The “scholarly novella” part comes through the stories of the people working at these institutions. Brown, who conducted about 150 interviews with administrators, staff, and faculty members on the eight campuses, changed the names and locations of the colleges in the book — higher-ed nerds might enjoy trying to piece together the identity of the institutions from the clues. But that anonymity allowed Brown’s subjects to be more candid — which makes Capitalizing on College a compelling window into how administrators are actually thinking about their institution’s evolution, and how the drive for enrollment and margins has started to contort it.
One administrator at “Ardmore University” — a Protestant “accelerated” institution once managed by a “family firm,” now focused on “superprofits” — admits that the university’s outsourced online program has sapped the once-core residential program. “They say they want high quality, but they’re not putting the money towards that in terms of classes. Rather than building an institution of higher learning, it feels like they’re building an empire.” Another administrator at the university calls it “a Ponzi scheme.”
Brown’s interviews also bring out some of the comedy and heartbreak behind the struggle to keep these institutions alive. One enrollment administrator at prestigious, traditional “Boxborough College,” amid declining prospects for his institution, noted that it was completely unprepared for the nonwhite, nontraditional students it would have to recruit in the years to come. A vice president at “Havertown College,” another traditional institution, described the myopic leadership the college had in the past. “The president was about 80 at the time; he did not understand the youth that were coming to Havertown, and we were not growing,” the administrator says. “We were in a meeting, and he told us, ‘Boys, you just need to forget those computers. You need to make sure you got paper and pen because that is just a fad that’s going out!’”
I asked Brown about what he found in his research. This interview has been edited for length and clarity.
In your examination of these colleges, what surprised you?
What was completely unexpected to me were the two economic terms I actually had to create to describe this model of how a nonprofit survives. What the entrepreneurial schools in the book did was they created new markets, periphery markets, that had margins, or profits. This is a thing that we don’t talk about in higher ed — there are a lot of profits in higher education in the nonprofit sector — and we don’t often talk about what we do with those profits. These profits at these schools were coming off of tuition revenue. We all know that the residential model is not sustainable. That’s why we have endowments. But it’s not sustainable — and so online, satellite, adult-ed, and international students have subsidized American higher education for more than two decades. The term that I use to describe that is called “margin capitalization.”
The second big finding that I did not expect was that some schools became so good at margin capitalization that they were able to take it to scale. There’s a number of schools in the United States that run this model, and they make so much money off the margins — to the tune of $70 million, $100 million, $150 million, annually. They take that money and they completely transform the residential campus, with big buildings, amazing facilities. It’s the marginalized students that have been funding this for two decades.
Some of these schools make so much money that in addition to pulling $100 million back to campus, they have leftovers. What they do with that is they fund their endowment. I call that “margin philanthropy.”
You say that this isn’t often talked about in higher education, but a number of college-finance people I know are immersed in this stuff. Maybe a number of academics don’t know how this all works?
That’s why it was so important for me to write this as a story. This needed to be a scholarly novella, so the average person who saw a fairly good-looking cover and was concerned about higher education could pick it up and learn, in story form, how the sausage was made. You and your colleagues do have a firm grasp on this, but most in academia — and anybody signing a student loan now or in the past 20 years — should read this book if they want to understand why we’re in the present crisis.
Competition is the driving factor in your book. Do you see its overall effect as deleterious, or making the sector stronger?
The way it has been framed, competition will bring about quality because it will allow the students to shop — and the assumption is students will always shop for quality. It’s a great sound bite, and it mobilizes people to pick up articles or whatever. But in practice, when you incentivize students to shop, to act in self-interest, you also incentivize the institutions to act in self-interest. If we’re going to agree that the best way to organize a system of higher education is to push that down to the level of the individual, you have to account for the actions that are going to take place at the level of the organization, and that’s what we have not done as a society. We’ve focused on feds, we’ve focused on students, and yet we’ve not gone inside these institutions to take a look at the impact of our policies.
Is there a structure that would work better than pushing this competition down to the bottom?
I think we need to question what we’ve told ourselves for 20 to 30 years, that if we give the customer greater choice, they’re going to always look for quality. Mmm, maybe not so much.
We’re going to have to get our heads around philanthropy’s role in this. Fundamentally, we have failed, as leaders, as a society, in structuring a system that leaves the individual in a better place on the back end of the system. Why the hell do you think society is revolting right now, when an individual comes out with $50,000 to $100,000 in student loans and they can’t get ahead? Because on the front end, they bought into a narrative.
To some extent, if you look at areas around the campuses — whether you’re talking about the corporate partners in foodservice or housing, or the chain stores and restaurants populating the modern college town — everyone is looking at the student as a source of revenue.
Yes, because there are margins in higher education, and we need to do a better job of talking about those margins. One discussion I had with a university president about Sodexo: He said, I really wrestled with the Sodexo contract because we’re a Catholic campus, we believe in social justice, so what we decided was that we were going to allow Sodexo to come in, but they had to pay the minimum wage set by our institution. They were one of the top three highest paying campuses for Sodexo workers nationally and it was a mission-guided standard. That’s where that tension between mission and margin comes in. Leaders just have to grapple with it every step along the way.
How has competition and drive toward growth promoted the spending on nonacademic functions and priorities overall, and to what extent are these other things driving the costs up?
Higher education is an asset-heavy institution. These leaders in the book understood that in luring a student, there’s an information asymmetry. A client or a customer comes onto campus and goes, Huh, I don’t know a whole lot about what’s occurring in the classroom, but the buildings look nice. And if the buildings look nice, the education here must be nice. And so buildings and the campus function as a signal of quality. One university president at another Catholic college deliberately built the graduate campuses on the periphery or in shopping centers in various parts of town – if you had to go to the medical graduate campus, it was over there. That president said, I’m always looking for various locations to build some of our periphery programs, because if those programs ever start to dwindle or decline in enrollment, those are the ones that I can sell off quickly. I found it ingenious. But some of the private third-party housing and the bigger buildings, those are heavy sunk costs.
Academic programs aren’t all that agile, either. Isn’t that part of the cost issue? What would make the academic side more agile?
Schools that take three or four years to create and roll out a program are just going to struggle in this environment. Faculty need to come to the table, not just with their critical minds, but also with a solution. That’s what has shocked me in my move from administration to faculty — the critical nature of the faculty and the lack of solutions that many of my colleagues will propose will continue to cripple institutions whose leaders want to be innovative. In the book, I talk about two academic towers: One goes from the bottom up, and these are sort of your stable traditional programs. And then there are other programs that a president or vice president creates, that actually report directly to the president, and they operate top-down — they can be an overseas satellite market or online, but they’re developed quickly with the oversight of the president.
Thinking from an organizational standpoint, this isn’t actually foreign to higher education. It’s just foreign to those places that report to the provost. Most Division 1 athletic programs report directly to the president, and because presidents know that if you mess that up — especially those that are running in the power four conferences — you’re done. If it’s revenue-generating and quick decisions need to be made, I would argue that adept leaders know that those decisions cannot be bogged down by faculty who are not coming to the table with solutions.
Do colleges really have to follow this stepladder trajectory toward getting bigger that you lay out in Capitalizing on College? Is there room for staying small and focusing on the educational mission?
Basically, the book starts with the traditional model that is sort of governed by elites — you have an endowment and a residential campus. You use the revenues off the endowment to subsidize the campus and you try to climb in the rankings. Well, when I arrive on campus for these interviews, the leaders are saying this model isn’t working. They’re trying to form a new model, and these are the other three strategies in the book. You do not have to follow one step after the other. In fact, one chief information officer at one of the schools said he wanted his college to leapfrog to a scaled model. I don’t think everybody needs to look like a Southern New Hampshire or an Arizona State. There are other schools out there that may be able to form other revenue streams — for example, let’s just take a look at Paul Quinn College. Paul Quinn is starting to figure out alternate revenue streams to bring into the organization. If you look lately, they’re starting to bring in businesses and organizations on to campus. They’re actually starting to look like a multinational corporation.
Again, we have built a model that isn’t sustainable. It requires some type of subsidy, whether it comes from business, student loans, the state, or the feds. Or look at the Brigham Young University campuses — all three of their campuses are subsidized by the LDS Church and every year, all three campuses make the lists for the most cost-effective or the lowest cost of tuition, because the LDS Church is subsidizing the cost of that residential model. So I think if schools are going to choose to stay small, they’re going to have to figure out those alternate revenue forms in order to move forward financially.
If competition is a driving factor causing all of these intended and unintended consequences, what is the future for more cooperation?
We’re going to have to figure out cooperation. Is it cooperation from religious traditions or value traditions — like the NAACP and HBCUs? There are a bunch of tuition-driven institutions — historically Black institutions, Hispanic-serving institutions, women’s institutions — that could also partner with associations. Another potential source of support is industry. Maybe one of the inter-institutional partnerships isn’t so much across colleges, but maybe it’s Apple or Microsoft and colleges in a way that starts to tackle that philanthropy question. Are these companies willing to invest in the workforce necessary to sustain those technological innovations moving forward?
Another thing that I would like to see colleges also improve on is attention to vocational partnerships, to the extent that we believe as a society that it is beneficial for an HVAC technician not to just have the technical training, but to have four or five core courses that we believe as a society these individuals need to function as good citizens — democratic values, a knowledge of all religions, pluralism, whatever it might be. But for some reason, colleges have stiff-armed the vocational training. A few institutions are starting to dip their toes in. That’s where we need to look for innovation on the horizon.
Want to read more?
Got a tip you’d like to share or a question you’d like me to answer? Let me know at scott.carlson@chronicle.com. If you have been forwarded this newsletter and would like to see past issues, find them here. To receive your own copy, register here. Follow me on LinkedIn.
If you’re interested in helping students land in meaningful work after graduation, check out my book, Hacking College: Why the Major Doesn’t Matter — and What Really Does. The Hacking College Learning Community held its first meeting two weeks ago, and the response from the participants was enthusiastic. Read more about it here. The learning community meets tomorrow, June 12, to discuss chapters 3, 4, and 5.
