Colleges Need a Business Productivity Audit

And you would think universities would be leading the effort to figure this out. Not.
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By Frank Mussano And Robert V. Iosue Dec. 28, 2014 6:54 p.m.

College tuition rates are ridiculously out of hand. Since the late 1970s, tuition has surged more than 1,000%, while the consumer-price index has risen only 240%. The percentage of annual household income required to pay the average private four-year tuition reached 36% in 2010, up from 16% in 1970. What explains the ever-increasing costs?

For one, three quarters of a typical college budget is spent on personnel expenses, including benefits. Yet the average professor spends much less time in the classroom today than two decades ago. In 2010 44% of full-time faculty reported that they spent nine or more hours a week in the classroom, according to the Higher Education Research Institute at UCLA. In 1989 more than 60% said they did. The traditional 12-15 hours a week teaching load is changing into a six-to-nine-hour workweek, a significant decrease in productivity.

The typical defense of the reduced workload goes something like this: Professors have increased research demands, more extensive classroom preparation and committee work, as well as additional administrative and student-counseling responsibilities.

Except for a handful of elite researchers, this argument doesn’t add up. High-school teachers, for instance, teach 20-30 hours a week, while also facing increased administrative responsibilities. Some parents work longer hours or perhaps even two jobs to defray a child’s college expenses.

There’s another problem: The number of college administrators has increased 50% faster than the number of instructors since 2001, according to the Education Department. Administrative costs have far outpaced other college expenses during the past two decades.

There are numerous examples, but some of the more stunning cases include the University of Minnesota, which added 1,000 administrators in the past decade, reaching a ratio of one administrator for every 3.5 students, according to 2012 reporting in this newspaper. Arizona State University increased the number of administrators by 94% between 1993-2007, according to the Goldwater Institute, and the University of Pennsylvania nonteaching staff swelled by 83%—even though the schools’ respective student enrollments and instructional expenditures did not grow anywhere near those rates.

All the while, colleges launched a prestige arms race, dropping millions on extravagant buildings. Higher-education construction spending has doubled since 1994, with a peak of $15 billion in 2006 that has leveled off at $11 billion in recent years. Adding to the frenzy are the various magazine rankings that base much of their quality-assessment formula on the amount of money spent on student services and facilities, even if the funds are wasted. Campuses have everything from lazy rivers to climbing walls to luxury dormitories.

On top of that, student-loan debt has skyrocketed to $1.2 trillion. Easy access to government loan money has given colleges license to boost tuition with no motivation to keep costs down. College counselors encourage incoming freshmen to take on unconscionably large loans that ultimately fatten school coffers. The institutions know they will not be held liable for missed loan payments. More than 20% of the nation’s households have incurred student debt, averaging $33,000 for the class of 2014, according to The Wall Street Journal. Default rates stand at 14%—higher than for mortgages, autos or credit cards.

In short, colleges and universities engaged in a spending spree because they can. But there’s one simple idea that might start to reverse the spending spree: audits of higher education. In the business world, officials keep an eye on the bottom line. If profits are down, there’s a performance audit to identify unprofitable practices. Similar audits are conducted on defense plants, hospitals, social agencies and other businesses that benefit from tax dollars. Why not audit higher education?

A required review could focus on basic teaching workloads, space utilization and personnel costs as they relate to program revenues. Since the federal government already collects data annually on higher education, it could start asking for more information related to productivity. Colleges would be forced to reconcile sloppy and obscure bookkeeping methodologies to report statistics in a format consistent with government-defined metrics.

Eventually, benchmark comparison data could be established for various categories of institutions. The Education Department’s new college rating system could also collect and present cost-income productivity ratios that consider credit hours completed compared with labor costs and other expenses per student. Wouldn’t it be helpful to know which colleges are most productive with their tuition dollars?

Granted, there would be a lot of gnashing of teeth in the higher-education community at the thought of using a business assessment technique within its ivory walls. But even if what resulted were recommendations, and not mandates, the scrutiny would open many eyes to inefficient practices.

Mr. Mussano is the former dean of administrative services at York College of Pennsylvania. He and Mr. Iosue are co-authors of “College Tuition: Four Decades of Financial Deception” (Blue River Press, 2014).

via Frank Mussano and Robert V. Iosue: Colleges Need a Business Productivity Audit – WSJ.

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