly manage your finances, your decisions will come back to bite you in the *ss.

Don’t make your college decision based primarily on emotion. Don’t fall for the myth that there is only one “right” college for you.

Decisions have consequences. Be smart. If you make sound decisions, good things will happen down the road.

Easy Credit Breeds Disaster for College Graduates

As evidenced by today’s Twitter traffic, there are those who think the student debt situation isn’t all that bad. The number of borrowers with more than $50,000 of student-loan debt is relatively small, they say. Hence, what’s the problem? I suppose these apologists think $33,000 of student-loan debt isn’t bad even if you’re only working at Starbucks or waiting tables. Or have a car loan on top of the student loans.

I can’t believe we’re having this conversation. The data are overwhelming. Delinquency rates are sky high, household formation is at Depression-era levels, twenty-somethings aren’t making large purchases, colleges are in dire financial straits due to families’ inability to pay higher tuition, nearly half of recent college graduates are underemployed and many who have full-time jobs remain financially dependent on their parents into their 30s. Yet there are those who think student-loan debt isn’t a problem. I wonder if they’re the same people who thought housing prices were reasonable in 2006.

The student-loan fiasco and the housing bubble share the same root cause: easy creditAnd easy credit always leads to disastrous outcomes. Always.

The housing bubble was fueled by lenders who were throwing money at borrowers irrespective of their ability to repay. The student-loan bubble is fueled by the federal government throwing money at student-borrowers irrespective of their ability to repay. High rates of default are the inevitable consequence as are financially strapped twenty-somethings even among those who manage to make their payments.

The housing bubble was worse in this respect: defaults had major ripple effects through the entire economy due to the manner in which risk was spread. The losses were massive and put both institutions and individuals in jeopardy. In the case of student loans, most of the risk is borne by the federal government. The risks to the financial system aren’t nearly as great. But the risk to individual borrowers is high.

Indeed, the student-loan bubble is worse in some respects. Student loans hit individuals as they’re trying to get off the ground and establish financial independence and security. The failure to take flight in your 20s has negative long-term financial consequences. Many of these debtors are likely to be underwater for years. The impact on their lives and on the economy in general will not be slight.

When you put an 18-year-old and easy credit in the same room together, bad things almost certainly will result. Indeed, we’re seeing it play out today.

Apparently, the easy credit will continue. This puts a lot of pressure on potential borrowers to act responsibly. Will more of them come to realize the risks associated with the current debt-fueled higher education system?

In the case of the housing bubble, the end came when the credit dried up. The easy credit for students may not dry up anytime soon.

I suppose what we need are high schools that do a better job of educating students and their parents on the risks of debt. But that’s unlikely to happen. Even if they tried, one wonders what it would take to counter the constant barrage of messages encouraging consumer borrowing, whether it be for college, a new car or any of the other consumer items the possession of which is apparently essential for true happiness.

When I was in grade school, I recall the federal government’s massive anti-littering education campaign. It changed behavior. We need something similar for debt. But where will it come from? Even the government is a massive purveyor of debt these days, encouraging people who can’t afford it to take out more loans, semester after semester.

Just because someone is willing to lend you money doesn’t mean you should take it. The insidious nature of debt needs to be fully considered.

Easy credit breeds disaster. Always.

 

 

College President Wannabes Can Learn from Warren Buffett’s Mistakes

When I attended the Harvard seminar for new college presidents in 2010 (the premier training seminar for new college presidents), we were told about a third of us wouldn’t be at our schools in three years. Harvard didn’t pull this stat out of thin air. It was merely what they had observed. (I have no idea what percentage of that class is still with their original schools. I’m aware of at least two who aren’t, and I’m also aware that the board chair tried to run another one out of town after less than two years on the job [see this earlier post on the UVA fiasco].)

For a variety of reasons, the tenure of many college presidents is short. Short tenures are bad for both the president (and his or her family) and the institution. We should try to avoid them and take greater care in matching candidates to the institutions as well as in supporting and developing presidents once they are in place.

I speak from personal experience. My own tenure as the president of a liberal arts college was short. The reason was simple: I made a grave mistake in accepting the offer to serve that particular institution. Actually, it was probably the biggest misjudgment of my professional career.

I don’t blame anyone but myself. I got sloppy. In my enthusiasm for the opportunity to serve an institution that was dedicated to teaching and developing young people, I ignored the advice I frequently had given many others as they considered their own professional moves—advice such as, never ignore a red flag.

With the benefit of hindsight, it seems obvious I ignored or downplayed red flags that were present during the hiring process (red flags for me, which may not be red flags for anyone else). It’s also obvious I failed to identify and consider fully the gap between my own values, expectations and aspirations and the reality on the ground.

Yet I am reluctant to generalize. Each situation is different. So I’m not going to comment further on my own experience.

Recently, however, I came across a letter that seemed to convey some universal principles that are directly pertinent to the situation in which many presidential candidates find themselves (whether it’s with respect to a college or a company). It’s the letter Warren Buffett penned to his shareholders back in 1989.

Mr. Buffett is an investor. He never ran a college or served as CEO of any other operational entity for that matter. But he’s one smart, wise man. And one of the things I like best about him is that he’s a great teacher. He teaches by sharing his own experiences, including his own mistakes and failures.

His 1989 letter contains such reflections under the heading “Mistakes of the First Twenty-Five Years (A Condensed Version).” Mr. Buffett learned some lessons the hard way — through mistakes along the way. If candidates for college presidencies reflected on some of the experiences shared in that letter, I’m convinced our track record with college presidencies would be better.

Here is some of what Mr. Buffett had to say: Continue reading

Where is the desire to be great?

One of the greatest American football coaches ever died Friday night at the age of 82. Chuck Knoll took a team of long-time perennial losers and lead the Pittsburgh Steelers to championships. Knoll is the only coach in the history of the game with four Super Bowl victories.

When reading about his passing, I came across this reference to his very first press conference:

Asked at his first news conference if his goal was to make the Steelers respectable, Noll said, “Respectability? Who wants to be respectable? That’s spoken like a true loser.”

Gerry Dulac of The Pittsburgh Post-Gazatte added:

Success was never a destination for Chuck Noll. It was not a road that had an ending, rather always a new beginning. It was a journey, a path that never allowed for complacency or made room for satisfaction.

“He had a great curiosity about things totally unrelated to football or sports,” said former Steelers publicist Joe Gordon, who has remained one of Mr. Noll’s closest friends. “He has an amazing appetite for knowledge. It’s incredible. Even in the later years, he’s the same way. That’s the thing that always impressed me about him.” (Quote from P-G story.)

The tributes to Chuck Knoll reminded me of the characteristics I’d be looking for in a college if I were seeking a place to spend four years studying for a degree. Continue reading

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