The cost challenge
Posted on December 22, 2011
In the heightened hand wringing over college costs it is often assumed that institutions are inept when it comes to controlling costs. This is a little different than the critique that cites expensive climbing walls, food courts, and dorms that are much nicer than the shabby apartments to which many of our students will graduate with their degrees in hand. There is at least some tacit acknowledgement that the very same families that complain about tuition increases also demand those amenities.
The complaints I am thinking about today (as we begin building next year’s budget) are the ones that suggest we add cost willy-nilly and simply hike tuition accordingly and ignore the pain and suffering of students and their families. It is a complaint that we who lead colleges and universities are bad managers without the hard-nosed discipline of the for-profit sector. If you look at the way tuitions have outpaced inflation over the years we are an admittedly hard lot to defend.
On the other hand, consider the budget challenge before us this year as look at the traditional residential campus, what we call University College. I share this to offer just a bit of insight.
We would like to keep any tuition increase as low as possible. In an ideal world, we’d have no tuition increase at all.
However, we have a faculty and staff union and we are in year two of a five-year agreement. That contract calls for a 3.25% salary increase next year, a $645,000 impact. Skeptics might suggest that outpacing CPI is hard to justify, but it allows us to make up some ground from when our faculty and staff were underpaid. The base upon which we offer that raise is increasing, reflecting the realities of the market in terms of our ability to attract and hire good talent. In some key areas (like IT) we compete with the for-profit sector for talent. In our growing online division, we compete with the for-profit higher education. The cost of finding faculty members in some key fields, think Finance or Game Design, is also high.
As often noted in this strange economic recovery, there may be millions of unemployed people, but in many areas requiring advanced skills, emerging knowledge, or technical expertise there are many unfilled positions and finding good people means paying more than we have in the past.
We have budgeted a 2.5% increase in general expenses (another $906,00 impact) – – things largely beyond our control such as the cost of utilities and insurance and material goods. Here is a good example of the challenge: we built our network infrastructure and wireless capability with the imagined model of students taking their laptops anywhere and connecting. An increasingly common model is a student with that laptop, but also a smart phone, a gaming system (often more than one), and maybe an iPad or other tablet. It is not uncommon for a student to have three to five wireless devices and to use them for high throughput applications — downloading movies or music, real-time networked gaming, or accessing websites that increasingly use video — often at the same time and it is choking bandwidth. Yet such access is now considered a given and we are debating how to cover the cost of increasing bandwidth yet again.
Skeptics will say “There’s always fat that can be cut,” but we had no tuition increase at all a year ago and a small increase this year, so we cut the fat. We also have an aggressive purchasing department that seeks the best prices, bids our contracts, and works to control expenses. Some of those expenses have to do with the regulatory environment.
Consider compliance. This year the Department of Education raised the issue of online providers being registered in every state where a student is enrolled, even if we have no on-the-ground presence of any sort. The states were caught unawares and their regulations are a hodge-podge of often unclear guidelines and various prices. We have had to add a full-time compliance officer to navigate these complicated waters and we plan on somewhere between $150,000 to $300,000 per year in new state registration fees on top of that new salary and benefits line.
We want to be better about diversity and launched our much lauded College Unbound Program this year, bringing in more students of color and amazing talent. Any university would want these students. However, the cost of the program is much higher in terms of need. Indeed, the recession has driven up our discount rate because we are doing so much more to help families. Would anyone argue against either of these needs?
So if we take those above items alone we are looking at something like $2,000,000 in new expenses. All well reasoned and well managed.
Now every percentage point increase in tuition yields about $400,000. Add in housing and fees and so on and we get to about $558,000 per 1% increase. So if we add nothing more to the mix (and the list of needs is always long) and we remain disciplined about saying “no,” we are looking at something like a 3.5% tuition increase just to keep even.
In this case, even means not making larger the $3.9m operating deficit UC ran last year. Our College of Online and Continuing Education runs a surplus and is able to cover that gap, but we would like to move to a point where UC is more fully self-sustaining. That gets us into discussions of how to restructure UC, whether we should get bigger (though our region is declining demographically speaking), how quickly to build our much needed library/learning commons (knowing it would add more than a $1m in additional expense annually), and always how we should balance the financial needs of the university with the struggles of families to pay. That is, how large a tuition increase should we have next year. To my mind, 3.5% feels too high and we will look tone deaf to the economic climate.
However, it is not because we are poorly managing our budgets and resources. Universities are complex organizations, especially their traditional residential components. They operate in a highly regulated environment, employ highly trained people, feel pressure to join the facilities arms race to recruit students (there is a reason our dorms are so much nicer than those at Brown or Harvard — they have to be), and invest in their missions in ways the for-profits tend to ignore. We can do some things better and will work on tightening up even further — no one would accuse SNHU of unwillingness to innovate and try new models — but at the end of the day the traditional residential model of education most people still want for their sons and daughters is an inherently expensive one to offer.
Better doesn’t always mean more expensive, but the task of getting better while fighting expense (often expense not in our control) is a complicated one. Now back to the spreadsheets!