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The Next Bailout: Colleges and Universities


BOCA RATON, Fla. - Like the auto industry, American colleges and universities are headed for a long overdue shakeup, according to recent reports from independent research organizations. Yearly tuition and fee increases that squeeze middle income families, coupled with an isolated ivory tower view taken by most college and university presidents, has accelerated the need for change in our higher education structure, asserted University Consultants LLC’s Joseph Schmoke in a discussion with education industry investors. And, he says, the change is coming whether those presidents like it or not.

“The views of most college presidents remind me of the story about the mother who was convinced her son was the only band member in step,” Schmoke commented while citing an October 2008 report, The Iron Triangle – College Presidents Talk about Costs, Access and Quality. The report was co-published by the National Center for Public Policy and Higher Education and Public Agenda, two nonprofit organizations. Typical of the quotes from college presidents in the report, Schmoke pointed out, is “The goal of American education [is] to be excellent. If excellence is your goal, that costs money. We don’t settle for mediocrity.” Schmoke, on the other hand, thinks the goal is, or should be, “to educate.” He stated, “Providing excellent education does not require an open checkbook, either from a student or the government, despite what these myopic administrators think.”

“A case in point,” said Schmoke, “is our client Andrew Jackson University, a small school with a reputation for high academic standards. To reduce costs while maintaining academic excellence, the university moved all its courses online in 2006 while concurrently increasing faculty monitoring to ensure optimum student learning outcomes. Andrew Jackson’s president, Don Kassner, is an experienced businessman as well as an academic, and that’s what it takes to successfully address costs from both sides of the table, the university’s and the student’s,” Schmoke stated.

Schmoke pointed out that Kassner’s university reduced costs so much they were able to eliminate tuition in what they call “sponsored” degree programs. These programs, open to all students, were first introduced in July 2008. Enrollments increased so much Andrew Jackson University had to enforce a monthly enrollment limit while they expanded staff. “The response was obviously based on the market’s unmet demand for an accredited degree at very low cost,” he continued. He cited the $3000 cost of a master’s degree at Andrew Jackson as an example of how tight cost controls translate into substantial savings for the student.

While the majority of college presidents think more money is the answer, they hesitate to explain exactly where that money will come from. The usual answer is “from either the government or students and their families.” “And where will the government and students get that ‘extra’ money in the current economic environment?” Schmoke asks. He feels that things have to change, and change soon or college degrees will become even less affordable for the average American.

Schmoke mused, “Will colleges and universities eventually follow Lehman Brothers, Washington Mutual and the auto makers?” He called attention to a strikingly relevant statement quoted in the Iron Triangle report. The unnamed college president said, “…I heard a speaker from the auto industry who asked, ‘What happened to the auto industry? Fundamentally, it was hubris. It was a belief that [we] had always built the best vehicles, and always would, and the public would buy whatever we built.’ That’s a classic example of a very, very mature industry losing touch with the people they’re serving…We are, at this point in our history, a very mature industry,” the college president concluded, suggesting that his colleagues take a more objective view of their business practices before their institutions require a bail out.

Schmoke said that, as far back as 1968, auto industry engineers at Ford secretly considered Honda Accord the best built car in the world. Honda, along with Toyota, both had somewhat negative brands at the time as they were “made in Japan.” But they provided low cost, reliable transportation to people who did not need a prestigious brand to stroke their ego. The result, as we have seen, said Schmoke, was the eventual disruption of the American auto industry by low price, high quality competitors. Institutions like Andrew Jackson University, with low brand recognition but legitimate academic programs, are the Hondas of today and, Schmoke predicted, are poised to disrupt higher education, to the eventual benefit of students and the American economy.

Schmoke closed the discussion by calling attention to lifelong academic and business guru Peter Drucker, quoted in Forbes (1997) saying, “Thirty years from now the big university campuses will be relics. Universities won’t survive. It’s [Internet technology] as large a change as when we first got the printed book…The cost of education has risen as fast as the cost of health care…Such totally uncontrollable expenditures, without any visible improvement in either the content or quality of education, means that the system is rapidly becoming untenable. Higher education is in deep crisis.”

“Can a bailout be far away?” asked Schmoke.

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About University Consultants LLC
Founded in 1980 as an advisor to rapid growth companies and their investors, University Consultants has specialized in the business of higher education since 2001. The small staff, led by founder L. Joseph Schmoke, is now concentrating on developing and employing strategies intended to disrupt what Schmoke and others consider as the mature, marketing driven and commoditized business of higher education. These strategies center on utilization of the Internet and related technology to substantially reduce internal costs while creating student referral relationships with organizations to drastically reduce a school’s cost per enrollment.

The Reports
• The Iron Triangle: College Presidents Talk about Costs, Access, and Quality, dated October 2008 and published by the National Center for Public Policy and Higher Education, and Public Agenda.
• University Tuition, Consumer Choice and College Affordability – Strategies for Addressing a Higher Education Affordability Challenge, dated November 2008 and published by NASULGC, a Public University Association.


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