Solving the Problem of College Costs

Transcript

Joe Biden:

The cost of education beyond high school has gone up significantly. The total cost to attend a public four year university has tripled, nearly tripled, in 40 years. Tripled.

Michael Horn:

That was President Biden at the White House back in August announcing his student loan debt relief plan.

Jeff Selingo:

But Michael, as those of us in higher ed know, loan forgiveness is ultimately a temporary fix. Reducing debt doesn't stop overall debt from accumulating. What work do we need to do in higher education to make the college experience affordable again? We look at the future of colleges, their price and cost, on this episode of Future U.

Sponsor:

This episode is brought to you by the Bill and Melinda Gates Foundation, working to eliminate race, ethnicity, and income as predictors of student success through innovation, data and information, policy and institutional transformation. This episode of Future U is sponsored by Ascendium Education Group, a nonprofit organization committed to helping learners from low income backgrounds reach their education and career goals. For more information, visit ascendiumphilanthropy.org. Subscribe to Future U wherever you get your podcasts. And if you enjoy the show, share it with your friends so others can discover the conversations we're having about higher education.

Michael Horn:

I'm Michael Horn.

Jeff Selingo:

And I'm Jeff Selingo. So as the winter cold, flu, and COVID season approaches, we know there are no surefire cures for any of these illnesses. When the aches and stuffy noses set in, we cheat the symptoms with some pain reliever, fluids, and maybe those fancy tissues with aloe, but that doesn't address the root cause of the viral bug. The same is true when it comes to the cost of a traditional four year degree. It seems that as a country we've come to accept that there is no cure for the costs of a higher education degree, costs that go hand in hand with mounting student debt. We just treat the symptoms with comfort measures like loan forgiveness.

Michael Horn:

And Jeff, actions like the Biden administration's proposal to wipe out student loan debt for many students are certainly controversial, and as we're also seeing, they're facing serious legal hurdles. At the time that we're recording this, it's already been halted by two courts. But as much as listeners who tune in regularly know that I personally don't love the plan, I will say it's tiered approach theoretically will provide a lot of relief for borrowers who struggle the most with debt. And these are often individuals who actually have taken out relatively little debt, but they never graduated from college in many cases. So they don't have a diploma to show for the loans that they took out.

But we're still not getting in this conversation at the root causes of student debt, which is the cost of college itself. Or of course, maybe it's the price of college. Because there is a difference between the cost of an education and the price that colleges and universities charge students. As a former president, Jeff, of a college said on a webinar I was a part of recently, the list price of a college charges might be $60,000. The net price might be $30,000. But then the cost to the institution of educating that student is often something like $90,000. So to help us unpack all of these issues around cost and price and what to do about it, because frankly, no one wants to be having this discussion around load forgiveness over and over again, we have two terrific guests to try and dig deep into the real financial issues facing higher education.

Jeff Selingo:

Yeah, that's right, Michael. We're joined by the former chair of the National Commission on the Cost of Higher Education, Bill Troutt, who's also President Emeritus of Rhodes College in Tennessee, and the former president of Belmont University.

Michael Horn:

And Jeff, we also have Harvard University professor and an economist who studies higher education, Susan Dynarski. Welcome Sue and welcome Bill.

William Troutt:

Thank you.

Susan Dynarski:

Thanks for having me.

Michael Horn:

You bet. So before we talk about what we can do about college costs and prices, let's set the stage here a little bit just to talk more about how you both come and came to this debate. Bill, as we mentioned, you were chair of the National Commission on the Cost of Higher Education in the late 1990s. Now, probably most of our listeners might not know or might not recall that Congress even created this commission to find innovative ways that the government could help reign in the growing cost of college. Educators frequently seem to remember A Nation at Risk, and we still talk about it 40 years later, but why do you think we don't seem to recall this major report that you oversaw?

William Troutt:

Well, thank you, Michael. Three reasons come to mind. First of all is timing. We released our report on the morning of January 21, 1998. Then afternoon, the scandal broke between President Clinton and Monica Lewinsky. And I was supposed to be on the CBS Morning Show. I wound up being on the CNN Financial News on Saturday night. And all our media plan went out the window then. So timing is everything.

Funding would've been important. The commission didn't have funds to proceed after it completed its report, unfortunately. And we all had day jobs, so there was no planned funds to really be allocated for any kind of communication plan. And finally, there's nothing sensational about our report. Our congressional sponsor had hoped that we would simply say it's time for price controls, which would've gotten everybody's attention. But we felt like, the experience in other sectors, that would not be a very plausible next step. So for those reasons, we weren't quite as prominent in the mindset of Americans as we'd like to be.

Michael Horn:

Yeah. So I want to harken back though still to it because there's a line in the forward that you wrote, and I want to read it back. You wrote, "Continued inattention to issues of cost and price threatens to create a gulf of ill will between institutions of higher education and the public they serve." Reading that line now frankly sounds quite prescient, but how would you rate the attention since then of institutions themselves to this issue of cost and price?

William Troutt:

It varies a great deal based on the type of institution you're talking about. Wealthy institutions have not had to find systematic ways to cut cost or control cost, but they have done a magnificent job in providing access to students they want who don't have the means to pay for college. The Princeton announcement comes to mind obviously. You could make $98,000 and not pay any tuition. I think many much more modestly funded institutions are giving a lot of attention there, both to their net price they provide and the cost that they're expending to educate students.

States are given quite a bit of attention to it. In a growing number of states, community colleges are free. And some states that are really focused on access public college, university tuition, except for the flagship research universities, actually can be less expensive than childcare. I was speaking to a group of independent college presidents in Tennessee, and found out that one of them has a plan. If you make a B average after your two years at community college, which is free, and you are Pell eligible, you'll not pay anything for your tuition at those schools. But there's no question though, if you look, the overwhelming majority of college and universities really are struggling with this question of cost and haven't found a way to rethink their offerings in a more cost effective way.

Jeff Selingo:

Well, and Sue, I think rather than tackle college costs over the last 25 years, it seems like we've just put more money into the system of financing the rising price of college, mostly through student loans, which led of course to this massive run-up in student debt over the last 25 years. Now, you were initially against debt forgiveness, it seems, but then you wrote this great op-ed at the end of August in the New York Times with the headline that I think I probably could have put on my own thinking about this issue as well, Why I Changed My Mind on Student Debt Forgiveness. So why did you change your mind?

Susan Dynarski:

I changed my mind because I saw that students who were doing the right thing, who were pursuing a post-secondary education, which we had told them was valuable, good for themselves, good for society, were being harmed by making that attempt. And when I say being harmed, I think especially during the Great Recession, for example, when the community colleges were just jammed with people, and we had cut funding to them at the same time. And the dropout rates were extremely high and tuition prices were also up. And people borrowed to go to community college to retrain after they had lost a job, and then, often typically without a degree, exited into a historically bad labor market and defaulted pretty quickly on the loans that they had acquired.

So this is not how we think it's supposed to work. So we think of people getting a BA, borrowing for that, graduating in four or six years, getting a payoff over a lifetime, and the loans are dwarfed by the benefit of getting that education. I don't think loans were ever intended to be the way we fund job training, vocational training, sub-baccalaureate education in our country. And that's where we've seen the biggest harm. In particular, even for very small loan amounts, the servicing mess that we have means that even very small amounts were turning into large amounts after fees, after interest was applied. Default rates of 30% at the for-profits and at the community colleges as well though too because basically it's the same vulnerable populations.

And default ruins people's financial lives. This is not just a neutral event. It puts a red flag on your credit record. It means that many landlords won't rent to you. It means it's more expensive to get a car. It means many employers won't hire you because if you've got that red flag in your credit record, that makes you ineligible for hiring. So in a bunch of ways, we harmed people who were trying to improve their lives. And I didn't see that there was any fix coming down the line anytime soon. I had seen over decades basically inaction on fixing the broken system. I had advocated for many years that what we should be doing is hang onto the system, but fix it around the edges and the fixes didn't happen.

Jeff Selingo:

Okay, so the fixes didn't happen. And in fact, you say that in your op-ed, right? You once thought forgiveness to be a distraction from fundamental reform. But you saw, as you just said, little progress on that reform. So now the administration has put this forgiveness plan in place. So is it now time, do you think, to shift to that fundamental reform? And is that reform on the cost side, harkening back to the College Cost Commission, is there something that we need to do on the cost side in terms of fundamental reform? Do we need to do it on the financing side, meaning the student loans and other instruments that we have? Or do we kind of need to do both?

Susan Dynarski:

So as I'm sure you know, the vast majority of undergraduates go to public institutions. And in that sector, the issues of higher prices for students are driven by lower subsidies by government. So I gave the example in my op-ed of my sisters who went to UMass Boston in the early '70s. They're a bit older than me. And they paid $610 a year for a full year of credits at UMass. That's all required fees. That was the full cost. Into concurrent dollars, that's about $3,600. The current cost of UMass is north of $12,000 a year. And it's not because in the '70s, UMass was far more efficient at delivering a college education. It's that in the '70s, the state of Massachusetts was giving UMass the money that allowed them to keep their tuition that low. And that is what has changed in the public sector. So to distinguish between costs, which is what resources it requires to deliver the education versus price, who's paying for those costs. What we've had is a shift from the taxpayers onto the individual student and their family. And that's where the pain point's coming from.

Jeff Selingo:

Yeah, and that's interesting because the differentiation between price and cost was actually a major thrust of the College Cost Commission report back in the late 1990s. And it seems like we still haven't been able to explain that in the right way to the public. So Bill, and actually to both of you, we want to talk about some of the solutions to the core problem of cost. And Bill, going back to the commission report, you presented a five part action plan calling for strengthening institutional cost control, improving market information and public accountability, deregulating higher education, rethinking accreditation, and enhancing and simplifying federal student aid.

Now we might say a few of those things have actually happened over the last couple of decades. The federal government now mandates a college cost calculator on college websites. It has the college scorecard. So there's a lot more market information out there. We're simplifying the FAFSA, thanks to the lobbying of many people, including somebody in your state of Tennessee with Lamar Alexander. Okay, so maybe we got two out of five. So what specific piece do you think of that five part action plan do you think would most move the needle on college costs if you were doing that plan today?

William Troutt:

Sure. First of all, a further shout out to Senator Alexander. When he first was elected, I was on the ACE board and doing volunteer work. And I went to see him and I said, "Have you ever seen a FAFSA?" And he said, "No, I haven't. I'd like to see one." And I unfurled all that multi, multi-page document, and gosh, it got his attention. He was aghast. Said, "Bill, I'm going to do something about that." And he did. But it wasn't easy. It wasn't easy.

Jeff Selingo:

Took a long time.

William Troutt:

The two pieces that hand in hand need to happen right now, Jeff, are, first of all, we got to improve market information a lot. We need to help that 29 year old single mom figure out how she can go to college and encourage her that she can. Or likewise, that 25 year old who's ready to hit an expensive graduate program needs to have some sense of what are the outcomes, what am I purchasing there? But in addition to the market information, obviously there's more work to be done on cost control. More campus conversation needs to take place. Some lower priced models are there, but it's time for some rethinking, some honest conversation about what really does constitute a good undergraduate education, and how we can deliver it in some better ways.

Michael Horn:

So Sue, it seems that we could characterize that Cost Commission as splitting its action plan between better consumer information on the one hand to bring some market pressure, if you will, to colleges, and then encouraging colleges to do work on their own to control costs. I'm curious, outside of the state action that you talked about before, what else can or should government do in the coming years? What levers do you think will be most effective in helping pull down college costs?

Susan Dynarski:

Well, again, I protest the use of the phrase costs because what has changed is who's paying the costs. So what's gradually been happening, as the states have pulled out of funding their publics, is that we've been shifting to a federal system of funding the price of college for the individual families and students. That's in part through the Pell Grant for low income students, but then it's also through student loans. So basically you can see the student loans climbing as the state support has declined. This money is coming from somewhere, and it's coming out of student loans and family budgets.

If what we're worried about is borrowing, so if we're not going to provide the funding for college through taxation, it has to come from somewhere. If we're going to use student loans, we have to decide how comfortable we are with what levels of student debt we're comfortable with. When I look at undergraduate education, I look at people who have earned a BA, they typically are doing just fine with repaying their student debt. The problems that we see are in the sub-baccalaureate sector in the for-profits. And right now we've got evidence that the for-profits do absolutely nothing for people's earnings. Quite conclusive evidence from the universe of IRS income records and enrollment records showing that people coming out of the for-profits make exactly what they did coming in, if not less. That is not true for the publics and for the private institutions. So a reasonable policy solution would be to exclude that sector from financial aid completely, and that would solve a lot of the problems with defaults that we see among undergraduates.

Jeff Selingo:

And so do you think those students, and I just want to cut in there for a second, do you think then those students who go to the for-profits would be served by other institutions? Or do you think that they wouldn't be served at all?

Susan Dynarski:

We need to have them served by the community colleges. We also have very clear evidence that when we fund the community colleges, enrollment in the for-profits drops, and vice versa. So enrollment in the for-profits is a policy made event. And it's the same set of students being served by both. So whenever we have constricted supply of classes of community colleges, that's where we see the for-profits growing. So we know how to stop their growth.

Jeff Selingo:

So I'm just kind of curious, in say five or 10 years, say nothing really changes on a lot of these trends and prices continue to rise, and maybe student debt continues to rise, would you think you would support more debt relief again? There's a lot of discussion out there, as you know, from both supporters and critics who say, "Well, we just don't want to do this every couple of years." And even some supporters are saying, "Well, this is just a one-time thing." I mean know none of us can really say where we're going to stand on an issue five or 10 years from now, but what do you think might happen?

Susan Dynarski:

Well, I framed the student loan as cancellation as repairing harm, or restitution essentially for harm caused. If we keep causing the harm, then yes, we're going to be in the same position again in 10 or 15 years. So I do not think people should be borrowing to go to community college. In the rest of the world, vocational training, sub-baccalaureate education is free. It's considered part of the K-12 system, or it's considered part of the Department of Labor training. It is not funded in the same way as baccalaureate training is. I don't think loans are appropriate for it.

And historically, very few students at community colleges had borrowed. And it wasn't until we saw these hike in prices at community colleges due to disinvestment that we have started to see borrowing spike up. So it is a man-made or it is a policy made problem. So if we keep causing harm, then yes, we will need to keep repairing that harm. But there are clear policy solutions in front of this. I don't think there's anything magic or mysterious about this. We need to go back to the priorities that we held for many years in how we funded post-secondary education.

Jeff Selingo:

So as I want to start to wrap up our conversation, and want to focus on value and how we define higher ed around this idea of cost, especially it's ROI. And as we mentioned at the top of the show, and as we mentioned even throughout this interview, the commission was careful in its report to delineate between costs and price. And as Sue has also often reminded us as well. Unfortunately, I still think that remains kind of an inside baseball conversation between those in higher ed and in some policy circles. Most consumers I talk with still don't think there's a difference between those two, and thus they don't understand the relationship often between them.

But I also think it's just as important in delineating between the highly resourced institutions and everyone else in higher ed. Bill mentioned Princeton, for example. Wealthy institutions which spend a lot of money on students, both through direct to educational expenses and of course on need-based aid like Princeton is, as Bill mentioned, most institutions can't keep up, but they try to. They try to on the student experience, and then they're forced to discount tuition because they can't afford to put all that money toward need-based aid. They only have so much money in the pot.

And don't those colleges kind of need a new north star? Rather than compete with the haves, do they need to strip down? And Bill, I want to ask you this, as a former president of two private colleges, do you think that many more institutions need to strip down their educational experience and come up with a different business model rather than constant discounting and always trying to compete with those institutions one or two runs up the ladder, which we know they're never going to become?

William Troutt:

Right. Well, let me just say one quick word about price and cost. I do think people are confused about it, but consistently more asking the net price question, how much am I going to have to pay? How much am I going to have to pay? Well, you're right. Very few institutions can hope to compete with a very wealthy institution when it comes to student financial aid. And discounting does have its limits. There are a lot of well-known private institutions today, they're discounting over 60%. So how long can that continue?

There are some new models emerging. I have personally seen examples of how you can add value without adding costs through partnerships. We're seeing more of that. But a big driver of college cost is still like it was 25 years ago, expectations. And with Generation Z on the rise, how do you sell a new approach that's stripped down to consumers who want much more? That's worked for a lot of populations in terms of adults coming back to school. No one's really figured out very well how to do that with 18 year olds.

Michael Horn:

Bill, I just want to follow up there because, as we've talked about, you were president of colleges, and for those of us who aren't on the board of their college, like Jeff is, I'd love to just know what this relief will do to the conversations and attention to price and cost control in the boardroom with the presidents. In other words, the practical impact of this student debt relief on costs and price in the years ahead. Can you give us a sense for what those conversations are likely to look like in the "room where it happens," so to speak?

William Troutt:

Sure, Michael. Well, quite frankly, I'm not sure there will be those conversations. I spent the last five years working with governing boards across the country. And I do believe colleges and universities grow in the direction of the questions trustees ask. And this is a great opportunity to have candid, honest conversation. Actually, it's also a great opportunity for shared governance where you bring everybody together to talk about this. But I'm not sure many boards are really focused on strategic leadership. They're trying to do their fiduciary responsibilities, and that's about it. And presidents are certainly often frightened to bring the topic up. So we'll see. I hope they do, but there's not much evidence today that that's going to happen right away.

Michael Horn:

Well, with that, Sue, Bill, thank you so much for being on Future U, and we'll be right back.

Jeff Selingo:

This episode is being brought to you by the Bill and Melinda Gates Foundation. Today's college students are more than just students. They are workers, parents, and caregivers, and neighbors. And colleges and universities need to change to meet their changing needs. Learn more about the foundation's efforts to transform institutions to be more student-centered at usprogram.gatesfoundation.org.

Michael Horn:

This episode of Future U is sponsored by Ascendium Education Group, a nonprofit organization committed to helping learners from low income backgrounds reach their education and career goals. Ascendium believes that system level change and a student-centric approach are important for our nation's efforts to boost post-secondary education and workforce training opportunities. That's why their philanthropy aims to remove systemic barriers faced by these learners, specifically first generation students, incarcerated adults, veterans, students of color, adult learners, and rural community members. For more information, visit ascendiumphilanthropy.org.

Jeff Selingo:

Welcome back to Future U, off a very interesting conversation with Sue Dynarski and Bill Troutt about the evolution of this cost and price and value and debt set of conversations around higher ed. But Michael, I can tell, because I can see you on the screen while we're recording, that you were steaming just a bit during that conversation. So what's on your mind?

Michael Horn:

Yeah, Jeff, I appreciate you calling it out. And maybe this is an opportunity for us to at last disagree on the podcast. But when I asked Sue about what other levers government could pull to lower cost, she quickly jumped in and protested that it's actually just prices that have increased, and who pays the costs has really just simply shifted. But in my question, I actually meant costs as in expenditures, not just tuition prices. Because college costs, the expense that institutions are spending to educate students, they have also increased dramatically. This is not just a pricing and government subsidy problem.

And honestly, Jeff, the question was intentionally precise, and I really would've liked her take on it because, and you know this, Jeff, you and I, we both know the difference between cost and price. We write about it a lot, we talk about it a lot. And in my view anyway, the rise in costs are for a lot of reasons coming together. It's not just one thing that is causing the rise in costs. They aren't just because of Baumol's cost disease, for example. They aren't just because of the lack of economies of scale in traditional models. It is certainly those, but it's also true that there's evidence that government subsidies are in fact sometimes responsible for some small portion of the cost increases as well.

And then there are those amenities races that people love to point to, Jeff, those climbing walls and all those things. And it's frankly less those, as we know. But I think those sorts of things are emblematic, I suppose, of what really is driving a lot of the cost increase, which is frankly the cost of complexity. These institutions all trying to be all things to all people, and in many cases move up market. And it just isn't possible without dramatically increasing administrative overhead. And that's indeed what we see in higher ed, writ large.

So let me just put some numbers behind what I'm saying. So first on the rise of administrative costs, from 1987 to 2011, just to pull out one stat, the number of administrators and professional staff more than doubled at colleges and universities. Now that might not be a bad thing by itself, or even it's interesting, but that rate of growth happens to be more than twice as fast as the growth in the number of students being served. And it also vastly outpaces the growth of faculty. Indeed, in 1980, administrative spending was just over half as much as spending on instruction in faculty. And now they're at about parity.

And to be clear, it's not because of a diabolical plot on behalf of colleges, in my opinion, but it's because increases in complexity drive increases in administrative overhead costs at all organizations. As a general rule, overhead costs will decline by 15% every time an institution doubles in size. But those economies of scale are offset by complexity, where overhead costs per unit increase 30% every time the number of pathways that units within an organization take are doubled.

So now this is what we have going on in higher ed. We have institutions that generally don't scale well. They don't have economies of scale when they do. They're taking on more and more complexity, students with different needs, to larger groups of majors, more academic pathways, more research, more and more and more. To say nothing of the regulatory burden that institutions are facing as they try to climb the traditional Carnegie classification system, and stretch more into research, and offering bachelor's, master's, PhD degrees and on and on. Because running a research university is like running a small city. So if we just put numbers behind that, the research showed that institutions deal with about 18 different federal agencies, and roughly 30 different areas of regulation with more than 200 laws and guidelines. To say nothing of the fact that this research drives less time teaching, which reduces teaching productivity and effectiveness.

Jeff Selingo:

Michael, I know you're teaching these days, but boy, that's a lot of data you're just throwing at us and our listeners right there right now. So what's the bottom line? What's your bottom line?

Michael Horn:

Yeah, it's a good question. I mean, I think the bottom line is that US post-secondary education institutions are spending a lot more than they were 10, 20 years ago, right? They today spend some 670 plus billion dollars educating students. And public institutions, their expenditures rose from 281 billion in 2009 to 420 billion in 2020. That's 4.1% above inflation, and a 50% increase. Or you look at private higher ed, which is not subsidized in the same way as public higher ed. Its spending increase was 5.17% above inflation, from 81 billion to 222 billion.

We could keep on going down this line, but I think the point is it's not the case that these cost increases are explained by shrinking investment from state governments. And frankly, I mean as a percentage of state budgets, it's true states have reduced the percentage that they spend on higher ed, but in terms of aggregate dollars that they're spending, it's actually gone up decade over decade from the 1960s if you look at today. 10 times higher by some estimates. Now, again, to be fair, I'm trying to be nuanced here, the high water mark for state appropriations was in 1990, but the amounts are still much higher now than they were in the '60s and '70s. And the declining enrollment we're seeing right now may change that equation so that the per pupil is much, much higher.

So my bottom line is all to say, when I asked Sue the question, I just wanted to know, not just the story we always hear about public support declining, which isn't always accepted wisdom across the academic spectrum, but what I really wanted to know was the costs themselves and the real trade offs that schools themselves might have to make, and her view of what's leading to that, and what would better public policy look like that maybe tackles the cost itself, because I think that's a lot more nuanced, Jeff.

Jeff Selingo:

So let me jump in here, Michael. Because I think that, despite all the data that we have on a higher ed, we really don't know something that's pretty simple, what it costs to educate one student at one college depending on their major. But let's put that aside for a moment. Now, I'm not going to question your data on state support for higher education, but I do want to point out that the expectations of parents and government about what colleges should do has also expanded greatly, by a lot, since the 1960s. So just comparing state subsidy per student, I think is a bit unfair.

As is comparing administrative costs. Again, I'm not defending higher ed here because we spend a lot of money on overhead on things that we don't need to spend on. But a lot of what gets wrapped up in administrative costs is what the government or parents want, mental health and academic services, Title IX and the Clery Act on campus crime, et cetera. And on top of that, we have a broader range of students coming into higher ed today that need extra help in terms of remediation and other things. So the needs are also greater on the front end.

Now, all that said, in my time on college campuses, I will agree with you that there are costs that we could get out of the system, especially those things that aren't student facing. We tend to have people do everything in higher ed rather than maybe technology take up some of that slack. And we don't look at processes very much. We continue to do things in admissions or the registrar's office the way we always have. In fact, we replicate administrative structures, and all of their costs across individual schools, for example, at a big university.

But then there's also the market dynamics in general. And simply put, college costs so much because it can. I remember going to Bates college back in 2005 when, get ready for this, they went over the $40,000 mark all in. And there were only 75 other colleges at that time that went over that $40,000 mark. Now, to our listeners, that probably sounds like a bargain now. And I'll never forget, the president of Bates at the time told me that at some point she feared parents and students would simply say enough is enough.

And I pulled the article from the Chronicle, and this was a quote she gave me at that time. She said, "The important question for us is at what point can people no longer pay these prices? It's not that $40,000 is the watershed, but somewhere there's a point. There has to be a point, and we have to worry about that." Well, that was, what, 17 years ago? And now Bates, get ready for this, costs $78,290 all in. So clearly almost double is fine because they keep getting applications more than ever before and they keep getting more selective. So I think what's going to be interesting to watch in the coming years is that maybe Bates might be able to do it and maybe a handful of other colleges, but it's clear that not everyone could do what Bates is doing in terms of that market dynamic.

Michael Horn:

That's a really good set of points, Jeff. And we're trying to disagree here. But Ron Lieber was obviously on the show last year and talked about this as well, the inelastic demand for the higher end, if you will, of higher ed. Here's the thing I guess I just want to add onto, because you're talking clearly right about how price supports that cost increase in many cases. You're also clearly right on the front end of your remarks, which is that higher ed is serving more students who come from more complicated backgrounds and need, not just academic services, but more non-academic services, mental health and the like to help them succeed, especially given that, properly I think, we're putting a premium on outcomes, not just inputs.

But here's the thing I guess I would push back on, which is it doesn't actually have to be more costly, or at least not as costly as it is when you tack those services on top of a legacy model. So first, Diane Tavenner has pushed me on this over and over again in the K-12 realm, but it applies here as well, which is if we stop seeing some of these different domains as independent tasks to just tack onto an existing school, and instead see them as something to be interdependently designed as core from the get-go, so embedding social emotional learning with the academic learning, for example, the costs then are actually lower than imagined.

In other words, new institutions that don't start from a place of fixed costs, and they're able to create novel designs that make trade offs that existing organizations will struggle to do, you can see some very new cost structures be created. And I know that faculty at existing institutions are going to object to doing some of this work in many cases. But second, I think this gets to the important of focus, and not trying to be all things to all people and making some trade offs. But I would say institutions must do a better job of optimizing around the job to be done, those motivations and so forth for students, and really focus, focus, focus. And that also means focus on teaching, for example, instead of trying to be the 300th best research school and developing a terrible teaching and learning experience. The reality is that innovation plus focus, I think, can help break trade offs and lead to some breakthroughs in both serving students and not increasing costs.

Jeff Selingo:

So Michael, are you done with this rant yet or do you want to continue on?

Michael Horn:

Fair enough. I'm glad you asked because not quite. I just want to add one other point. And this to me is the critical reason why we need new entrants to come into the system of higher ed that can disrupt it. That they have a focus on value for students and society, not just one or the other, because the payment for these things isn't free.

And I guess this is where I want to just end, which is I heard Sue's point that, well, we ought to just go to the direction of Europe and pay for community colleges. I think that's kind of a bit of a distortion of the European model, by the way, but I take the point. Except here's the thing, Jeff, most community colleges get lousy outcomes. And meanwhile we're actually seeing some really cool innovations in the so-called hybrid college space, for example. These institutions that combine online competency based learning from Southern New Hampshire University with brick and mortar in-person learning supports that take a no excuses mindset from the world of K-12.

And this is programs like Duet, or Peloton, or DaVinci X or Rivet, or John Gabrieli has a group called Trio Network that supports the scale of these novel arrangements. And these entities, they cost in terms of expenditure, less than your average community college. Now, not price, I'm talking about cost because they don't get a government subsidy, which is like 80 cents on the dollar for community colleges. So as a result, these hybrid schools, they're priced higher, although Pell can cover it, but their value, the outcomes they get, the student results from these institutions, they beat the pants off most community colleges, and it's not particularly close. Same students, same circumstances, similar focus, and I just think we need more innovations like that.

But here's the thing, a policy solution like free traditional community college will hurt and crowd out those sorts of innovations. Forgiving all student loan debt doesn't help encourage these more affordable, more valuable institutions. Just in my opinion, we need more dynamism and we need more entrants and we need more innovation for students in society. So what I wanted to know from Sue is what policies would encourage this sort of dynamism?

For example, and last thought here, Jeff, Stig Leschly who founded Duet, and is a professor at Harvard and leads College101, has offered his take that I find compelling. He believes that we need governments in exchange for funding colleges as richly as they do to impose a minimum requirement on them that they increase economic mobility over the baseline for students. His idea is basically to create a minimum value added measure relative to cost, and then let students choose in a system that has lots of turnover of institutions and a big array of choices that government doesn't express preferences on.

But it means by implication that there would be a lot of new entrants, which simply just doesn't happen right now in our accreditation system. I mean, all those hybrid schools I mentioned earlier, they exist only because they're using Southern New Hampshire's accreditation status because they're using their online competency based offering. They are not colleges in their own right. And so the reason for having fresh blood come in is, simply put, because of what Clay Christensen and many others, the research has shown very clearly that organizations are built to do what they do, but not the things that they weren't built to do. And right now, just none of this happens. There's little to no public accountability. Colleges are shrouded in darkness and entry is blocked. So I'll stop here. I mean, I could keep going I'm sure, but listeners don't want to hear any more rants, Jeff, I think probably from me.

Jeff Selingo:

Yeah, Michael, I'm glad we brought you out of your shell with an episode on college costs. And I hope we get some questions from listeners on this one so we could continue the conversation. It's kind of surprising to me, I guess, it really took us until our fifth season to really dive into this issue, which is clearly on the minds, I think, of most people.

I'll never forget years ago, moderating a session on the future of higher education at the Milken Global Conference. And the first question from the audience was, I had just moderated a 45 minute panel, and they said, "You didn't ask one question on cost because that's what everybody wants to know about." So clearly you do too, because we spent so much time on it in this episode. And again, would love to hear from our listeners about what questions they want us to address by the things that we talked about today. But that's all we have time for this episode of Future U. So please join us next time and we'll see you soon.