Kamis, 01 April 2010


James V. Koch
Board of Visitors Professor of Economics
and President Emeritus
Old Dominion University
Norfolk, VA 23529

Like the proverbial swan that appears to be gliding smoothly and effortlessly across a lake, higher education in the United States usually is portrayed by leading American media as sailing in reasonably calm, if not placid waters. Record enrollments and torrents of applications, billion dollar fund-raising campaigns and research breakthroughs---these are the triumphant staples of major media coverage of higher education today.

True, the media occasionally tut-tut about the odd malefactor in intercollegiate athletics or student financial aid. And, occasionally one encounters a story about an “unconventional” student who is a single parent and works a full-time job. Nevertheless, mainstream media coverage of higher education emphasizes the success stories of prestigious institutions, the strenuous competition of high school seniors to gain admission to those prestigious institutions and a healthy serving of big-time intercollegiate athletics. The picture the media paint is one of prosperity and success in an industry that in economic terms is characterized by excess demand for its products. Substantially absent from this portrait is the ferment and segmentation of higher education that actually has occurred in the United States in recent decades.

A remarkable astigmatism attaches to the higher education coverage of the leading news providers. Though the New York Times prides itself on its front page that it provides its readers with “All the news that’s fit to print,” its parochial coverage suggests there is little or nothing newsworthy happening at 95 percent of the more than 4,200 institutions of higher education in the country. The Times’ coverage of higher education focuses upon Ivy League institutions and a few large, elite public universities such as California—Berkeley, Michigan and Virginia. Community colleges may enroll more than 38 percent of all college students in the country (Chronicle, 2007), but only a cursory examination of the Times’ coverage of higher education is necessary to ascertain that such institutions receive nowhere near this percent of coverage. One is more likely to see an article accompanied by pictures in the social section of the Times that reports a meeting of Cornell alumni, or an article in the sports section on Johns Hopkins lacrosse, than an article covering the gigantic community college campuses in New York City.

While American higher education has become exceedingly diverse and segmented in a multitude of ways (it has “multifurcated”), much of the country’s mainstream media (and perhaps their readership as well) seemingly neither know nor care. Less insular (though perhaps less prestigious) print outlets such as USA Today are more catholic in their higher education coverage and on occasion note the fact that 59 percent of all community college students are women, 34 percent are members of minority groups and 87 percent work while taking classes (Chronicle, 2007).

In fact, American higher education is both exceedingly diverse and in tumult, with institutions and educational models rising and falling in a fashion that recalls the perennial gales of creative destruction Joseph Schumpeter (1923) scenically attributed to market economies a century ago. The American higher education swan actually is paddling furiously beneath the water. What’s more, the variety and ferment of American higher education are destined to increase in the future. Let’s examine how this will occur and what the motivating influences will be.


Where higher education finances are concerned, it’s actually an understatement to suggest that some institutions of higher educations resemble Cadillacs, while others are similar to Volkswagen Beetles. A more apt comparison is one between a Rolls Royce Phantom (perhaps the most expensive automobile in the world) and an old, smoke-belching East German Trabi. Consider the 2007 endowment data contained in Table One. Harvard University boasts the largest endowment, $34.6 billion ($1.73 million per student), followed by Yale University with $22.5 billion. A large and distinguished public institution, the University of Michigan at Ann Arbor, reports an endowment of $7.1 billion.


2007 Endowment
Institution Endowment Per Student

Harvard University $34.6 billion $1,730,000
Yale University $22.5 billion $1,951,000
University of Michigan,
Ann Arbor $ 7.1 billion $ 195,000

California State University
at Los Angeles $18.9 million $ 900
Fayetteville State University $11.4 million $ 1,700
Keuka College $ 5.7 million $ 3,400
Tidewater Community College $ 3.7 million $ 150
Source: Chronicle of Higher Education, 54 (February 1, 2008), A14-7.

At the other end of the spectrum, California State University at Los Angeles, a large public university that serves a predominantly minority student body in the nation’s second largest city, has only an $18.9 million dollar endowment, which translates to approximately $900 per student. Fayetteville State University, an historically black institution, possesses an $11.4 million endowment, providing it with $1,700 per student. Keuka College, a prototypical tuition dependent liberal arts college located in a rural area, claims an endowment of $5.7 million; providing about $3,400 per student. Meanwhile, the endowment of Virginia’s Tidewater Community College, which enrolls approximately 25,000 students, is only $3.7 million, or $150 per student.

Note that if Harvard did not charge tuition to any student and had no other revenue of any kind, its $34.6 billion endowment would still generate $86,500 per student for it to spend annually if it spent five percent of its endowment. One can be forgiven for speculating that if Harvard were forced to the wall, it could find a way to provide a quality education to its student body for $86,500 per student per year. Were Yale University similarly disadvantaged, its $22.5 billion endowment, when combined with its smaller enrollment and a five percent spending rate, would generate an impressive $97,500 per student annually.

The import of the financial data in Table One is difficult to avoid. Some institutions of higher education are dramatically better off financially than others. The resources Harvard University can make available to its students place it almost in another universe compared to another independent institution such as Keuka College. Yes, both are regionally accredited institutions of higher education, but their missions, student bodies and financial circumstances differ radically.

It’s true that the public institutions profiled in Table One receive state appropriations and financial support. However, an institution such as Tidewater Community College receives only about $4,400 per student annually from the state and even the elite campuses of the University of California received less than $10,000 per student annually from state general fund coffers in 2005-2006 (Newfield, Bohn and Moore, 2006). These are paltry sums when compared to the resources available to the elite independent institutions in American higher education.

What’s more, the differences are widening over time. The Chronicle of Higher Education (Wolverton, 2008) reported that Stanford alone raised $832 million in its 2006-2007 fund-raising year, while Harvard raised $614 million. In a single year, then, Stanford raised 146 times as much money as Keuka College has in its entire endowment. This general trend---the widening of the gap between the financial “haves” and the “have nots” has prevailed for several decades.

Still, it isn’t just the Keuka Colleges of the world that are gradually being left behind. In 1983, the University of Michigan ranked 7th on U.S. News and World Report’s list of national universities. By 2008, it had fallen to 25th (U.S. News, 2008). Of course, one can attribute this decline to many difference factors, but the falling real value of state appropriations for the University must rank high among the culprits. Michigan’s descent has been matched by many other flagship state universities located in states where higher education appropriations account for an ever-declining portion of public expenditures.

The most important place the differential financial resources of institutions comes to the fore is in the hiring of faculty. Cardinal Newman allegedly once averred, “The faculty are the University.” Even if he did not utter that sentiment, it is nonetheless salient. Attracting and retaining excellent faculty is absolutely critical to fulfilling the educational mission of any institution. As a consequence, superb physical facilities accompanied by a poor faculty still combined to make a mediocre university. On the other hand, sub-par facilities paired with a great faculty demonstrably still can produce an outstanding academic institution. Without question, an excellent faculty is the key to a vibrant institution. Hence, those institutions that fall visibly short in faculty employment arenas are severely challenged to generate educational quality.

Table Two provides a glimpse of how the inequality of institutional resources affects faculty salaries at selected institutions. Several observations leap out:

• The nation’s elite institutions have far more resources available to pay their faculty than the typical public institution (the second grouping in Table Two), or the typical independent liberal arts college.

• Harvard offers its faculty academic year salaries that are more than three times as high as those offered at Bethany College in West Virginia.

• Many independent liberal arts colleges are unable to offer faculty salaries that are competitive with their better-endowed brethren (Claremont McKenna serves here as the representative example of the fortunate).

• Except in urban areas, the relatively low levels of funding of community colleges (see Table One) result in their paying their full-time faculty much less than faculty at most other institutions and this in turn causes them to hire very large numbers of part-time faculty.

Of course, significant cost of living differences exist that impact specific institutions and not all institutions attempt to hire the same kinds of faculty. These and similar qualifications mean that Table Two incorporates some “apples and oranges” comparisons. Even so, a type of class system has arisen in higher education that reflects the gross inequality of available institutional resources. Consider the independent sector. Both Bethany College and Claremont McKenna College are regionally accredited institutions and yes, under most circumstances, they will accept each other’s academic credits when students transfer. That said, they are very different institutions of higher education in nearly every sense and offer their students dramatically different opportunities. Similar public sector disparities exist. Western State College in Colorado and the University of Colorado may both be public institutions at least partially supported by the State of Colorado, but they are profoundly different in nearly every meaningful respect.

Institutional dichotomies such as those just cited are not necessarily a bad thing and may even make us better off. The diversity of higher education institutions in the United States and the wealth of different educational models and experiences available to students constitute strengths instead of weaknesses for the United States. Not all students would do well at an elite institution. Even so, we should not forget that it is the substantial inequality in financial resources that is primarily responsible for generating (“forcing” might be a more accurate term) this diversity.



University of Virginia $128.0
University of Michigan $130.4
Massachusetts Institute of Technology $145.9

Harvard University $177.4

Peninsula College (two-year, Washington) $ 51.1
Butler County CC (Pennsylvania) $ 57.8
Western State College (Colorado) $ 62.9
Illinois State University $ 80.4
Old Dominion University (Virginia) $ 94.8
University of Alabama, Tuscaloosa $107.7
University of Massachusetts $109.4

Bethany College (West Virginia) $ 57.0
Culver-Stockton College (Missouri) $ 53.6
Hastings College (Nebraska) $ 62.3
Claremont McKenna College (California) $119.5


If necessity is the mother of invention, then financial constraints have stimulated nearly every institution of higher education to reconsider its position in the educational universe. Predictably, financial constraints and other factors have resulted in the appearance of new models and competitors. Consider the University of Phoenix, which the Chronicle of Higher Education (Blumenstyk, 2008a) reports now enrolls 325,000 students around the world and employs 5,500 admissions representatives. Many individuals who did not know that Phoenix is the largest university in the country learned this when the 2008 National Football League Super Bowl was played in the University of Phoenix Stadium near the University’s headquarters in Arizona. The University paid a reported $154 million to place its name on this stadium for 20 years.

The University of Phoenix model emphasizes student-oriented instruction and services tailored especially to students who have work responsibilities, families and other demands upon their time that make conventional, full-time day student status an unlikely prospect. Phoenix offers courses in urban and suburban facilities, sometimes in shopping centers or office buildings and frequently offers asynchronous distance learning courses. Typically, Phoenix facilities offer generous amounts of instructional technology and feature career advisors that advise and work with Phoenix students, who constitute a highly disparate group in terms of academic backgrounds and life situations.

An important key to the Phoenix model, however, is its faculty, who by and large are not as expensive as those employed by conventional institutions. Phoenix utilizes large numbers of part-time and adjunct faculty who often boast significant private sector experience, but their full-time equivalent price is well below the salaries “conventional” institutions pay their full-time faculty. Further, institutions such as Phoenix seldom grant such faculty members tenure and hence maintain considerable flexibility to add and subtract faculty in response to student demands and job market pressures.

Phoenix did not initiate this model, which now is utilized coast to coast by other institutions such as Strayer University and National University. A host of more conventional institutions also have adopted portions of this model. Connecticut’s Quinnipiac University now employs 400 part-time faculty to supplement the 270 full-time faculty that teach its 7,400 students (Blumenstyk, 2008b). Phoenix, however, easily has achieved greater success than any other institution in pursuing this model, though its approach repeatedly has drawn flak from critics who argue it shortchanges academic quality and students. Nevertheless, Phoenix is accredited by the North Central Association and offers degree programs through the doctorate.

Is the Phoenix model the wave of the future? Yes and no. Phoenix would not enroll 325,000 students if “free to choose” students perceived that conventional institutions were meeting all of their needs to the same extent as Phoenix. Recognition of this has led an increasing variety of institutions, including many struggling liberal arts colleges and non-elite state colleges, to adopt portions of the Phoenix model, especially when dealing with part-time, evening and military students. Flagship state universities and highly selective independent institutions typically have disdained this model, though even here a few institutions have created a “university college” or other rubric that enables them to pursue a separate and distinct educational model with respect to students who might not qualify for regular admission, or who have special needs and interests.

If the Phoenix phenomenon is perhaps the single most significant institutional higher education innovation in recent years, then it certainly is not the only one. A huge variety of distance learning initiatives, the use of I-Pods and even YouTube for teaching purposes, the reengineering of heavily enrolled courses, innovative multidisciplinary course combinations and programs, service learning, learning communities, guaranteed internships, degree programs shared among institutions, extension of the medical model to other disciplines such as business, and on some campuses intervention in student lives reminiscent of in loco parentis, are among innovations that have been adopted by a variety of institutions nationally.

More often than not, the major educational innovations of recent years have emanated from non-elite institutions on the make that have entered at the perceived lower end of the college and university market. For those familiar with Clayton Christensen’s The Innovator’s Dilemma (1997) and his two subsequent books, this is familiar territory. While Christensen did not specifically reference higher education, he did focus on how new innovations, often involving technology, push dominant firms off their perches. Dominant firms (read elite higher education institutions) decline to serve a particular market that they perceive not to fit the image they have carefully crafted. Hence, lower market entrants (read institutions such as Phoenix) take advantage of this opening and provide market sensitive programming.

The result? Not the bifurcation or even the trifurcation in higher education, but its multifurcation. Conceptually, the higher education market now resembles the American restaurant market. In the restaurant market, a wealth of choices exists that ranges from gourmet cuisine to fast food outlets. Few neutral observers would argue that Colonel Sanders offers the same level and quality of food as provided at the five-star Le Bernardin in New York City, yet both exist and prosper. There are quality requirements that must be satisfied (the Boards of Health that oversee restaurants ironically are analogous to regional accrediting bodies), but their demands turnout to be bureaucratic and minimal, and have not either discouraged entry by new competitors, or squelched additional disruptive innovations. Indeed, neither the regional accrediting agencies nor state laws have put a serious dent in the expansion of for-profit higher education institutions, a phenomenon that horrifies some academics, though such institutions actually have existed in the shadows of American higher education since colonial times.


At its root, the primary cause of the multifurcation of higher education is the tremendous financial disparity that now exists among America’s colleges and universities. Financially well-heeled institutions offer highly stylized, expensive educational programs to distinctive student clienteles. These programs emphasize small classes, substantial contact with faculty, abundant supporting technology, study abroad, and the like.

On the other hand, tuition dependent institutions with minimal or zero endowments offer collections of programs for credit and non-credit in whatever manner, times and places students find attractive. For many of these institutions, their continued existence is perilous and their time horizon extends no further than their next tuition collection. Critics have been known to deride them as constituting nothing more than Wal-Marts of higher education, but the comparative neglect of a wide swath of students by well-established, conventional institutions has stimulated the prosperity of these “break the old mold” organizations. In fact, by headcount, unconventional students (minority, adult, military, working, and the like) now easily constitute a majority of all students in American higher education.

This underlines the reality that today’s American higher education hardly reflects a Marxian classless society. Other than the fact that financially elite institutions such as Carleton, Princeton and Virginia, and non-elite institutions such as Texas Southern, Capella and Malcolm X (Community) College in Chicago all are regionally accredited colleges and universities, they have remarkably little in common. And, if Breneman (2008) is correct, the elite have little desire to change that circumstance.

The multifurcation of higher education also has been encouraged by other influences. Regional accrediting agencies have become relatively undemanding in their dealings with their members, who include a wide variety of institutions ranging from for-profit colleges to struggling liberal arts colleges. The comparatively large minority enrollments of many of the non-elite institutions and a degree of political correctness appear to have caused some accrediting agencies (both regional and disciplinary) to avoid rigorously enforcing their own standards. Of course, some observers regard these standards as focusing inappropriately upon inputs rather than upon outputs and therefore rejoice at relaxation of these standards. Whatever the case, practical accreditation standards now are sufficiently low that nearly any institution desiring accreditation seems to be able to find a way to obtain it.

Two less publicized, but important federal government policies also have stimulated the restaurant-like diversity of institutions we currently observe in higher education. First, for employment purposes, the federal government nearly always regards all degrees from accredited institutions as being equivalent. While a baccalaureate degree from the University of Chicago may carry more prestige than a baccalaureate degree from Shawnee State College, for hiring and compensation purposes, the “feds” regard them as identical. Second, the federal government has taken strong steps to make financial aid much more available to distance learning students and part-time students, both of whom are staples of institutions such as Phoenix. Both these policy decisions have been a boon to institutions that do not focus upon the traditional full-time students who have just graduated from high school.

Finally, the multifurcation of higher education can be seen as a positive response to the increasingly minority demographics of the United States. Taken as a group, minority students are less wealthy and less well prepared academically, but more likely to have families and work responsibilities, to be members of the military, and to be older. Perhaps institutions such as Reed College and the University of Iowa really do maintain strong interests in serving such students. If so, then this seems to have escaped the attention of this rapidly growing segment of the nation’s higher education population, which has opted heavily for less prestigious institutions and new entrants such as Phoenix. This bodes to continue.


Perhaps the most foolish forecasting technique in a dynamic world is to base one’s predictions on linear extrapolations. That is, it is palpably unwise to assume that current economic, social and demographic trends will always persist into the future. Nevertheless, it is difficult to see the current trends reversing themselves within this decade. Just as there is almost constant ferment in the restaurant industry, it seems likely there will be further upheaval and additional multifurcation in the higher education industry. Market segmentation will continue apace and the gap between the “haves” and the “have nots” will widen.

Some readers may object to higher education being labeled an “industry” and to the economic tone of this article. However, because the primary behavioral stimulants upon higher education in recent years have been financial, at least to an economist there is hardly any convincing argument against this approach. In the end, the location of the gold has and will continue to call the tune in higher education.


Blumenstyk, Goldie. 2008a. “U. of Phoenix Basks in the Super Exposure the Super Bowl Brings.” Chronicle of Higher Education, http://chronicle.com/free/2008/01/1463n.htm.
Blumenstyk, Goldie. 2008b. “A Private College Builds on Its Confidence: Despite Shaky Economy, Quinnipiac U. Takes on Debt to Develop New Campuses.” Chronicle of Higher Education, 54 (26), A1, ff.
David Breneman. 2008. “Elite Colleges Must Stop Spurning Critiques of Higher Education,” Chronicle of Higher Education, 54 (February 15), A40.

Christensen, Clayton. 1997. The Innovator’s Dilemma. Cambridge: Harvard Business School Press.

Newfield, Christopher, Henning Bohn and Calvin Moore. 2006. “Current Budget Trends and the Future of the University of California.” www.universityofcalifornia.edu/senate/committees/ucpb/futures.report0506.pdf

Schumpeter, Joseph. 1923. The Theory of Economic Development. Cambridge: Harvard University Press.

Schmidt, Peter. 2007. “Violence, Corruption and a Slowing Economy Left Many Colleges on Shaky Ground.” Chronicle of Higher Education, http://chronicle.com/weekly/almanac/2007/nation.

U.S. News and World Report. 2008. “America’s Best Colleges.” http://colleges.usnews.rankingsandreviews.com/usnews/edu/college/rankings/brief/t1natudoc_brief.php

Wolverton, Brad. 2008. Chronicle of Higher Education. http://chronicle.com/weekly/v54/i25/25a01601.htm

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