Reducing higher education costs through administrative efficiency strategies

¶ … Access and Equity of Higher Education by the Population

Policy Analysis Memo Draft Format guidelines

Equity in higher education is a serious concern as the cost of tuition continues to increase. The cost of college tuition has increased by over 150% in the last three decades. Current financial pressure on students leads them to using student loans as a method to pay for college tuition or other strategies such as opting for two-year degrees. Higher education institutions are also facing the same economic pressure and feel forced to increase tuition fees leading to a vicious cycle of tuition fee increase. Looking at the expenditure of higher education institutions, the largest increase in expenditure over the same 30-year period has been in labor costs. The administrative costs per student enrolled has increased considerably (Ladd & Fiske, 2012). The current situation in higher education means the tuition fees are unsustainable and there need for cost-cutting strategies to be implemented.

Eight alternatives are proposed. The eight strategies are evaluated using a decision-matrix and the best solution is offering the traditional degrees at about half the cost by reducing the cost of capital and labor per student. By requiring faculty to teach more classes per semester, replacing faculty teaching trivial courses with teaching assistants, using buildings more effectively such as during the summer time, and having faculty members share administrators will reduce administrative expenses considerably. This will allow colleges to offer courses at an extremely low and affordable cost and increase equity of higher education considerably.

Background

Since the great recession, the issue of escalating costs of higher education has been of extreme importance to the economy. The net price that students pay for fees has been increasingly steadily and most families and individuals are indeed out of this range and forced to explore other options to finance their college education. An analysis conducted by Leach (2013) shows that tuitions fees have increased by more than 150% in the 20 years between 1988 and 2008 with the prices having increased by 30% from the period of 2008 to now. The middle class salaries have also not changed considerably in the same period. Calculations after adjusting for inflation show that the median middle class income of 2008 is $400 less than the median income of the year 1988, which was $33,400. Financial aid has also presented several challenges since though available, many students end up bearing huge costs when they leave their college and become part of the 24% unemployed graduates in the country. Even where employment is available, they often end up with low paying jobs that are unsustainable and they are unable to get out of debt. This is supported by data from Lewis (1990) that suggests that 50% of all college graduates will still be repaying their student loans after 20 years, which is the average student loan repayment period. This means that most of these college graduates will not be able to buy their home, save for their retirement, or even fund college education for their children.

Faced with these challenges, students have to find other options for college education. One is the two-year degree program that is much cheaper than the four-year option. The Department of Education reports that the number of students enrolling in two-year colleges has risen by 100% over the last ten years with about 50% of these being those who have dropped out of four-year programs. These two-year programs have been found to be insufficient to equip graduate with skills they need for future jobs. It is important for alternatives to be explored to enable more individuals attain proper college education to increase their competitiveness in the national and global economy.

Policy problem to be tackled

University fees have increased faster than the economy's inflation rate over the same period. In the last 30 years, college and university fees have quintupled, much higher compared to the inflation rate. Choudhury and Mahajan (2004) define this as an insatiable appetite for money for colleges that is akin to the situation of compulsive gamblers. Cost-cutting strategies need to be implemented for more of the middle-class to be able to attain a college degree and to increase their competitiveness in job opportunities.

One strategy suggested by Mr. Vance Fried of the Oklahoma State University is for public and private research universities to reduce their fees in order to stop charging undergraduates for being in research. He also suggested other strategies such as consolidating or programmes that only attract a handful of students, or consider eliminating them altogether, to find ways to reduce administrative costs of universities and colleges, and to mix small classes with larger ones even where the college has few teachers (Schumpeter, 2011 ). Gilbert and Heller (2013) supports this and states that the cost of administrative support per student stands at $7,000 per year and has increased by over 60% in the last three decades. They suggest that these have the largest impact on the cost of education per student and there is need for them to be cut considerably to reduce the cost of education.

Cost-cutting is important for all universities though costs can be slashed by higher margins in certain institutions than others. These costs can be cut without sacrificing the value students achieve from their education and without creating inefficiencies in the education system. By reducing the cost of tuition, the industries that look to hire graduates will be able to access more talent.

Policy alternatives available

President Barrack Obama in a national conversation presented specific suggestions to cut the cost of college tuition in the country. These suggestions, laudable as they are, include strategies such as creating a federal college ratings system to enable students choose courses easier, offering more loans to students through federal college aid, and increasing state allocations to higher education.

Other options presented by other scholars and education experts include adopting three-year bachelor's programs similar to other European countries, using online learning methodologies, offering residential degrees at lower costs by reducing capital and labor costs significantly, creating a national college equivalence test similar to the high school GED, and reducing federal involvement in student loans.

These experts argue that a three-year degree is a cost-saving measure compared to the four-year program that would reduce the cost of tuition by at least 25% by reducing the tuition hours to 90 semester hours. Even where the tuition hours are kept constant at 120 semester hours, the students would still enjoy an extra year working if the summer break is done away with. Furthermore, maintenance costs of college facilities per student will decrease considerably since their time in college is reduced considerably. Online courses or blended degrees that combine classroom learning with online learning would also cut the cost of the degree by at least 40% when as much as 60% of the coursework is conducted online. It will also decrease the workload of the faculty since they will have less classes to conduct and work more on guiding students. The obvious challenge in this case is to standardize examining of these students.

Offering the traditional degrees for almost half the cost by reducing the cost of capital and labor per student is also an effective strategy to ensure cheaper degrees. By requiring faculty to teach more classes per semester, replacing faculty members teaching trivial courses with teaching assistants, using buildings more effectively, for example, during the summer time, and having faculty members share administrators will reduce administrative expenses considerably.

The suggestion of developing a national college equivalence test would require a good test that can be administered nationally and students would be required to do the test to have an easier way for employers to understand the scores that college graduates leave with. This test, as suggested by some experts, could play the role of a college equivalence certificate, or replace the college exams altogether.

Lastly, several scholars have questioned the motive of the government in their involvement in student financial aid. Though the growth of federal student aid has enabled more students pay for college education, there is little evidence that the system promotes good performance of students who receive financial aid. Scholars suggest that reducing or eliminating these federal aid programs will save taxpayers billions and allow colleges and universities to be creative in implementing cost-cutting strategies, which are deemed to be much needed to sustainability of higher education.

Key policy variables

The most important policy variables for this policy are cost, cost-effectiveness, and equity. The suggested policy aims at improving access to education by all by reducing cost of tuition fees. This means that the universities must be cost-effective in order to implement cost-cutting strategies. It is clear that equity issues exist in higher education. There are many groups that are unable to access higher education because of the high cost. Therefore, cost is the only significant factor that makes college education be out of range. On the other hand, education policies do not aim at reducing inequity since thy believe that marginalized groups are covered by access to financial aid. Budgetary and resource constraints create limitations on those who can access financial aid from grants, scholarships, and student loans. However, these are still unreachable for certain populations. Low and middle-income earners spend a large portion of their income on subsistence and have little left to pay for higher education. Taking student loans may be an additional burden for the family that is often struggling to make ends meet.

Efficiency relates to the value of each dollar that the student pays for education. It requires higher education institutions to be cost-effective in their activities in order to reduce expenditure per student enrolled. It also requires a significant contribution by the state to increase revenue available for the university per student enrolled. Efficiency thus means that higher education institutions need to be as productive as the revenue that they receive. Counterproductive strategies such as having administrative bloat needs to be reduced considerably to enable students access higher value for each dollar they pay for higher education. While it may be impossible to make higher education completely equitable, it is necessary for higher education institutions to achieve economies of scale when producing education services in order to make strides towards equitable education.

Comparison of alternatives to policy variables

The decision matrix below shows the evaluation of the available alternatives against the three policy variables. The weighted criteria for evaluating each option is based on a rating scale of 1 -- slight extent, 2 -- some extent, and 3 -- great extent. Cost is given a weight of 2, cost-effectiveness is given a weight of 3, and equity is given the highest weight of 5 since it is the most important variable towards solving the problem previously defined. The weight of each criterion is multiplied by the evaluated rating for each alternative to get the rating for each alternative on each variable. This rating for each alternative is then added up to compute the composite weighting of each element.

Cost (2)

Cost-effectiveness (3)

Equity (5)

Total

1

1 x 2 = 2

1

1 x 3 = 3

1

1 x 5 = 5

10

Increasing loans to students

1

1 x 2 = 2

1

1 x 3 = 3

3

3 x 5 = 15

20

Increasing state budgetary allocation to higher education

1

1 x 2 = 2

1

1 x 3 = 3

2

2 x 5 = 10

15

Three-year degree program

3

3 x 2 = 6

3

3 x 3 = 9

2

2 x 5 = 10

25

Massively open online courses

3

3 x 2 = 6

3

3 x 3 = 9

2

2 x 5 = 10

25

Reducing capital and labor costs

3

3 x 2 = 6

3

3 x 3 = 9

3

3 x 5 = 15

30

1

1 x 2 = 2

1

1 x 3 = 3

3

3 x 5 = 15

20

Federal government pull out from financial aid

2

2 x 2 = 4

1

1 x 3 = 3

2

2 x 5 = 10

17

From the decision matrix above, reducing capital and labor costs is the most effective way for higher education institutions to achieve cost reductions, cost-effectiveness, and equity in terms of access to college education. However, strategies such as using massively open online courses and three-year degree programs are also effective though they have less of an impact on the equity variable, which for this policy evaluation is deemed the most important.

Recommendation

Achieving equity in higher education is a huge challenge. However, it needs steps to be taken to reduce the cost of higher education, majorly tuition fees, increase cost-effectiveness of higher education institutions through cost-cutting strategies, in order to increase access to higher education (equity). In an environment where budgetary and resource constraints exist, there is increasing demand for strategies to increase equity of higher education. Equity in education opportunities may be very elusive and reducing labor and capital expenditure is a highly abstract concept especially since each institution is different.

It would require higher education institutions to have fewer layers of bureaucracy such as having one administrative officer for two faculty members, reducing the number of trivial classes faculty members teach and instead allocating these to teaching assistants, postdoctoral or PhD candidates, and requiring faculty to teach at least one more class. In terms of capital costs, these should be tackled by building less new building and using available space more effectively. One way to handle this is to ensure buildings remain at optimal use during summer time to ensure maintenance and running costs are justified. A good way to approach this would be to have students take courses during summer time to ensure buildings remain in use. Second is to optimize space such as reducing size of offices to reduce space wastage and ensure better control of capital costs through engaging the lowest material cost contractors should new buildings need to be put up.

Accountability from reviews on faculty productivity has been shown to be important in ensuring cost-effectiveness of faculty members. When tenured positions are given, post-tenure performance should be emphasized to ensure the same level of productivity is ensured pre- and post-tenure.