The Failing Business Model of American Universities
Photo by Joshua Hoehne on Unsplash

The Failing Business Model of American Universities

Eric Jansen
Eric Jansen
8 min read

Put yourself in the shoes of the average college graduate today. It took you longer than expected to complete your “four-year degree” and you are almost $30,000 in debt. You are desperately searching for a job in your field before your student loan payments run you into the ground, assuming your rent and car payments don’t get you there first. The generations before you had student loan debt too, but not nearly to the same degree of an ever-present threat. How did you end up here, and what do you do now with the worldwide COVID-19 pandemic?

The business model adopted by our academic institutions is increasingly at odds with those seeking higher education and with the broader society as well. It is undesirable to have entire generations unable to participate in the economy, and as of June 2020, contribute a staggering $1.67 trillion to the national debt according to the National Reserve. This is more than auto loan debt and almost twice the amount of credit card debt in the US. It is crucial to understand the various factors that led to this predicament and to recognize where the system went wrong in order to find solutions.

The rising cost of post-secondary education

The most obvious cause of this massive amount of debt is the continually rising cost of higher education. The College Board noted that in-state public college tuition from 1984 to 2014 increased by 225 percent. In the same timeframe, data from the US Census Bureau shows that the median family income has only increased by 24 percent, both figures accounting for inflation. While not all students attending colleges or universities are from median income families, it is still worth noting the drastic difference in these increases.

In addition to the rising cost of tuition, students are on average taking longer to complete both two-year and four-year degrees. “Four-Year-Myth,” a 2017 report from Complete College America, notes that at most public universities, only 19 percent of full-time students earn a bachelor’s degree in four years. At community colleges just five percent of students earn an associate degree in two years. Only 50 of the more than 580 public four-year institutions in the United States have on-time graduation rates at or above 50 percent for their full-time students. Unfortunately, we as a society still push the narrative of the college degree taking four years to complete despite the accruing evidence that suggests otherwise. Causes of this extended time in university identified in the report include “credits lost in transfer, unavailable critical courses, uninformed choices of majors, low credit accumulation each semester, broken remediation sequences, and excessive credit requirements.” Simply put by the authors of the study, “The reality is that our system of higher education costs too much, takes too long, and graduates too few.”

Increasing reliance on student loans

For those whose parents cannot afford the high cost of post-secondary education, student loans are the only option left to pursue a college degree other than the limited number of scholarships and grants available. Student Loan Hero notes that among the Class of 2019, 69 percent of college students took out student loans and graduated with an average debt of $29,900, while 14 percent of their parents took out an average of $37,200 in federal parent PLUS loans.

While it is true that college is an investment in one’s future, the price tag is ever increasing while the payoff… arguably not so much. The Bennett Hypothesis is important in understanding the relation between the rising cost of tuition and the issue of student loans. It states that colleges will raise tuition when financial aid is increased, with the implication that increases in financial aid will not improve college affordability. We see this in the rising cost of tuition every year, regardless of the availability of loans.

Troubling data on annual borrowing from the College Board show the types of loans taken. While total annual education borrowing declined for the eighth consecutive year since 2010–2011 ($131.7 billion to $106.2 billion in 2018–2019), the percentage of student loans as federal subsidized loans (interest is paid by the Education Department while enrolled at least half time in college) decreased from 36 percent to 19 percent while the percentage of federal unsubsidized loans (interest begins accruing as soon as the loan is disbursed) increased from 41 percent to 46 percent. Parent PLUS and Grad PLUS loans both increased from nine percent to 12 percent while non-federal loans increased from seven percent to 12 percent.

Bloated administration

So where is all this money going? While much of it goes to the salaries of faculty and the building and maintaining of facilities, a questionable amount goes to administration, another aspect of universities that has rapidly grown in recent decades. According to a 2014 Delta Cost Project report, the number of faculty and staff per administrator declined by roughly 40 percent at most types of colleges and universities between 1990 and 2012, now averaging around 2.5 faculty per administrator. In 2012, the number of faculty at public research institutions was nearly equal to the number of administrators.

“The interesting thing about the administrative bloat in higher education is, literally, nobody knows who all these people are or what they’re doing,” says Todd Zywicki, a law professor at George Mason University and the author of a paper entitled: ‘The Changing of the Guard: The Political Economy of Administrative Bloat in American Higher Education.’ Vague titles for administrative positions at institutions of higher education include Health Promotion Specialist, Student Success Manager, Senior Coordinator, and Student Accountability Manager. While some administration positions are surely useful and arguably necessary such as Director of Student Financial Aid, Director of Academic Advising, or those positions added in response to federal and state mandates, the salaries of administrative positions have rapidly increased.

Often, executives and administrators at colleges and universities are paid significantly more than those in comparable positions with comparable duties. At the University of California (a public university where employees are not considered employees of the state) for example, an audit was conducted in 2017 to investigate the Office of the President and its budget practices. The report states that, “The Office of the President paid the Senior Vice President for Government Relations a salary $130,000 greater than the salaries of the top three highest-paid state employees in comparable positions.” The office also “amassed substantial reserve funds, used misleading budgeting practices, provided its employees with generous salaries and atypical benefits, and failed to satisfactorily justify its spending on system-wide initiatives.” Similarly, according to a 2011 article in Washington Monthly, “Vice presidents at the University of Maryland earn well over $200,000, and deans earn nearly as much. Both groups saw their salaries increase as much as 50 percent between 1998 and 2003, a period of financial retrenchment and sharp tuition increases at the university.”

Focus on research over education

While one would think that institutions of higher learning would focus primarily on education, the business model of universities has other priorities. Research done by experts in their field (most notably in STEM) at top tier facilities brings funding and renown to a university, which in turn attracts more students and more funding with them. While most research done at universities is certainly important and for many individuals is the best if not only method of pursuing complex research at top tier facilities, it often finds itself in direct conflict with the education of students in terms of allocation of funds and time, as well as what skills the university looks for in candidates, i.e., strong emphasis on research capabilities rather than educational prowess.

In an interview, Peter S. Cahn, associate professor of anthropology at the University of Oklahoma, revealed that his department chairwoman had said this: “To get tenure, you need a book or a series of articles. If you have great publications but lousy teaching, you’ll still get tenure. If you have great teaching but not-so-great publications, you won’t get tenure.” This is a sentiment shared by many universities that focus more on research, which increases the institutions’ financial gains and standing, and less on what should be their primary goal: the education of students.

On the topic of tenure, there has been a drastic decline in the percentage of tenured faculty appointments at universities. According to an article published in the Advocate-Messenger, from 1969 to 2015, the percentage of faculty who were tenured or tenure track dropped from 78.3 percent to 29 percent. In the same time, the percentage of adjunct (part-time) faculty rose from 21.7 percent to 71 percent. Adjunct faculty have no permanent position with the university, cost the university less, and offer an exploitive workforce for the university. Many adjunct faculty members cannot support themselves solely on the work they do for the university and commonly work multiple jobs.

Graduate students also find themselves in a less than ideal situation—they are being used as cheap labor in research institutions and being trained for a job market that cannot possibly employ them all. As Eric Weinstein has pointed out:

The best economic models of graduate education are probably those that view students as longterm investors bartering years of higher wages to the profession in exchange for training and a chance at a research career. This investment model works during periods of growth but runs into trouble as the system moves towards steady state and the odds of finding a job decrease.

A constant state of growth is impossible and history shows us that relying upon it will lead to failure.

Increasing class size

A common side-effect of the rising cost of higher education is the increasing class sizes, primarily in general education courses or intro-level courses often taught by graduate students. With larger class sizes (often 100–300 student lectures) it is impossible to have the type of nuanced and critical discussions integral to higher education. This is especially important to courses on topics that are inherently conversational and require thorough discussion like philosophy, political science, or law studies. It also becomes nearly impossible for the professor to properly allocate his or her time to each student that requires help.

A common theme among these large lecture courses is a very lenient or nonexistent attendance policy, which is beneficial to some and detrimental to others. For those who need to attend class in order to grasp the subject knowledge but are not intrinsically motivated to attend, this can cause their grade point average to slump, sometimes to the level of a failing grade. Those students who can blow off the class and still pass can resent having to pay hundreds of dollars for a course irrelevant to their major and that they could have self-taught.

The ease of access to knowledge through technology like YouTube and other media sources makes courses that merely lecture and assign readings from a textbook, as these large classes often do, significantly less effective and cost efficient. It is now fairly easy to find full lectures on YouTube from reputable professors at top-tier universities or free podcasts/interviews with today’s greatest minds. Many students would find paying hundreds of dollars for a course at their university counterintuitive when a professor from another university, potentially from a more prestigious one, offers his or her lectures from a similar class online for free.

Given the continual capitalization of students in the pursuit of profit, something must be done before the system reaches a precipice from which a fall would cause catastrophic failure. While the university business model surely has its place in society, I do not believe that higher education should utilize it to exploit our future generations. Academic institutions should have their priorities in education, for the good of its students and our society as a whole.

EducationTop Stories

Eric Jansen

Eric Jansen is a senior Music Education Major at Florida State University and co-host of the TechGen Tidbits podcast. You can find him on Twitter @thethrumpet1.