............................................................................................................................................................................................................................................... SYMPOSIUM ............................................................................................................................................................................................................................................... The Troubled Future of Colleges and Universities Gary King, Harvard University Maya Sen, University of Rochester ............................................................................................................................................................................................................................................... he American system of higher education appears way to become educated, a primary driver in reducing income poised for disruptive change of potentially his- inequality (de Gregorio and Lee 2002), and a major generator toric proportions due to massive new political, of economic growth (Goldin and Katz 2008). These successes economic, and educational forces that threaten have allowed universities to become even more valued for their to undermine its business model, governmental abilities to create and distribute knowledge. Tsupport, and operating mission. These forces include dra- But how are universities paid for? The business model of matic new types of economic competition, difficulties in grow- most universities relies primarily on tuition revenue from ing revenue streams as we had in the past, relative declines in teaching, with some additional funds from sponsored research philanthropic and government support, actual and likely future and philanthropy. However, sponsored research dollars do political attacks on universities, and some outdated methods not even cover their own costs: each year, universities lose of teaching and learning that have been unchanged for hun- between $700 million and $1.5 billion in administrative and dreds of years. operating costs that are not covered by sponsored federal Most importantly, technological advances, the Internet, research grants (Goldman and Williams 2000). For example, quantitative social science (recently known to the general pub- the University of California alone reports that it loses approx- lic as “Big Data”), and the computer revolution have mas- imately $500 million each year in unrecouped indirect costs sively reinvented or disrupted travel, music, commerce, sports, associated with sponsored research (University of California newspapers, publishing, and many other information-based 2012). Given the lack of support in the current political envi- businesses. Is higher education next? Remember Newsweek? ronment for increased funding, and the strict limits placed It was also in the business of creating and distributing knowl- on indirect costs and overhead, universities shoulder this bur- edge. In 2010, the entire company was sold for $1.00 (Clark den by relying on other sources. 2010; Vega and Peters 2010). For the top universities, philanthropy is a significant source We think that university officials should now begin to act of funds, and the donors (especially alumni) are extremely and with this symposium hope to facilitate a larger conversa- loyal citizens of their university-created communities. They tion about what is happening and what action we might take. will undoubtedly be counted on for much progress going for- In our view, political scientists are uniquely positioned to ward. However, overall philanthropic contributions to higher understand the situation, to study the effects of governmental education are down for only the second time since records and economic forces on universities, to analyze the fragile polit- have been kept, having dropped more than $400 million since ical situation, and to help design new strategies and institu- their peak in 2007–08 (National Center for Education Statis- tions to respond. It is time the profession engages this crucial tics 2010d). The largest gifts have, of course, historically come issue. If universities fail to rethink their strategic situations from the most wealthy, but among this group giving has and business models, they may well fall to the coming educa- dropped significantly both in terms of numbers of donors and tional “tsunami” (Auletta 2012). Doing nothing different, and numbers of dollars and is far more sensitive to changes in imagining that nothing will change, is delusional. Inaction at economic conditions. Despite huge increases in the concen- this point may be as irresponsible to students, faculty, and tration of wealth, giving by the wealthiest donors decreased staff at universities as it is to the country and world that depend 9.8% from 2005 to 2007, compared to a 1.8% overall philan- on the continuing flow of breathtaking innovations that stem thropic decrease (Center on Philanthropy 2009). Even the gen- from university research to improve the economy, create won- erous billionaires who have pledged to give away half their der, and make the world a better place to live. money (http://j.mp/ScJN4g) will leave with them a breathtak- ing concentration of remaining wealth. Empirically, it takes THE STATUS QUO BUSINESS MODEL years for wealthy people to learn how to become productive The raison d’être of modern universities has long been the philanthropists, and so universities also struggle with the fact (1) creation, (2) preservation, and (3) distribution of knowl- that the increasing numbers of younger wealthy (especially edge. Universities function best when all three work together. from technology ventures) do not presently give as much as The resulting synergies have produced dramatic progress for the wealthy from previous eras. hundreds of years: universities are not only the primary stew- Tuition and fees are paid by students, their families, gov- ards of the scientific community but the most sought after ernments, and endowments, but increasing revenue at the same doi:10.1017/S1049096512001606 PS • January 2013 83 ............................................................................................................................................................................................................................................... Symposium: Symposium on “The Troubled Future of Colleges and Universities” ............................................................................................................................................................................................................................................... Figure 1 Left: Number of Colleges and Universities in the United States (including branch campuses). Right: Percentage of Enrolled Students at Public, Private, or For-Profit Universities. Source: National Center for Education Statistics. rates from these sources seems unlikely. For most of the twen- Another way to raise revenue is by admitting more stu- tieth century, increasing tuition was a reliable, economically dents, which universities consistently did through the early sound way for universities to raise revenue because family twentieth century (National Center for Education Statistics incomes were rising. When family incomes stopped rising, as 2010c). However, at this point, the number of students is rel- they have for the last two decades (Federal Reserve Board Divi- atively fixed because of physical constraints at universities, sion of Research and Statistics 2012), federal and state govern- colleges, and even community colleges (see figure 1); unless ments intervened by providing basic grants and assistance. universities spend what scarce resources they have on large Today, tuition is outstripping that assistance, and state and residential, classroom, and other infrastructure upgrades, federal budgets are more strained and their legislatures less meaningfully increasing student enrollments on campus is not generous. In addition, academics, especially those receiving feasible. Today even the largest universities are not taking federal support (such as in schools of public health), are dis- many more students, and private institutions long ago gave proportionately liberal Democrats, and so their ability to stay up on the idea of increasing enrollments as a way to increase above the political fray may become more difficult to sustain revenue. (Fosse and Gross 2012). In recent years, families have turned directly or indirectly ECONOMIC ATTACKS to home equity loans to pay increasing tuition, but, after the We now explore some of the external forces undermining the real estate crisis, this is no longer a viable option. Today, many university business model. In all likelihood, the biggest threat students borrow hefty amounts from private lenders without to any university is not another traditional university. After basic consumer protections. Although this was never planned all, when Harvard’s or Princeton’s endowment surges, so does or expected, student loan debt now even exceeds total credit Stanford’s. When the Wisconsin State Legislature cuts the card debt (Federal Reserve Bank of New York 2012)! The top university budget, similar patterns soon follow in California universities are now charging around a quarter of a million and Ohio. When community colleges in the Northeast are dollars for four years of tuition, and so increasing that much overwhelmed with students and cannot expand to keep up, more is likely to be untenable