BusinessWeek
22 December 1997
-----------------------------------
http://www.businessweek.com/1997/51/b3558139.htm
-----------------------------------
THE NEW UNIVERSITY
A tough market is reshaping colleges
On an autumn afternoon on the manicured grounds of the
red-brick University of Florida at Gainesville, students
stroll under palms and moss-draped oaks. It's a classic
collegiate tableau--and completely at odds with the radical
vision of the man who presides over the campus from a modest
second-story office. It's not that John V. Lombardi wants to
destroy what he sees. Quite simply, he has to.
As president of the huge state institution, Lombardi contends
with a legislature that won't let him raise tuition but has
cut university appropriations by 15% since 1991. In response,
''we have taken the great leap forward and said: 'Let's
pretend we're a corporation,''' Lombardi says. Defying
traditional academic notions, departments now vie openly for
resources. English professors must demonstrate, in essence,
that Chaucer pays the bills using funds as effectively as
engineering or business classes. Departments that meet
quality and productivity criteria win shares of $2 million in
discretionary funding.
This isn't a universally popular strategy. Some professors
and administrators fear the effects of the new strictures on
academic quality. Many hope it is just a president's passing
fancy. ''Things like this come and go all the time,'' says
John Kraft, dean of the University of Florida's College of
Business Administration. Lombardi understands the dissension
and skepticism. At institutions like his, he says, ''everyone
assumes that we'll just keep churning the paper, and it will
be business as usual.''
It isn't--at Florida or at other colleges and universities
across the nation. Behind ivied walls and on leafy
quadrangles, administrators and professors acknowledge this
new reality. Higher education is changing profoundly,
retreating from the ideals of liberal arts and the
leading-edge research it always has cherished. Instead, it is
behaving more like the $250 billion business it has become.
DISCIPLINE. Universities are rethinking the big lecture
halls, faculty tenure, discrete academic departments, and
other features that have defined traditional institutions for
a century. They are designing curriculums more relevant to
employers, communities, and students. Schools are pursuing
fiscal discipline, forcing accountability on organizations
that for decades have expanded as they pleased. And they're
wiring the ivory towers, creating with technology more
efficient mediums of instruction.
Why this transformation, in a system still regarded as
unmatched in the world? After all, 62% of Americans today
attend college just after high school, testament to the
American ideal of a highly educated populace. U.S.
universities, moreover, still produce research that extends
the bounds of knowledge and feeds innovation in industry.
Over the past two decades, though, higher education has
failed spectacularly to live within its means. From 1980 to
1994, the most recent year for which Education Dept. data are
available, instructional costs per full-time student at
private universities increased 48% in real terms; public
universities upped research expenses by 35%. In the same
time, though, states reduced real, per-student funding to
public universities by 22%. In the private sector, students
from well-heeled families who could pay full tuition
increasingly fled to smaller colleges, taking revenue with
them.
That has produced an explosion in charges as institutions
have sought to close the funding gap. Average annual tuition,
room, and board at state universities, after inflation, has
jumped 33% since 1976, to $6,349, according to the Education
Dept.; at Ivy League and other elite schools, the going rate
is $32,000. Schools themselves have eaten some of that
increase in the form of ''discounting,'' or student aid,
making up in part for a decline in federal grants. But
students and their families have borne the brunt: Since 1975,
college costs have soared to 20.5% of median household
income, up from 14%. ''We are pricing ourselves out of
Americans' ability to pay,'' says Thomas H. Kean, Drew
University president and a former New Jersey governor.
The RAND Corp.'s Council for Aid to Education estimates that
mounting college costs, combined with declining real
wages--especially among poor families--and growing
immigration rates, will create a large class for whom college
is utterly out of reach. Given current spending trends and
continued pressure on government aid, predicts the council,
colleges and universities will see ''a catastrophic shortfall
in funding''--a $38 billion gap in 2015 in what they require
to meet expected student demand. To pay the bills, schools
will have to raise tuition or reduce aid--and either action
will shut people out.
Increasingly, then, institutions find themselves grappling
with a basic tension between quality and access. As resources
grow scarcer, how do they sustain high-level teaching and
research at an affordable price? The dilemma cuts to the
heart of today's knowledge economy, where more than
two-thirds of new jobs require some higher education.
Continued productivity gains and economic growth depend on
keeping such institutions both accessible and pertinent. ''If
we're not matching up [students] and educational
opportunities well, we're going to lose some productive
capacity,'' says Michael S. McPherson, president of
Macalester College in St. Paul, Minn.
The innovation on university campuses today attempts to
address such concerns. Yet it also is accelerating the
evolution of American higher education into what some experts
say is a two-tiered entity: one system of exceptionally high
quality for those with the means to pay and a second for
those without.
Robert Zemsky and Susan Shaman of the University of
Pennsylvania's Institute for Research on Higher Education
found in a study of 1,200 institutions that colleges are
sorting themselves into identifiable market segments.
''Name-brand'' schools provide small classes and well-paid
faculty at high prices. A second, more market-savvy group
offers convenience and user-friendliness--often catering to
students who want quick, cheap degrees to advance their
careers. But these schools spend much less on teaching and
facilities.
Colleges that flourish, argue Zemsky and Shaman, among
others, will be those that identify a viable segment of the
school population and equip themselves to serve it
effectively. This is a provocative concept, given that, for
decades, big public universities and small private colleges
alike have prospered through breadth, following the models
put forth by Harvard University, the University of
California, and other top schools. Now, ''institutions that
don't do well are those that don't develop a real signature
in the market,'' Zemsky says.
Rensselaer Polytechnic Institute, which attracts top
technical students across the U.S., fits the brand-name
category. Like many smaller private schools, however, it must
lure enough wealthy students who, by paying the full $27,000
tab, will subsidize poorer classmates. ''We concluded we were
never going to compete on price, so we had to produce an
experience of demonstrably higher quality,'' says Jack M.
Wilson, dean of the faculty.
CONVENIENCE. Its first-year ''studio course,'' rooted in
curricular and physical redesign, was meant to set RPI apart
in the marketplace. In new multi-use rooms, built for
$100,000 to $150,000 apiece, students face one way to hear a
professor's short lecture, swivel around to work on lab
equipment or personal-computer programs set up to complement
the lesson, then turn again to work in small groups.
In an introductory class in circuits, Professor William C.
Jennings begins with a short discourse on amplification. Then
he turns his 30 students loose to wire and test the equipment
behind them, roaming the room to give guidance as needed.
Before last year, he lectured for an hour and a half, and
students went elsewhere to experiment under a grad student.
Students like the merger of two settings. ''You don't really
know what's going on until you do it yourself,'' says Melissa
Postolowski.
RPI can't say yet if students in studios actually learn more;
physics students in the new classes tested no higher than
those in conventional lectures. But the consolidated design
calls for fewer faculty, freeing professors to create new
courses and contribute to revenue-generating projects that,
with administrative cuts, have helped reduce the school's $25
million backlog of long-term maintenance and investments by
more than half. More important, the changes have created a
buzz, and campus visits by prospective applicants are up 49%.
Portland State University, alternatively, has positioned
itself in the convenience sector by meeting head-on the new
demographics of higher education. Traditionally the neglected
stepsister of much larger and better-financed state
universities, it saw state assistance slip to 49% of its
total budget, from 65% in 1991. At the same time, attrition
grew among its diverse collection of older, lower-income
students, many of whom come ill-prepared academically.
Cuts of support staff and middle management saved $3.5
million a year. But PSU also sought to create academic
coherence for students who most often had picked courses
because they happened to meet at the right time. The answer
was University Studies, a program developed with advice from
local businesses that hinges on group work and technology. At
its heart is Freshman Inquiry, a selection of
interdisciplinary, yearlong courses that meet five days a
week. Einstein's Universe, for instance, is taught by
professors of physics, dance, and history. Students, required
to work in groups, discover the theory of relativity but also
read and write about the philosophical, historical, and
artistic context of Europe in the 1930s. Graduate-student or
upper-class mentors help to ''model'' freshmen who have never
confronted serious homework or class participation.
For some, the curriculum was a shock. ''I expected to be
going to lectures and writing 10-page papers,'' says David
Hall, a senior majoring in business and information systems.
Faculty, too, had to change stripes, having to confront many
students who had never read an entire book. ''The attitude
used to be that students either could cut it or couldn't,''
says Susan Hopp, director of student development. More than
80% of students who enrolled last spring in Freshman Inquiry
returned for classes this fall--a record.
RPI and Portland State, both of which are among six schools
recognized by the Pew Charitable Trust for innovative
restructuring, are years ahead of most institutions. Many of
their peers, by contrast, are just starting to come to terms
with the monumental change they will need to survive and
compete. In the public sector, especially, that confrontation
is proving traumatic.
Florida's Lombardi, for one, still is smoothing out his
plan's kinks. The university's ''bank,'' whose funding model
discourages large classes, initially penalized the college of
business for TV teaching, even though TV students test as
well as those in conventional classes. English professors
worry that creative writing and other courses requiring very
small classes will cost their department funding under a
system that strictly measures faculty-student productivity.
RESENTMENT LINGERS. For now, Florida's faculty is giving
Lombardi the benefit of the doubt. In other states,
resistance has been fiercer. Faculty at the University of
Maine forced Chancellor J. Michael Orenduff to resign in 1995
after he proposed a distinct, accredited institution for
satellite-TV learning. Resentment lingers at the University
of Illinois four years after reform that, using 25
productivity and performance measures, seeks to rationalize
programs and reallocate the savings. Loyola University of
Chicago President John J. Piderit sparked an outcry from
professors recently by referring to students as
''customers.''
Such protest isn't baseless. Professors and administrators
alike are justly concerned about financially motivated
strategies that risk eroding quality or reducing education to
a pro forma exercise in professional credentialing. Often,
though, the angst appears to be a function more of
uncertainty with the dramatically shifting terrain.
Academics, typically trained at traditional research
universities, aren't prepared, for example, to teach in
interdisciplinary courses that cross old department lines.
Either way, they have little choice but to learn to deal with
change, because new competition--unencumbered by tenure,
departmental politics, or legislative oversight--is coming
fast. The number of corporate ''universities,'' formed by
business to offer in-house job-related training, has jumped
from 1,000 to 1,400 in five years. Former junk-bond king
Michael R. Milken, along with Oracle Corp. CEO Lawrence J.
Ellison, has invested $500 million in Knowledge Universe, a
for-profit company aiming to capture a $10 billion slice of
the education market, from toys to advanced degrees. Its
joint venture with Tele-Communications Inc. could provide the
backbone for cable-TV distribution of university classes.
Cable entrepreneur Glenn R. Jones has created College
Connection, offering students Internet access to inexpensive
degree programs from 13 institutions including his own,
entirely electronic International University. College
Connection, with 7,000 students, is growing at 30% a year,
says Jones, whose Knowledge TV offers college courses to
viewers around the world. This, he says, is a
''cyber-university.'' ''Your classroom can be your house,
your trailer--anywhere you have a computer.''
Indeed, much of the convenience segment has been spurred by
technology. Using the Net or interactive TV, schools can
reach vast numbers of students in many locations at once,
with little or no investment in new bricks and mortar. All
told, 1.3 million Americans are engaged in some sort of
electronic higher education, says researcher InterEd Inc.
Does it work? While educators agree that such technology
delivers courses to students who otherwise would go without,
they worry that electronic coursework is often rudimentary,
with little attempt to account for quality or effectiveness
and scant opportunities for intimate contact with a
professor.
CHEAP TICKET. Yet many students are prepared to sacrifice
such experiences in return for a few quick rungs up the
career ladder. The University of Phoenix understands this,
perhaps better than any school. Its mother campus--basically,
two modest office buildings--sits off a traffic circle
opposite Phoenix Airport. There are no dormitories, no
library stacks, no cafeteria, no labs, no gym. And no kids.
The hundreds of students who stream into dozens of spartan
meeting rooms each weekday evening for four-hour classes
range in age from 23 to 60.
With 58 campuses in 12 states, Phoenix' enrollment, now
42,000, is growing 20% a year--even though it accepts only
adults who work full-time and offers classes only at night or
online. Students meet twice a week for six weeks per course
and get credit for ''life experience'' toward bachelor's and
master's degrees, mostly in business and information
technology. Teaching faculty, entirely part-time and
tenureless, come from industry and teach from a standardized
script. Annual tuition averages $6,500.
It may be, as critics call it, McEducation. But students love
it. ''This way, I finish in the same time as I would if I'd
quit my job,'' says Demario Walton, 24, a Motorola Inc.
employee pursuing his MBA. Investors love it, too. Shares of
Apollo Group Inc., the university's corporate parent, trade
at 23 times their value in 1994. ''We will be the first
national university,'' says founder John G. Sperling, a
raucous 76-year-old former Merchant Marine and union
organizer (with a Cambridge University doctorate) whose stake
in Apollo is worth $484 million. ''We intend to operate in
every major metropolitan area of the U.S.''
Phoenix thrives so conspicuously because it acknowledges a
profoundly changed higher-education market. It and the other
new venues stand to win a big share of the surge in college
enrollment expected over the next decade as Echo Boomers
emerge from high school and as more adults seek continuing
education. Many of these students, unable to afford the cost
of a full-time program, will start college older, seeking
part-time classes that fit into job schedules.
Colleges and universities must confront this new
competition--and the changing demographics, economics, and
technology behind it. And they must adapt rapidly. The great
risk is that, having opened its doors to most comers, the
huge, centuries-old system will shut people out--sending
students instead to nimbler rivals. Milken, Jones, and
Sperling will be happy to accommodate.
By Keith H. Hammonds in Troy, N.Y., and Susan Jackson in
Portland, Ore., with Gail DeGeorge in Gainesville, Fla.,
Kathleen Morris in Phoenix, and bureau reports
-------------------------------
Copyright 1997, by The McGraw-Hill Companies Inc. All rights reserved.
