Initiatives for Containing the Cost of Higher Education

This paper is one of three in a series on higher education costs. The series also includes “Addressing the declining productivity of higher education using cost-effectiveness analysis” and “Public policies, prices, and productivity in American higher education.”

How to contain the cost of colleges and universities is attracting much attention in higher education policy circles. The reasons for the attention are not hard to fathom. Students and parents labor under ever-rising tuition rates. Schools feel they must spend more in real terms to build or protect their brand, by boosting faculty research and scholarship, enhancing the student experience, and so on. And to round out the perfect storm, most states are curbing higher education appropriations because of rising budget pressures.

The result is that many colleges and universities are experiencing financial difficulties in spite of yearly tuition increases—difficulties that often erode the quality of undergraduate learning. For example, restricted course offerings, large class sizes, and a high proportion of classes taught by adjuncts and other casual-payroll teachers are common features of the undergraduate experience at many universities. Faculty feel ever more stressed by these money-saving changes—which makes it more difficult to achieve innovations in the methodology and culture of teaching or even to sustain current levels of quality.

Failure to change will make traditional universities vulnerable not only to political forces but also to disruptive innovations from for-profit universities and online offerings. In time, much of the traditional sector will be seriously weakened, or worse, if it does not reinvent itself.

Many, including myself, believe this would be extremely unfortunate because it would strand massive amounts of human and physical capital, damage our global competitiveness, and deprive both the best and most vulnerable in our population of the face-to-face teaching and mentoring that are best delivered in a campus setting.

So far, however, more has been said than done. The lack of traction is a major problem for students, their families, and the state and federal agencies that fund higher education. So what is to be done? The good news is that traditional campuses do not lack for opportunities to effect needed improvements. The bad news is that organizational and market forces work to sustain the status quo.[1]

I believe that more can and should be done on campuses—and by federal and state governments, foundations, and system-level administrations—to spur campus-level change. There have been many less-than-successful efforts to transform traditional universities, but at the same time there has been steady progress. Now the time appears right for a coordinated and concentrated attack on the problem. This paper presents a set of initiatives that, in my view, can make meaningful progress toward containing the cost of higher education and have the added benefit of being both politically and operationally feasible.

Before proceeding, however, it is necessary to clarify the term “cost containment.” Higher education policymakers often reference two distinct concepts without differentiating between the two:

Productivity improvement: Getting more from the resources provided to universities and colleges by reducing the cost of operations, boosting the quality of learning, or (ideally) both; cost-reducing initiatives must be accompanied by robust quality assurance to avoid learning degradation in the interest of apparent cost-effectiveness.[2]

Price moderation: Holding down increases in net price to students—specifically, limiting the degree to which cost-saving productivity improvements are used to boost cross-subsidies and amenities instead of limiting tuition and augmenting financial aid.

Price moderation depends on productivity improvement, but not in a one-to-one relationship. Poor productivity leads to higher cost, which in turn forces higher prices. However, the fruits of productivity improvement can be used for purposes other than price moderation—for example, to provide faculty with more research time. Hence, policymakers must consider initiatives for both productivity improvement and price moderation.
The initiatives to be presented cover both meanings of cost containment. Most are targeted clearly to one or the other, but where an initiative covers both, the overarching “cost containment” descriptor will be used.

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William F. Massy | American Enterprise Institute

Notes
1. My views about the barriers, and what can be done about them, can be found in William F. Massy “Creative Paths to Boosting Academic Productivity,” in Reinventing the American University: The Promise of Innovation, Ben Wildavsky, Andrew P. Kelly, and Kevin Cary (Cambridge, MA: Harvard Education Press, 2011), 73-100.
2. See for example, National Research Council (NRC), “Panel on Measuring Higher Education Productivity: Conceptual Framework and Data Needs” in Improving Measurement of Productivity in Higher Education, ed. T. A. Sullivan et al. (Washington, DC: The National Academies Press, 2012).