Higher education and the fiscal threat -- from The Parthenon Group - November 2012

 

Addendum on 12/14/12:

  • Big construction costs, MOOC disruption mean ominous cocktail for higher ed — from educationdive.com by Davide Savenije
    Dive Summary:

    • After years of aggressive expansion efforts, higher education is facing the consequences — according to Moody’s, overall debt levels for rated institutions more than doubled from 2000 to 2011 while donations and investments shrank by more than 40% relative to the debt.
    • While debt has swiftly reached a tipping point for universities, they are not alone —  the total amount of student debt currently exceeds $1 trillion and nearly one in every six borrowers’ student loan balance is in default.
    • Experts and school officials are predicting an imminent reshaping of the field of higher education — Harvard’s annual fiscal report claims “the need for change is clear” as institutions face a decreased “ability to generate […] new resources”.
    • As prospective students become aware of the decreasing value of the higher ed degree, the sudden emergence of MOOCs are becoming an increasingly viable and economically-friendly alternative.

 

From DSC:
We had better step up the pace of innovating/experimenting – and move to do so quickly. But the problem is, moving quickly is not in the cultures of most of the more traditional institutions of higher education.

 

Also relevant:

From Boardroom to Classroom — from insidehighered.com by Alexandra Tilsley

Excerpt:

By joining forces, the three universities hope to leverage the languages they don’t all have, affording students more options, and to deepen existing programs by, for example, facilitating collaboration between instructors of the same language at different institutions.

 

 

From DSC:
Higher-level courses at smaller colleges might want to look at this as well.  If an economically-feasible minimum threshold can’t be reached on one campus, open it up to a consortium of institutions (similar to Semester Online).

 

 

Treasury: Debt limit is looming — from wallstcheatsheet.com by Aabha Rathee

Excerpt:

The U.S. Treasury warned that it was still on schedule to reach its debt limit close to the end of the year, even though it was taking measures that would allow it to continue borrowing funds through early 2013. It also plans to sell $72 billion in notes and bonds in next week’s refunding exercise.

The Treasury was $235 billion below the $16.4 trillion debt limit as of Monday. While the department did not say when its emergency borrowing tools are likely to run out as well, economic experts have earlier forecast the latter half of February as the deadline. Raising the debt ceiling will be a big challenge for the Congress once the presidential election, set for November 6, is over. Doing so will also likely have an effect on the fiscal cliff, the more than $600 billion in federal spending cuts and tax increases set to take effect at the start of next year.

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The Fiscal Cliff Explained  — from about.com

Excerpt:

“Fiscal cliff” is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

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Fiscal cliff ahead: What it may mean — from fidelity.com
Risks to the economy and stocks are high if all tax hikes and spending cuts take effect.

Excerpt:

Without congressional action, up to $600 billion of expiring tax cuts, new taxes, and automatic spending cuts are set to take effect at the end of 2012 or beginning of 2013. If they hit all at once, the impact could amount to as much as 4%-5% of GDP, according to our research, the equivalent of falling off a “fiscal cliff.” Some experts anticipate the economy would experience a significant slowdown and there would be major consequences for financial markets.

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Addendums on 11/8/12:

 

Why these kids get a free ride to college --= from The New York Times by Ted Fishman

 

Excerpt:

Back in November 2005, when this year’s graduates were in sixth grade, the superintendent of Kalamazoo’s public schools, Janice M. Brown, shocked the community by announcing that unnamed donors were pledging to pay the tuition at Michigan’s public colleges, universities and community colleges for every student who graduated from the district’s high schools. All of a sudden, students who had little hope of higher education saw college in their future. Called the Kalamazoo Promise, the program — blind to family income levels, to pupils’ grades and even to disciplinary and criminal records — would be the most inclusive, most generous scholarship program in America.

 

Also see:

The Kalamazoo Promise- free college

 

 

From DSC:

  • I would like to thank the anonymous donors who created and continue to sustain the Kalamazoo Promise; and to recognize their humility and service to society. They didn’t announce their gifts with trumpets; rather, they quietly gave without wanting to put their names to these enormous, life-changing gifts.  What a great example for many of the nation’s top 1%-5% to follow!  It’s amazing what generous hearts can do.  The LORD knows who did it and continues to do it.

 

Technology and the broken higher education cost model: Insights from the Delta Cost Project — from Educause by Rita Kirshstein and Jane Wellman

Excerpt:

Although U.S. higher education has faced numerous crises and dilemmas in its history, the situation in which colleges and universities find themselves at the moment is indeed different. Shrinking public subsidies coupled with historic rises in tuitions come at the same time that colleges and universities have been tasked to dramatically increase the number of individuals with postsecondary degrees. Additionally, many of these students need financial aid, putting further strains on the higher education system. The stratification between rich and poor institutions in their access to resources is also growing. These conditions make the current “cost model” under which higher education has typically operated no longer sustainable and have led to college and university leaders examining alternative ways to deliver both high-quality and affordable higher education. These alternatives incorporate technology and include access to distance-delivered education and services, a focus on learners’ outcomes rather than inputs, and technologically sophisticated buildings and classrooms.

The changes are welcome and largely overdue in much of higher education, but unless the use of technology, whether in instruction or in the operation of the institution, is guided by an understanding of higher education costs and cost structures, its use will not fix the problem of a broken higher education cost model. This problem is not confined to the way that instruction is funded and delivered; rather, it is much broader, including the costs of academic and administrative overhead and the largely unexamined “fixed costs” that drive so much of institutional spending. To implement technological innovations that can improve both efficiency and effectiveness, leaders must be guided in their efforts by a strong understanding of the impact of the innovations on both costs and revenues, as well as on learning outcomes. Without this understanding, leaders are likely to follow the usual model of innovation in higher education: implementing program add-ons, which are sometimes successful and sometimes not but which inevitably increase costs rather than replacing or reducing them and ultimately fail to take hold in ways that will leverage systemic improvements.

Debt collectors cashing in on student loans — from the New York Times by Andrew Martin

Excerpt (emphasis DSC):

…many borrowers are struggling to pay off their student loans, and the debt collection industry is cashing in.

As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments — about 5.9 million people nationwide, up about a third in the last five years.

In all, nearly one in every six borrowers with a loan balance is in default. The amount of defaulted loans — $76 billion — is greater than the yearly tuition bill for all students at public two- and four-year colleges and universities, according to a survey of state education officials.

In an attempt to recover money on the defaulted loans, the Education Department paid more than $1.4 billion last fiscal year to collection agencies and other groups to hunt down defaulters.

 

From DSC:
Administrators throughout the country need to ask, how can we cut the price of our degrees by 50% or more?  No kidding!  I realize that sounds crazy, but if we don’t do this, cheaper — and increasingly attractive/convenient — alternatives will continue to develop. The conversation is not moving in a positive direction folks.
  There is a limit to people’s incomes and patience here.

U.S. debt $417 billion below the debt ceiling — from CNN.com by Jeanne Sahadi

Excerpt:

The debt ceiling is currently set at $16.394 trillion. At the end of August, the amount of debt subject to that limit — which excludes certain types of debt was $15.977 trillion, roughly $417 billion below the cap. Since the government typically borrows between $100 billion and $125 billion a month, that means it’s on track to hit the ceiling sometime in December. But the Treasury Department will likely be able to use “extraordinary measures” to keep the debt just below the legal limit for a couple of months.

Bottom line:
Congress will likely need to raise the ceiling in early 2013 or Treasury will risk defaulting on the country’s legal obligations by failing to pay all of its bills in full and on time.

From DSC:
At some point, if we don’t turn things around, the vast majority of our tax dollars will go to pay for interest on our debt…and. nothing. else.

 

U.S. Chamber of Commerce Issues Wake-up Call to Higher Ed

Also see:

 

 

The financially sustainable university — from bain.com, a Bain Brief by Jeff Denneen and Tom Dretle

Excerpts (emphasis DSC):

Still, at the majority of institutions, the pace of change is slower than it needs to be. Plenty of hurdles exist, including the belief that things will return to the way they always were. (Note: They won’t.) But the biggest obstacle is more fundamental: While leaders might have a sense of what needs to be done, they may not know how to achieve the required degree of change that will allow their institution not just to survive, but also thrive with a focused strategy and a sustainable financial base.

Too often, stakeholders believe that the current cash crunch and need for change is a temporary phenomenon that will subside as the economy continues to improve. But those who see things this way probably haven’t been exposed to the data presented here and in other reports that show convincingly that this time is different. Faculty and other key stakeholders must be shown clear and compelling facts to disprove the “return to the status quo” notion and to clarify the corresponding negative implications and consequences of inaction.

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The Financially Sustainable University - July 2012 - a Bain Brief by Denneen & Dretle

Colleges and Universities Raise $30.30 Billion in 2011  — from Council for Aid to Education (CAE)

Excerpts:

Contributions to the Nation’s Colleges and Universities at $30.30 Billion
Charitable contributions to colleges and universities in the United States increased 8.2 percent in 2011, reaching $30.30 billion, according to results of the annual Voluntary Support of Education (VSE) survey. The findings were released today by the Council for Aid to Education (CAE). Adjusted for inflation, giving increased 4.8 percent. Giving for capital purposes, such as endowments and buildings, increased 13.6 percent (10.1 percent, adjusted for inflation).

Charitable Gifts Concentrated at the Top
As is true of the nonprofit sector overall, most of the charitable dollars go to a small number of institutions. Twenty-five percent of the responding institutions raised 86.3 percent of the dollars reported on the VSE survey. The next 25 percent account for under 10 percent, and the next two quartiles of institutions together account for less than 5 percent of the total.

 

From DSC:
My encouragement to Development Offices/Departments:

  • In addition to thinking about facilities/the physical plant, also:
    .

Daniel S. Christian - Think Virtual -- April 2012

Student debt hits the middle-aged – from the NYT by Josh Mitchell

Excerpt:

Student debt is rising sharply among all age groups, but middle-aged Americans appear to be struggling the most with payments, according to new data released Tuesday by the Federal Reserve Bank of New York.

The delinquency rate—or the percentage of debt on which no payment has been made for 90 days—was 11.9% for debt held by borrowers aged 40 to 49 as of March. That compares with a rate of 8.7% for borrowers of all ages.

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Student debt hits the middle-aged

The Higher Education Bubble

Book Description
Publication Date: June 26, 2012

America is facing a higher education bubble. Like the housing bubble, it is the product of cheap credit coupled with popular expectations of ever-increasing returns on investment, and as with housing prices, the cheap credit has caused college tuitions to vastly outpace inflation and family incomes. Now this bubble is bursting.

In this Broadside, Glenn Harlan Reynolds explains the causes and effects of this bubble and the steps colleges and universities must take to ensure their survival. Many graduates are unable to secure employment sufficient to pay off their loans, which are usually not dischargeable in bankruptcy. As students become less willing to incur debt for education, colleges and universities will have to adapt to a new world of cost pressures and declining public support.

About the Author
Glenn Harlan Reynolds is the Beauchamp Brogan Distinguished Professor of Law at the University of Tennessee. He writes for such publications as The Atlantic Monthly, Forbes, Popular Mechanics, The Wall Street Journal, and the Washington Examiner. He blogs at InstaPundit.com.

Also see:

.

From DSC:
Note many of the relevant categories and tags I put this under — items I’ve been covering for years:

  • Walmart of Education
  • Cost of obtaining a degree
  • Reinventing oneself
  • Dangers of the status quo
  • Game-changing environment
  • Future of higher education
  • Leadership
  • Strategy
  • Staying relevant
  • Disruption
  • Surviving

 

Changing the Economics of Education -- John Hennessy and Salman Khan at 2012 All Things Digitall

 

Excerpt:

Is there anything to be done about the rising price of higher education? That was the question posed to John Hennessy, president of Stanford University, and Salman Khan, founder of Khan Academy, a nonprofit online-learning organization. They sat down with The Wall Street Journal’s Walt Mossberg to discuss how technology might be part of the solution.

Here are edited excerpts of their conversation.

 

Addendum on 6/7/12:

  • D10: Stanford, Khan Academy, and the future of higher ed — from techhive.com by Jason Snell
    Excerpt:
    Though the crushing cost of college education wasn’t a major topic of Khan and Hennessy’s conversation with D10 co-host Walt Mossberg, it’s certainly a major cause of anxiety for parents. But most of the time, the conversation dwelled on the simple issue that technology is going to radically transform education—and right now everyone’s trying to figure out how to manage that change. “There’s a tsunami coming,” Hennessy said. “I don’t know how it’s going to break, but my goal is to try to surf it, not just stand there.” At its simplest form, technology needs to find ways to make education more efficient. That means serving more students, but also teaching them more effectively.

 

7 things colleges worry about – from CBSNews.com by Lynn O’Shaughnessy

Excerpts from “What’s worrying college administrators?”

  1. After peaking in 2008, the number of high school students has been declining slowly.
  2. While high school grads in the West and South have remained mostly stable, the number of teenagers has declined significantly in the East and Midwest.
  3. Between 2000 and 2010, the real median income for families dropped nearly 11 percent.
  4. High unemployment remains persistent.
  5. Many families owe more on their mortgages than their homes are worth.
  6. With flat and falling income and high unemployment, many American families are poorer now than they were five years ago.
  7. Looking further into the future, the financial reality for younger families (ages 25 to 34), who will eventually be sending their children to college, is grim.

Also see the below items from Lawlor.com

From DSC:
Just looking at the title one of the above items — “When Market Conditions and Public Perception Collide: A Looming Crisis for Higher Education” (by Amy Foster) — those of us working within higher education don’t want to be in the “Have you driven a Ford lately?” mode. That is, once we lose the public’s confidence and trust in our products and/or services, it will be very hard to get those things back. Not impossible, but difficult.

Two additional thoughts here:

  • Reputation, like china, is easily cracked and hard to mend.
  • There is tremendous and lasting power in the ideas and perceptions that reside within people’s thoughts. Once an idea catches hold, it’s hard to stop.

 

 

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