Governing Magazine

Can Higher Ed Control Its Costs?
Colleges are facing the same dilemmas as health care providers.

By Josh Goodman | November 2009 

At Virginia Tech, freshmen learn mathematics in a 60,000-square-foot box of a building that used to be Rose’s discount department store. It’s called the Math Emporium now, and it has 537 computers. Nearly 5,000 students take math there each semester, and 95 percent of Virginia Tech undergrads take a course there at some point in their college careers. But what the students do at the Emporium doesn’t likely resemble any class you’ve ever seen.

For one thing, they’re taking many different courses: algebra, geometry, calculus, sitting side-by-side but following the lessons their individual computers are teaching. The students show up when they want and leave when they want. Instructors roam the warehouse-like space looking for those who have placed red cups on their computers—the signal for help.

Some students complain about the Math Emporium. Some parents do, too. Nonetheless, Virginia Tech officials strongly believe that students are learning math better than they did when they sat in lecture halls watching professors scribble on chalkboards. “The time a student learns mathematics,” says Mike Williams, the professor who designed the Emporium a dozen years ago, “is when he does it, pencil in hand, using his own brain cells to find the answer.” Or, in today’s world, sitting at a keyboard.

The Emporium has another crucial benefit, though: It saves the state university a fair amount of money. High-priced faculty play a reduced role in the operation. Students learn mostly from graduate students and even some upperclass undergraduate instructors—and, of course, from the computers.

This is a crucial time for innovations such as the one at Virginia Tech. Since the 1980s, tuition at colleges and universities—both public and private—has increased far faster than the rate of inflation. Unless the trend changes, a college degree will be out of reach for an increasing number of young people. The challenge for colleges is to keep costs in check so that tuition doesn’t have to rise, while somehow maintaining the quality of instruction.

If you think that challenge sounds like another one the nation is stuck with at the moment, you’re right. We’ve spent most of the past year arguing about how to control the cost of health care. But the problems of higher education are, in an odd way, analogous. Costs are spiraling out of control, demands keep increasing, and governments lack the resources to pay for them. Many of the questions Americans have been asking about medical care have their counterparts in the academic world.

For example: Why do students spend so much time listening to professors lecture? Why does a standard college education last four years? Why do schools with low graduation rates keep getting so much state money? As the resource gap increases, the questions are becoming more insistent. And like hospitals and HMOs, colleges and universities are looking at how to do more with less.

The stakes are high. If the efforts fail, state lawmakers will face a painful choice between committing more money to higher education or allowing America’s public colleges and universities—and America’s economy—to suffer.

If there’s one industry in this country that might seem allergic to change, it’s higher education. “It’s an industry that has rising costs but no productivity gains,” says David Breneman, a higher education economist at the University of Virginia. “People are still teaching in the way they did at the time of Socrates.” For decades, even talk of change was relatively rare.

That’s very different, of course, from the situation in health care, where cost containment has been a buzz phrase for years. Almost everyone acknowledges that the future of the American health care system hinges on getting good results while controlling spending.

Colleges and universities are only beginning to speak that language. But the reason isn’t just hidebound tradition. When university budgets are out of balance, schools have an alternative to cost cutting. They can simply raise tuition. And they have. Tuition and fees have increased by 439 percent since the early 1980s, an even more dramatic increase than the rise in health care costs. These increases are making it harder for American students to finish college. Among adults 25 to 34—the generation that has had to cope with soaring tuition rates—the percentage with at least a two-year degree is only tenth-best among developed nations.

That isn’t to say that public colleges and universities have been spending recklessly. Over the past decade, their spending per pupil has stayed roughly flat. Public universities remain a bargain when compared to their private counterparts, at which a four-year education can cost as much as a 30-year mortgage.

So why does tuition keep going up? The problem, college officials say, is state lawmakers. As states have faced budgetary pressures in other areas—most notably health, K-12 education and prisons— they’ve scaled back per-pupil support for higher education, knowing that the difference could be made up out of the pocketbooks of students. As Jim Rosapepe, a Maryland state senator, puts it: “You can’t increase tuition at the prisons.”

More and more, though, lawmakers are learning that tuition at colleges and universities can’t just rise at rapid rates indefinitely. Tuition has turned into a campaign issue, with candidates promising to control the cost of higher education as a matter of political necessity.

So, belatedly, cost containment has become a hot topic in higher education. There are now hundreds of experiments with computer-based courses, even at schools that, quite recently, might have dismissed the idea as beneath them. After a successful pilot program, Tennessee, for example, is redesigning instruction at all of its public colleges, with Emporium-style teaching a big part of the strategy.

But Virginia Tech’s Emporium remains, even after 12 years, one of the most revolutionary of the experiments. That’s because it flouts one of the most sacred laws of higher education: that earning credit is about spending time in class. In college classes almost everywhere, each student listens to the same lectures and completes the exact same homework assignments. In the Emporium, students can stop working on a lesson whenever they’re confident they know it. This approach likely saves money. Most schools expend a lot of resources teaching students things they already know.

Computer-based instruction, however, is only a small part of the story. If you want to see more systematic efforts to tackle the cost conundrum, a good place to look is Maryland.

Five years ago, Maryland had one of the most severe cost-control problems facing any university system. Students in the Maryland system were paying, on average, the nation’s sixth-highest tuition, thanks largely to cuts in state funding. At that point, the university system launched what it called the Efficiency and Effectiveness Initiative, an effort to save money anywhere and everywhere, without hurting the quality of the schools. “The pattern in higher education is that you make cuts and raise tuition in bad times,” says William “Brit” Kirwan, chancellor of the Maryland system, “and build back into business as usual in good times.” It’s that pattern that Kirwan has sought to break.

Some of what Maryland came up with was fairly mundane (though effective). It launched collaborative purchasing across its campuses to lower prices. It required faculty in each academic department to spend slightly more time teaching, thereby lowering personnel costs.

Other steps, though, were more radical. Every student in the Maryland system has to get at least 12 credits outside of the classroom. Students satisfy this requirement through study-abroad programs, internships and online instruction. There may be room for dispute about how much students are broadening their intellectual horizons, but there’s no disputing that the schools save on teaching and facility costs.

Maryland also is one of a growing number of states seeking to direct more young people to community colleges, at least to begin their careers in higher education. The key to making community college more appealing is to make it easier for students to switch to four-year schools later. In Maryland, any student who graduates from community college is guaranteed a slot at one of the state’s four-year schools. And the state is working to ensure that these transfers can graduate with a bachelor’s degree two years later. Maryland is even offering dual enrollment, under which students take classes at a community college and a four-year school simultaneously.

Those might sound like modest steps, but they’re not. Maryland is acknowledging that far more students will spend at least part of their college careers away from residential campuses. The live-in nature of college, after all, is a big part of what makes it expensive. Schools pay for dormitories, sports stadiums, cafeterias and health care facilities. Students also pay for those things—indirectly, through higher tuition. Community college doesn’t come with the same price tag or the same need for thousands of dollars in student loans.

The best evidence that Maryland’s approach is working is that the system’s in-state tuition hasn’t increased for four years. Part of the reason for that can be traced to politics. In Martin O’Malley’s successful campaign for governor in 2006, he spent hundreds of thousands of dollars producing ads promising to control tuition costs, and he has sought to keep that promise. But it’s also true that the system has been saving money through the Efficiency and Effectiveness Initiative—more than $120 million so far, according to some estimates. Legislators have directed more money to higher education to keep tuition down.

Other states are trying similar cost-containment efforts. In Louisiana, Governor Bobby Jindal has assembled a special commission with the goal of getting a handle on the higher education budget. One of the governor’s priorities is to substantially increase the share of Louisiana degrees awarded at community colleges by making four-year schools more selective. Louisiana already has a funding model that assigns money to schools based on performance standards, such as graduation rates. It is one of a growing number of states that intend to fund schools based on the degrees they produce—not the number of students they enroll.

Despite the promise of these approaches, there are plenty of skeptics. Some, inevitably, are professors uncomfortable with new technologies or departments that fear they will be losers in performance- pay systems. But there are less self-interested arguments against the changes that are being put in place. Ronald Ehrenberg, a higher education economist at Cornell University, wonders whether the push for more extensive use of community colleges could backfire. “We know,” he says, “that students who start out at two-year colleges are much less likely to get four-year degrees.”

The most troubling concern about cost-control efforts in higher education, however, is that they aren’t nearly enough at this point. Jim Rosapepe, the Maryland state senator, is a big supporter of the state’s efficiency initiative. He should be—he was on the university system’s board of regents when it was designed.

However, Rosapepe notes that a recent legislative study found the statewide system $700 million short of funds over the next decade. In other words, he says, all of the efforts at efficiency haven’t changed the fundamental reality that Maryland colleges and universities need more money. Rosapepe wants that money to come from general state revenues. “The big driver of tuition is state support,” he says. “The states with high tuition have low state support. States with low tuition have high state support.”

For now, Rosapepe is right. If something doesn’t change, states will either have to raise tuition, thereby reducing access, or transfer money from somewhere else in an over-strapped budget. Given that predicament, states had better hope that colleges and universities go a lot further toward making cost containment work.