Opinion: Students, the New Cash Cows

Cash cow: A product, business unit or consumer that generates unusually high profits, enough to keep less profitable aspects of the business afloat.

Colleges and universities have always charged some students more than others — that’s what financial aid is all about. But the growth of for-profit higher education, combined with pressures on state universities to raise more of their own revenue, is intensifying the competition for the students who will pay the most up front.

Unfortunately, some efforts to rake in more cash can lower the quality of the basic product — both the likelihood of graduation and the value of a college degree.

Competitive markets can work well when it is easy for consumers to assess product quality — if they can taste before they buy.

But in higher education it’s hard for both students and parents to know exactly what they are buying and whether they will get what they pay for.

Students have to invest considerable time, energy, and effort on their own to effectively utilize the product. Their success depends largely on their own ongoing motivation.

Enrollment rates are far higher than completion rates. Many college students drop out before completing their degree. Less than 60 percent of first-time full-time students seeking a bachelor’s degree at four-year institutions in 2000-1 completed that goal at that institution within six years (it’s difficult to track students who transfer to other institutions).

In other words, enrolling in college is a bit like joining a health club. And as with a health club, the revenue comes from signing people up, not from encouraging them to use the services.

For-profit institutions like the University of Phoenix have expanded tremendously in recent years, largely as a result of investments in marketing and recruitment, which represent about 23 percent of their total budget. Their six-year graduation rates average only about 33 percent.

They have been fined in the past for violating federal regulations, and some states, including New York, continue to resist their expansion. A recent BusinessWeek cover story documents problems with marketing to G.I.’s and other active-duty military (with taxpayers footing most of the bill).

But despite widespread awareness of these problems (and with encouragement from some business interests), some state universities have begun to imitate the for-profit model — emphasizing recruitment far more than retention.

Intensified marketing campaigns are aimed at out-of-state students, who typically pay higher tuition and fees. This well-meaning strategy can backfire for several reasons.

Administrators can feel pressure to invest in new facilities that look good on the glossy brochures — like a new recreation center — rather than improving student advising or course availability.

If many institutions ramp up their marketing and recruitment at the same time, their efforts can cancel one another out. They all spend more money but none of them gains a competitive edge. In a period of economic downturn, fewer students can afford out-of-state tuition.

If more students are added without increasing the number of faculty and staff, students get less individual attention and can’t get into the courses they need to graduate. Some students thrive despite these problems; others get demoralized.

As I emphasize out in a new book entitled “Saving State U,” the percentage of students taught by full-time, tenure-track faculty members per student at state universities has steadily declined in recent years. And it is likely to decline even further.

In Massachusetts, cuts in state support for higher education of 37 percent between fiscal 2008 and fiscal 2010 — the biggest percentage cuts in the nation — have inspired a new plan at the flagship campus to reward individual departments that attract more out-of-state majors.

It’s not clear how we could accomplish this, but since students from New York are within our reach, one colleague of mine has offered to publicly renounce the Red Sox in favor of the Yankees.

And maybe we could all say moo.


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