The Sweet Briar Opportunity

When Sweet Briar’s trustees determined in March to close the college, claiming “insurmountable financial challenges,” their decision sent shock waves through the liberal arts college community. If a school of considerable reputation like Sweet Briar could close, who might be next? Many college presidents spent time at their next board meeting assuring trustees of the ways in which their college differed from Sweet Briar: it was coeducational; it had a larger enrollment; it was in a less rural location; its financials were sounder. Despite these reassurances, the factors that led to the decision to close Sweet Briar also characterize many other independent liberal arts colleges.

Sweet Briar, located not far from Lynchburg, got a reprieve in June after a Virginia court mediated a settlement to three lawsuits challenging the trustees’ decision. Nonetheless, the fragility remains; the judge’s order guarantees the college, which last year had 510 undergraduate women, only another year of operation. The new president and new board of trustees face daunting challenges.

What are the factors that have brought so many liberal arts colleges so close to financial exigency? For several decades, colleges and universities have embraced a strategy of high tuition and high financial aid on the assumption that those families that could afford the full cost of a college education would foot the bill, while families who could not afford it would receive financial aid packages equivalent to their need. Such a strategy allows institutions to achieve socioeconomic diversity, providing opportunities for less affluent students while securing the tuition income necessary for a school’s operations. Financial security depends on the balance of aided and unaided students. Simply put, to pay their own bills, colleges and universities need enough students paying full price.

But as tuition costs have increased, the percentage of families able and willing to pay full price has decreased. Growing income inequality and the stagnation of middle-class incomes have exacerbated this problem. Since the year 2000, the real median income of families with a 19- or 20-year-old in college has fallen by 16 percent. Thus the pool from which colleges and universities are seeking students whose families can and will pay the full price of attendance is diminishing; by rough calculation, such families fall in the top five percent of American income distribution. Colleges need a disproportionate number of students from this group for their financial models to work.

The competition among colleges and universities for higher-income students has led to a widespread practice of tuition discounting, whereby institutions offer so-called merit aid to students they wish to attract, usually those with a greater ability to pay. The financial calculation is easy to understand. A college with tuition, room, and board of $60,000 that offers a merit scholarship of $20,000 to a student with the ability to pay will receive $40,000 in income; if it offers a need-based scholarship of $35,000 to a student whose family is less well off, it gets only $25,000 in tuition income.

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The practice of tuition discounting is designed to maximize income, but when colleges find it hard to recruit students, they wind up increasingly discounting their tuition to the point where they’re no longer generating the income they need to operate. This problem is particularly acute in small colleges, where relatively minor shortfalls in enrollment or unexpected increases in the discount rate (the percentage by which a college is discounting its tuition overall) can create significant operating deficits. The shrinking percentage of students paying the full price for tuition, room, and board paradoxically creates more pressure to raise tuition, since a college realizes an increase only from that percentage of students paying the full price. If, for example, a college has 60 percent of its students receiving aid and 40 percent paying full cost and it raises tuition by five percent, it realizes only a two percent increase in income, since the increase for those students on financial aid is absorbed into their financial aid packages.

The policy of high tuition/high aid will soon become unsustainable. Colleges in a weak market position struggle to meet enrollment goals, discounting prices more aggressively to do so, and are caught in a downward spiral of diminishing revenue and diminishing enrollments. Such was Sweet Briar’s situation, and it is increasingly the challenge of small, independent liberal arts colleges. Any characteristic that weakens enrollment appeal, such as a remote rural location, or reduces the applicant pool, such as admitting only women, makes a college more vulnerable.

Small colleges also face financial pressure from the fixed administrative costs of operating any college or university. When I was president of Smith College, I often used to observe that it cost the individual Smith student far more to have a president than it cost the individual University of Massachusetts student to have a chancellor. Many administrative costs don’t scale down in small institutions. Every small college has a president, a dean, a human resources office, a payroll office, a facilities department, and student life functions—the list goes on. At small institutions, these costs are shared among a smaller number of students. Small institutions are simply not financially efficient.

Some critics of higher education charge that colleges and universities have been bad managers of their money, building lavish facilities for students and employing excessive numbers of administrators. This is hardly the case in financially challenged institutions like Sweet Briar, which operate on a shoestring with few economies of scale; they cannot make their business model work.

Higher education developed regionally in the United States. From the 18th century on, most colleges and universities, whether private or public, were founded to meet the local needs of their populations, educating men and women for the professions. The typical private college has its origin in a specific group of founders, often with a particular community affiliation and mission—a church, or a population it wished to serve, like women or African Americans. Public institutions took their charters from individual states; the only federal institutions in the United States are the military academies. Because of the regional way in which American higher education developed, the range and variety of institutions are more diverse than in any other country. In some sense, talking about a system of higher education in the United States is a misnomer; there is no system, except in the sociological sense of a group of organizations involved in the same practice. The diversity of American higher education is one of its great strengths. And colleges and universities, for better or worse, orient themselves around their local histories, seeking to create affiliation in their students and alumni that is almost tribal in its ethos and culture.

For all its strengths, however, this local orientation is not an efficient way to structure higher education. If higher education were a for-profit business, it would have embraced consolidation, moving to a more efficient scale of operation. (Indeed, the acquisition of some small independent colleges by for-profit schools is a move in this direction.) But the manner in which small colleges define themselves and are governed—by independent boards responsible to their particular community—make merger or acquisition a daunting task. When colleges cannot recruit enough students, they more frequently just go out of business.

Public universities face a very different enrollment challenge. They cannot afford to expand to meet enrollment demand. At the University of California at Berkeley, for example, almost 80,000 students applied for about 5,500 places in the freshman class. Pundits speak of the crisis in higher education as if it were a single thing. But public and private institutions face challenges that are almost the inverse of each other. While fragile private colleges struggle to meet enrollment targets, many public universities cannot meet enrollment demand.

Public universities also face a unique set of financial challenges. They have experienced dramatic reductions in state support—an average reduction of 40 percent between 1980 and 2011. Tuition at state universities has therefore increased significantly. According to the College Board, over the 30 years from 1984–85 to 2014–15, average published tuition for in-state students at public four-year institutions has increased 225 percent, from $2,810 to $9,139 in 2014 dollars. Costs have thus shifted from the state to students and their families. But the costs remain relatively modest in comparison with those of private institutions. In that same 30-year period, average published tuition and fees at private four-year institutions rose by a smaller percentage—146 percent—but from a much higher base to a significantly higher amount, from $12,716 to $31,231.

The increased cost of attending public colleges and universities and the shift of that cost to the consumer have motivated a debate about whether higher education is a private or a public benefit. The claim that it is a private benefit is based on data demonstrating the substantial gain in lifetime earnings for those holding a bachelor’s degree (according to the U.S. Census Bureau, approximately $1 million). The claim that it is a public benefit rests on a number of arguments: the value to the economy of a more educated workforce, the value of social mobility in a democratic society, the role of universities themselves as economic engines, and the role of research in developing new technologies and with them new business opportunities.

The debate about the relative weight of private and public benefits in public higher education and the consequent responsibility for its cost in no way moderates enrollment demand. Indeed, both sets of factors increase demand. More students want to go to college because of the personal economic benefit it offers them, and states want to increase enrollment capacity because of the public benefit it offers. However, the reduction in financial support from states has changed the incentives for public universities in managing enrollment. State colleges and universities for the most part do not engage in tuition discounting. Given the high level of enrollment demand and the lower cost of tuition, they don’t have a strong incentive to do so. But with cuts in state funding, they feel an urgent need to increase revenue. Their approach to maximizing tuition income is to increase the enrollment of out-of-state and international students, who are charged significantly higher tuition rates. Out-of-state freshman enrollment across the University of California, for example, doubled between 2009 and 2012, from 11.5 percent to 23 percent. The difference between in-state and out-of-state tuition is now almost $25,000. Public flagship universities have had particular success with this strategy, but even institutions with less national prestige have profited by it.

The changing enrollment mix at public universities, taken together with the relative bargain of in-state tuition, even with recent increases, has led to growing enrollment pressure. The question of how best and most efficiently to increase capacity therefore has particular public urgency.

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Michael Crow, president of Arizona State University, has called for a “new American university” that relies on digital technology to increase access and capacity. His commitment to growth stems from a passionate belief in the importance of universal access to post-secondary education for both the economic and the political health of our country. Arizona State is now the largest university in the United States, with more than 80,000 students and a 25 percent increase in applications in the past year alone.

Such growth is possible only when online instruction is one way in which the university presents its curriculum. But though digital technology will certainly play an important role in increasing capacity, how most effectively to use it remains unclear: in what kinds of courses, with what kinds of students, and in what combination with face-to-face instruction—the value that president emeritus of the Mellon Foundation William G. Bowen describes as “minds rubbing against minds.”

Equally critical to expanding the capacity of colleges and universities is improving institutional efficiency, allowing them to graduate more students in less time. At present, 45 percent of full-time freshmen beginning public universities leave without earning a degree; the median time that students completing a degree take to earn it is 55 months. Clearly there is work to be done here. An American Council on Education study has demonstrated that the more quickly students progress, the likelier they are to graduate.

Public universities could offer accelerated paths to the degree, using advanced-placement courses in secondary school and offering summer school courses. (Federal policy prohibits Pell grants—the financial aid the federal government awards to the neediest students—from being used in the summer; a change in this policy could increase both speed and capacity.) Institutions could also increase capacity (and reduce the cost of education for the individual student) by offering ways to earn credits off-campus less expensively—through education abroad, internships, and courses at lower-cost institutions, such as community colleges. Even more extensive use of community colleges to provide the first two years of work toward a bachelor’s degree would also increase the capacity of public universities.

Perhaps the financial crisis many small private colleges are facing also provides an opportunity to expand the capacity of our public universities. Here it is important to acknowledge differences in the advantages of scale in teaching and in administration. Small classes and small residential communities offer valuable benefits to students. Education scholar Alexander W. Astin’s classic 1993 study, What Matters in College?, demonstrates that low student-faculty ratios improve students’ satisfaction with faculty relationships and quality of teaching. Harvard scholar Richard Light has shown a significant correlation between the number of writing assignments students are given and their level of engagement—more writing is more characteristic of the small classes typical at liberal arts colleges than the large lecture classes in state universities. But the powerful argument for the pedagogical benefit of small classes has no parallel in the area of administrative services, which are ripe for outsourcing in a shared-service model.

Such outsourcing has been slower to happen than one might expect, given its financial benefits. Small colleges are intimate communities; shifting services to other providers eliminates jobs and affects employees’ lives. Many small institutions lack the administrative depth even to study the issues fully enough to make a decision. And finally, all institutions trade on a certain kind of nostalgia, the idea that the community and the experience it provides are unique—what policy analyst Jane Wellman calls the “snowflake phenomenon.” Generic solutions go against the grain of such a culture. Moreover, a single institution cannot undertake such a strategy by itself; a consortium of such institutions is needed.

The more significant administrative issue, however, is better use of enrollment capacity. How can such colleges educate many more students than they currently enroll? One might also ask, Why care? Why not let such colleges fail, and let larger, more successful colleges accommodate enrollment demand as best they might? Two reasons. Building or enlarging campuses is expensive; facilities are not a negligible asset. Then there is that benefit of “minds rubbing against minds.” The disadvantage in economy of operation provides a pedagogical advantage.

So how could you use the enrollment capacity of private institutions to meet some of the public enrollment demand? At least three possibilities exist.

States could subsidize students rather than institutions. (That is the basis of federal Pell grants for needy students; students carry the aid with them wherever they go.) This seems to me a poor policy alternative; it would weaken public institutions by drawing revenue away from them.

A second possibility involves establishing small communities of state students (I think of them as pods) on the campuses of private colleges with excess capacity. State universities would identify a group of students who would begin their college education together on another campus with a core curriculum. The state university would pay a facilities fee to the private college. It would define the curriculum and either provide the faculty for it or hire faculty from the partner college to teach the courses. Students could supplement the core curriculum with electives from the private college’s curriculum; for courses its students took at the private partner, the state university would transfer a prearranged payment. When students declared a major, they would then move to the university campus, although small colleges might offer or could develop curricular specialties in the upper division—the domestic equivalent of a junior year abroad.

UC Berkeley has conducted an analogous experiment with excellent results. For a number of years, it has met excess demand for fall enrollment by admitting some students in the spring and offering a fall semester, located at a local seminary under the auspices of UC Berkeley Extension. The students—about 700 of them—take a carefully designed core curriculum, with faculty hired for that program and dedicated to it. The students, although less competitive by Berkeley’s admissions standards, earn higher GPAs and graduate at a higher rate than students who begin their freshman year on the university campus.

Several hypotheses explain this surprising result. Students make the transition to a four-year college more successfully if they have a set of peers with whom they share an academic and social community. The Fall Program for Freshmen builds what it calls “an instant support network” of friends, instructors, and advisers. Small colleges excel at creating this kind of community, dedicating resources and energy to a first-year experience that builds networks, investing in advising, maintaining a strong safety net that quickly identifies deficiencies and problems, and focusing on foundational skills. The very size and breadth of curricular choices at a large university often compromise its ability to deliver an effective first-year experience. Students come to college seeking community. If the academic community is too diffuse, as it often is on large campuses, they find social identity and cohesion in social community. Small places have more success in providing students an academic as well as a social communal identity.

Such cohorts within private residential colleges could effectively supplement the work of community colleges in offering the first two years of a four-year degree, with the expectation that students would transfer to a four-year institution to complete their bachelor’s degree. Community colleges share many of the challenges of big universities. They offer many curricular choices designed for a diverse and diffuse set of educational goals—certificates for specific job skills, continued learning, terminal associates degrees, remedial education, as well as the first two years of a four-year degree. They often have weak safety nets and understaffed advising offices. They are not residential, by their very nature, and for the most part do not seek to build a strong sense of cohort identification. They can therefore form a very leaky pipeline for students intending to transfer to a four-year college or university. Only 30 percent of students who enroll full time for an associate’s degree complete the degree in three years; only 20 percent transfer to a four-year institution. Small residential colleges might well do better at this task because of their commitment to the first-year experience and their history and culture in shaping it.

The third way to use the excess capacity of small liberal arts colleges to meet the needs of state institutions is to convert such colleges to branch campuses of the university. This is the most challenging option, requiring a change in institutional identity and governing authority. Sweet Briar’s failed attempt to ally itself with the University of Virginia suggests the difficulty of this approach. But if successful, it would add capacity to state systems without capital expenditure, it would mitigate the problems of scale in administrative operations that small institutions face, and it might well bring to large universities the benefits of small residential communities.

In The Tower and the Cloud, a collection of essays he edited, Richard N. Katz uses the image in his title to represent the change from a university necessarily centered physically on books and professors, symbolized by the tower, to one that could be located in the digital cloud, where students can have access to both information and instruction. Many observers understand the crisis in higher education as the challenge that the cloud presents to the tower, that online instruction presents to the traditional delivery of instruction. Sometimes predicting the end of college as we know it, they anticipate a future in which increasing numbers of students will attend an institution that might be called, in the title Anya Kamenetz gives her book about the transformation of higher education, DIY U (Do-It-Yourself University), assembling credits online through multiple providers. Certainly online coursework will change (and is already changing) how students learn course material. Such changes challenge us to question the value of the tower in a digital age, the role of face-to-face community in post-secondary education.

But as we have seen, human community is important for learning—the community of peers and faculty. Digital modalities should allow us to achieve economies of scale in the support functions of the university—those elements of its operation that are not central to teaching and learning—so that proportionately more resources can be dedicated to its core functions, in whatever mixture of online and in-person instruction enables students to learn best.

The crisis in higher education, then, is less about the online delivery of instruction than it is about finance, where the cost, pricing, and financial aid model on which we’ve relied for so long no longer works for many institutions. To preserve the value and strength of our “system,” we will need to think systematically and organizationally, above the level of the individual college. So many colleges believe that better marketing, or better enrollment management, or a better alignment of degree programs with demand will provide the answer to shaky finances. Although some institutions certainly do these things better than others, the fundamental challenges are located in the financial model itself, where the only viable solutions are collaborative.

If we are to preserve the values that the Sweet Briars of our world have constructed over the decades of their existence, and if we are to create enrollment capacity at reasonable cost for all the students who want a college education, we will need consortiums and alliances of many different types. Perhaps there will be many experiments, regional and local in nature, in how institutions can work collaboratively. The Five College Consortium in central Massachusetts—an alignment that began in 1965, composed of Amherst College, Hampshire College, Mount Holyoke College, Smith College, and the University of Massachusetts at Amherst—designed a T-shirt reading, “Cooperation is an unnatural act.” We must transform institutional cooperation into a natural act, thinking more flexibly about institutional prerogative and privilege. Finally, it is the students who matter, and their access to a high-quality education at a reasonable cost.

The great strength of higher education in the United States is its diversity, its development not as a single system, but as many independent institutions. But independence, particularly of small institutions, has now become an impediment to their own survival. We need to think creatively, in more systematic terms, if we are to realize the full benefit of hundreds of years of building colleges and universities.