Dave Cormier and I are offering an open course on the Future(s) of Education, starting in April. … Could you post a video/drawing/audio recording/dance routine/cave drawing/clay pot that represents your vision of the future of education?

Prologue
1. Nice that the course title uses the world “Future(s)” instead of “Future.” What country? Public or private? What level … undergraduate or graduate? Formal or informal? What time frame … a year or 5 or 20 or 100 or what? And the list goes on and on and on. It’s obvious, I know, but there is no single future for education.

2. Educational systems also do not exist in a vacuum. Discussing their futures depends critically on what assumptions we make about other factors … you know, little things like the economy. If you believe that current global financial pressures will ease and robust economic growth returns, your educational futures will look considerably different from someone who believes that we’ve only seen the first dip in a double-dip recession-cum-depression. Again, an obvious point. But seriously, we cannot talk about futures without also talking about context.

3. In a blog post, I cannot set the context with sufficient richness. But suppose we consider the United States 10 years from now in the year 2020. Further suppose that recovery from the current recession is slow but that major global economic disaster is averted. Suppose that demographic influences unfold as anticipated and that the broad digital transformation of society and culture continue. What might higher education look like in that future? Here are some guesses.

From 2020
1. Prices and cost, not technology, sculpt the higher education landscape.

2. Private for-profits benefit, as do two-year community colleges in some states. Private non-profits and public 4-year colleges and universities feel the most impact from cost-conscious families and state legislatures struggling to maintain levels of social services.

3. Fewer young people see higher education as an entry point for social and economic mobility and life satisfaction. Men started voting with their feet in the early 2000s, but more and more women now turn elsewhere. Opportunities in the web economy are especially attractive.

4. At the margins, some existing institutions fail. Others merge or are purchased by for-profits. Very few new public or non-profit institutions appear unless they serve unique specialized markets.

4. Most institutions continue to search for alternative revenue sources and innovative ways to curb costs, but traditional academe and business-as-usual erode. Institutional stress increases as administrative services and faculty power recede. Tenure and weak academic departments receive a pummeling.

5. Some institutions experiment at redefining themselves. Frequently this is done in collaboration with other institutions, not all of them educational and not all of them in the United States. Much of this is motivated by cost-sharing along lines of complementary strengths. But some of it is non-traditional, such as the construction of joint certificate and degree programs with learning blended in a combination of online and on-campus activity.

6. Dramatic institutional surgery occurs in some elite institutions that legally reorganize to better buffer their research programs from the pressures on their teaching programs.

7. Public and governmental demand for greater institutional transparency improves the quality of information available to families when making enrollment decisions. But from an institutional viewpoint, this further limits flexibility.

8. Technology plays an important role in institutional change, most frequently to minimize costs. Some cost-saving occurs but not as much as expected. Learning technologies receive support, but only if they promise to open new revenue sources or reduce existing expenses.

9. Accreditation changes to reflect inter-institutional collaboration and shared programmatic efforts.

10. The Federal government increases real financial support to higher education, but is itself besieged by an economy that is restructuring, a population that is aging, a public trust in government that is decaying, and a host of other hungry mouths that need feeding. The Federal government means well but can do little more than supply bandages for higher education.

Epilogue
As I said, these are just guesses. It’s a somewhat bleak outlook, but not without hope either. There is lots of good work to do in traditional institutions of higher education. This requires lots of talented and decent people with creative ideas. It will happen. Higher education will change and will be better prepared for tomorrow than it is today. But the transition won’t be easy.

Having said that, however, I also think that more and more talented and decent people with great ideas will leave higher education as they choose instead to build another future, one that is more just and reverent of the world.

The second article, called The Learning Society, is unique in its source (a corporation), its breadth of external review and contributors, and its call for a new learning system concurrent with existing systems but based on a new set of principles and organized differently. The recommendations, however, don’t live up to the promise of the new principles.

The third document is cast as a challenge: “how can technology increase access, improve quality and lower cost?” It was published by Contact North, which was founded in 1986 by the Ontario government to serve the education and training needs of people in rural and remote areas of that Canadian province. It’s unclear exactly how the document was prepared and by whom. Some parts make provocative reading.

After considering each of the documents separately and in conversation with the others, I’m left a bit unsatisfied. Maybe that’s not unexpected. Imagining the unknown devolves with the degree of specificity.

My own take is pretty squishy at this point. Yes to a new learning society of some sort. Yes to the inclusion of everyone. Yes to its inception in entrepreneurial innovation rather than strategic planning. Yes to the criticality of innovation under the severest of constraints. And yes to concurrency with, but alternatives to, existing educational and financial systems. Beyond that the fog deepens and visibility disappears.

From the Campus to the Future
Diana G. Oblinger. EDUCAUSE Review. January/February 2010.

Higher education faces numerous challenges posed by the drivers of change, including worldwide demand for education, financial constraints, and a constantly changing knowledge base. Those of us involved with information technology in higher education thus need to ask ourselves several critical questions:

• …
• If we were to transform the student experience, what would it look like? What would we do differently? How would those changes affect the individual? The workplace? Society?
• …
• If the college/university metaphor today is a network rather than a campus, what does that mean for our work in information technology?

The Learning Society
Richard Halkett. Cisco Systems (GETideas.org). 2010.

The principles that characterize the Learning Society are informed by the demands of the 21st century, by emergent innovations at the very leading edge, and by what we now know about how learning happens. The result is the following set of principles designed to meet society’s new demands for learning and to realize the learning potential of every part of society and every part of the globe.

The Learning Society:

• Engenders a culture of learning throughout life.
• Aims to develop motivated, engaged learners who are prepared to conquer the unforeseen challenges of tomorrow as well as those of today.
• Takes learning to the learner, seeing learning as an activity, not a place.
• Believes that learning is for all, that no one should be excluded.
• Recognizes that people learn differently, and strives to meet those needs.
• Cultivates and embraces new learning providers, from the public, private, and NGO sectors.
• Develops new relationships and new networks between learners, providers (new and old), funders, and innovators.
• Provides the universal infrastructure they need to succeed—still physical but increasingly virtual.
• Supports systems of continuous innovation and feedback to develop knowledge of what works in which circumstances.

Fast Forward: How Emerging Technologies are Transforming Education and Training [.pdf]
Contact North. Challenge Paper, January 2010.

This is a foresight paper, not a policy or planning paper. It seeks to imagine what could happen for learning systems with technologies currently in various states of development. It does not address how change could be made or what these changes may be.

To provide a flavor, here’s one implication that appears in a section called Knowledge Engines, Networks, and Hubs:

Students will leverage technology, peer networks, robots and artificial intelligence in support of their learning challenges before institutions adopt them — acting as consumers, they will drive some changes in the system. They will access knowledge from global knowledge engines available through the semantic web. They will seek credit recognition for their work. They will demand acknowledgement of learning from a variety of sources. The opportunity thus exists to shift to a new paradigm for the management of learning outcomes — a paradigm likely to be resisted to those committed to the old paradigm, which has a strong and successful six hundred year history.

Normally I would merely skim a report like this, believing as I do that little benefit results from comparing countries across time using crude proxies for progress. But the report kept drawing me deeper and deeper. There is much room for debate about specifics, but throughout the report there is also a humane tone that invites consideration of a better global future.

For example, at the conclusion of an uncomfortable section on educational competency assessment, the following sentence appears:

More generally, a QoL [Quality of Life] perspective on education would suggest the importance of looking beyond excellence in specific competencies, to include openness to other cultures, a capacity for self-expression and reasoned discussion, tolerance for other people’s views, and the enjoyment that students derive from classrooms. [p169]

The classroom phrase seems incongruous, but otherwise the sentiment is remarkable. Thank you, whoever wrote this!

The report pays considerable attention to education. Indeed, the word education appears 249 times in the 292-page document. So I was curious to see what specific education-related measures the commission mentioned and to see what new measures they might suggest.

Before getting to this, a bit of background will help. I won’t attempt to summarize even the major points in the report, but rather want to provide context for the education-related discussion.

With a name as hefty as the intellectual composition of its membership, the Commission on the Measurement of Economic Progress and Social Change was chaired by Joseph Stiglitz with Amartya Sen as chair adviser. Stiglitz, Sen, and three other members of the 28-member Commission are Nobel Laureates in Economics.

Most of the press stories that I read highlighted only a single feature of the report with headlines like “Happiness is the new GDP.” In fact, what the report said in this regard is more nuanced and more powerful:

The time is ripe for our measurement system to shift emphasis from measuring economic performance to measuring people’s well-being. And measures of well-being should be put in a context of sustainability. [p12, emphasis in original]

In many ways the report is a remarkable document. You’ve got to admire, for example, a commission dominated by economists that can produce a report that includes these and other similar leanings:

For a long time, economists have assumed that it was sufficient to look at people’s choices to derive information about their well-being, and that these choices would conform to a standard set of assumptions. In recent years, however, much research has focused on what people value and how they act in real life, and this has highlighted large discrepancies between standard assumptions of economic theory and real-world phenomena. [p43]

You’ve also got to admire the diligence and rigor with which the commission explored both the limitations of Gross Domestic Product (GDP) as an adequate measure of economic well-being and possible alternatives that better reflect actual social progress. Here’s an example, one among many, that illustrates how the commission struggled:

While talking about the concepts of “prices” and “quantities” might be straightforward, defining and measuring how they change in practice is an altogether different matter. As it happens, many products change over time – they disappear entirely or new features are added to them. Quality change can be very rapid in areas like information and communication technologies. There are also products whose quality is complex, multi-dimensional and hard to measure, such as medical services, educational services, research activities and financial services. [p21]

The commission judged these complex multi-dimensional services like education to be “badly measured,” but at least the report is refreshingly direct rather than snidely derogatory:

[I]ndividual services, particularly education, medical services and public sports facilities, are almost certainly valued positively by citizens. These services tend to be large in scale but badly measured. Traditionally, for government-provided non-market services, measures have been based on the inputs used to produce these services rather than the actual outputs produced. [p26]

With that as context, let’s get to a few specifics.

Education as human capital that is foundational to economic production has a long history in economics, and that emphasis is certainly evident in the report. But most other education (and health) topics appear in the chapters devoted to quality of life. I’ll concentrate my comments on those sections.

Here is a list of education indicators mentioned specifically in the report:
a. Percentage of population with post-secondary education.
b. Early school-leavers as an indicator of at-risk-of-poverty. Includes measures of educational attainment by age group.
c. Associations of education with health status, unemployment, engagement in civic life.
d. Educational inputs: school enrollment, expenditures, and resources.
e. Educational outputs: graduation rates, completed years of schooling, standardized test results, adult literacy.
f. Various international assessments of learner competencies (e.g., OECD’s Programme for International Student Assessment).
g. Disparities in the distribution of educational opportunities (e.g., gender differences in school participation rates).

Here is a second list of education indicators that the report mentions as currently in active development or, if only they existed, as potentially useful:
a. ICT skills linked to early school-leaving.
b. Low reading literacy performance linked to early school-leaving.
c. The OECD Programme for International Assessment of Adult Competencies (PIACC).
d. Time-series studies to better measure the wider benefits of education on communities.
e. Out-of-school educational experiences that affect the knowledge and skills development of individuals.
f. Measures of care arrangements and development of “soft competencies” in young pre-school children.
g. Benefits of adult education and training by characteristics of individuals, to better design these programs.
h. Competency comparisons of students in higher education.

Comments:
1. The Commission did not attempt to catalog educational indicators. My lists above should not be construed as recommendations of the Commission.

2. My overwhelming reaction to the education indicators in the report was one of bleakness. If expanding people’s educational opportunities is a step toward improved quality of life, as the report suggests, then the educational indicators listed above are too tame and too puny to have much impact. I’ll come back to this in a later comment.

3. I like several aspects of focus in the report. These include sustainability, a household perspective, and distributional effects. All of these could be extended to education with little effort. For example, can we continue to sustain current higher education participation rates in the United States given the long-term increases in the real net price of attendance? One pertinent unit here is the household or family that must absorb these expenses. Considering the distributional inequalities of this access and opportunity is a powerful way to illustrate the effects of business as usual.

4. Other aspects of focus in the report seem like misdirections for education. National comparisons are one. It’s difficult enough to say something meaningful for a single country, where the rules of the game are at least similar. The focus must be on institutions, technology, households, and other actors in the education game. It’s here where more innovative educational measures are most needed.

5. In a chapter on sustainability, the author asks “what do we want to measure exactly?” It’s a critical question for education also. Co-mingling multiple issues only dilutes the impact of measures. So asking the right question is a big first step. Both the question and the answer must be easily understandable by people.

6. Rather than deal in abstracts, here’s an example that may clarify what I mean. In the United States there is currently much hand-wringing that postsecondary educational attainment is stagnant. Now that’s a co-mingled issue. Suppose we narrow it and focus on the decisions that families make about university enrollment. Cost plays an important role in these decisions, so let’s narrow the question again to focus only on financial affordability. That’s a little better, but still pretty broad. But let’s stop at that point for illustration only. Then the question becomes one of indicators of financial affordability. Here we might use aggregate indicators such as the proportion of median family income needed to attend various categories of colleges and universities (e.g., 2-year public; 4-year private liberal arts; etc).

These comparisons are helpful. And they already exist. What I’m suggesting is that we need other measures with more bite to them. For example, imagine that you’re a parent with a child considering college. Gross numbers like tuition and fees discounted by financial aid are important in your decision. These measures are available at the institutional level. But they can hide a multitude of sins. Wouldn’t it help to know more precisely what you’re buying? Suppose you could do a financial ultrasound on a college or university and use it to identify institutional priorities and policies that will likely affect the experiences of your son or daughter at that institution?

Something like that is not as farfetched as it sounds. It would likely involve revenue and expense flows within institutions and summary analysis at student, course, and faculty unit levels to determine the internal transfers and subsidies that a college or university makes. Is your child likely to receive what you think you’re actually purchasing? Or, for example, does undergraduate revenue subsidize faculty research or graduate education?

It’s just an example, but a plausible one.

I’ll end with another quote from the report, directed to the educators among you. It is something you already know, but you may not have seen it presented in quite this way before:

Studies that have computed monetary estimates of human capital stocks found that they account for an overwhelming part of all wealth (80% or more). [p30]

Basically, the wealth of the world is in your hands.

———

The report is available as a pdf on the website of the Commission on the Measurement of Economic Performance and Social Progress. A small sample of the reaction is available here: The New York Times; Der Spiegel; Financial Times; The Globe and Mail; The Guardian; Wall Street Journal; and Le Monde (or English translation).

I was again reminded of this while reading Scott Jashik’s Inside Higher Ed article called U.S. Push for Free Online Courses. The article is based on “discussion drafts” of an Obama administration program proposal that would broaden access to community colleges and, in particular, to basic job-related training.

I’m not certain within which audience the discussion was meant to occur, but it is certainly wide-open now. Perhaps that was intended. I don’t know. It’s also pretty difficult to comment intelligently based only on the fragments of information that an article can contain.

So I’ll reserve comment except to say that the notion of a National Skills College might be an interesting idea depending on how it’s intended. Reading between the lines of Jashik’s article, I’d guess that the new Skills College will be another unimaginative effort to assess learning.

But suppose that we cared more about what learners can actually do rather than what they can momentarily remember during an examination? And suppose that there existed a new entity like a Skills College where learners might present what they can actually do (as portfolios?) … and where this might then be translated into various equivalencies (course, credit, degree, job skill, etc) that are the currency by which higher education is mostly valued?

There is a vast rich learning web out there. Much of it is already free.

Here I’d like to examine only one paragraph of Delbanco’s lengthy article, because he repeats an argument that universities have long made and which, frankly, sticks in my craw because it is so patently sleight-of-hand. I’ll tell you why shortly. But here’s the paragraph.

The prevailing financial model at private colleges is one by which relatively affluent students pay more than needy students, although even those who pay full “sticker price” (roughly $50,000 per year at a top-tier school) meet less than two thirds of the full cost of their own education—calculated as a proportional fraction of faculty and staff salaries, dormitory accommodations, dining, library, health, and athletic services, as well as overhead costs such as keeping the lights on, the heat flowing, and the buildings in good repair. In other words, all students in America’s private colleges—except for those at institutions run for profit, such as the University of Phoenix—are subsidized to one extent or another.

The calculation described is true enough. But the conclusion that universities subsidize students is specious.

At issue is who pays how much and for what. Students and their families should ask universities the following type of questions: “Why am I paying for the ‘load’ reductions of tenured faculty so they can do research and teach graduate seminars rather than teach my undergraduate introductory psychology course and its 200 students?”

In a more general form, this question becomes “Why do students pay for things they did not request, do not want, and from which they do not benefit?”

I doubt there is a university in the United States that has data sufficiently rich to debit non-beneficial student omnibus payments from the overall subsidy calculation.

But that’s not really necessary to determine the outcome.

The truth is this. Students and their families subsidize the institutional aspirations of universities, and those aspirations all too often do not, or only marginally, benefit students.

For a case in point, consider a recent New York Times article As Costs of Sports Rise, Students Balk at Fees.

And the next time you hear a university talk about how they subsidize students’ educational experiences, forget the words and focus on the hands. It’s magic.

The economic stimulus bill now being considered in Congress must look like manna from heaven to colleges and universities. According to an article by Sam Dillon  in today’s New York Times, the stimulus bill would “shower the nation’s school districts, child care centers and university campuses with $150 billion in new federal spending, a vast two-year investment that would more than double the Department of Education’s current budget.”

However, the stimulus package might easily be the proverbial wolf in sheep’s clothing.

Here’s a question for you. Does your strategic plan include the unthinkable, that university life as you know it may be coming to an end? Take a look around and listen to the distant rumblings that may portend trouble for higher education on the same scale as has already affected industries like music and newsprint.

Ask yourself, can my institution survive change of that magnitude? And then ask yourself, would the economic stimulus plan just further entrench my institution on an established path where change will be even more difficult? Would you be accepting a handout that just further cements your feet in place?

I could easily be wrong, of course. It may be that higher education leads a charmed existence so deeply buffered that it will be impervious to the rumblings of change. In which case, the stimulus money will be welcome.

But just for a moment, consider the possibility that you will be asked to steer your institution into troubled times that dwarf the current economic recession.

Let’s look at just one of the rumblings. In yesterday’s The Wired Campus of the Chronicle of Higher Education, there’s an article by Jeffrey Young that describes two new online universities that use extremely low-cost business models. Young ends his article with these words:

It seems that either University of the People, or P2PU, or some yet-to-be-created institution, will find a way to offer a radically cheaper college degree using online tools. The new models will probably take some time to mature until the right mix of teaching and self-study is perfected.

In the comments to Young’s article, there’s a revealing look into what some of your faculty (particularly your adjuncts) may be feeling. Joe Erwin asks:

Why are we who are highly qualified to provide educational services not being the entrepreneurs in all this? We could “cut out the middle man” (expensive physical campuses and expensive administrators) and enable motivated students to pay us more directly for our services. How essential are all the “overhead” aspects?

If you weren’t already concerned about the viability of today’s form of higher education, it’s time to be afraid. Perhaps very afraid.

In the course of being afraid, you’ll want to ask yourself if manna from heaven is worth the price.

I say this as a friend of higher education, a third-generation academic who has loved university life but now thinks it needs to change.

Here’s the link to a pdf (1.6M) of the slides and the notes, which are a pretty close transcription of what the audio actually says.

I had great fun with this project.

The article makes interesting reading, as do the comments.

What follows is the comment that I left:

Vance Fried provides a welcome addition to discussions about changes needed in higher education. The specifics are not so important as the mere fact that an entrepreneurial effort was made to imagine a different future for undergraduate education.

Like several of the people making comments, I disagree with the details. But I think it’s a wonderfully refreshing approach. There should be more efforts like this and some kind of opportunity (a wiki maybe?) for people to comment, build on the ideas of each other, and try to carve out a future for higher education that is better than what we have presently.

The technology exists to create colleges and universities unlike any we’ve ever seen. What’s missing are the social innovations needed to tie the possibilities together. One very large innovation concerns the price and cost issue that Vance Fried addresses.

I applaud Vance Fried for creating a new business model and making it public for discussion.

My concern is with higher education, although frankly I no longer see higher education as distinct from education at other levels. For me all education has been subsumed into something I simply call learning. But for the purposes of making this posting more manageable, I’ll confine it to higher education … and to higher education in the United States.

Where, then, could we look to find organizations with nascent strategies that call to question the business of higher education? Research institutes generate many innovative ideas, but I’m looking for something farther along than incubation. I want to find organizations that are, for right or wrong, being judged by markets. It doesn’t matter to me how wonderful the idea or concept. If it can’t survive in the market, then it doesn’t have the potential for significant institutional and social change that I seek.

In the United States currently, we have an unprecedented situation where many private colleges and universities and even some public ones have priced themselves precariously. My guess is that the most innovative efforts to redefine higher education will occur in the cauldron of low-cost competitors. Many low-cost institutions will merely choose to skim profits made available by the exposure of higher-priced colleges and universities. But low-cost alternatives could actually be a major factor in rethinking what we do in higher education.

I’m now reading a very fun book written by Carlota Perez, titled Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages. In the book, Perez examines five technological revolutions that occurred in the last two hundred years. In each case, she found that the “socio-institutional framework” lagged by several decades the changes in technology and the economy, but that the full potential of the changes was not realized until social and institutional changes also occurred. The techno-economic transformations that unfold bring “a major shift in the relative price structure that guides economic agents toward the intensive use of the more powerful new inputs and technologies,” and this seems to ripple through the socio-institutional spheres and find expression.

It’s easy to argue that the full potential of current information technologies will not be reached until industries like higher education recreate themselves, presumably along dimensions consistent with the lower cost advantages of the new technologies and their economic consonances.

With that as background, I set about trying to locate colleges and universities with innovative business models that include a low-cost strategy. Here is the pdf that describes this preliminary research (figures are on pages 1 and 2, discussion is on page 3). The work describes summary findings from 3,899 U.S. private colleges and universities using publicly available data from the National Center for Education Statistics (NCES) and its Integrated Postsecondary Education Data Systems (IPEDS). The research uses instruction-related expenses per FTE during the 2004-05 academic year as a means of identifying low-cost institutions.

As shown in the document, there are low-cost outliers (77 total) among the eight categories of institutions considered in this research. Most, perhaps all, of the low-cost institutions will prove on further examination to be uninteresting. Certainly a substantial number will be one-year anomalies (e.g., data reporting problems) and can easily be dismissed.

But I’m only looking for the one or two examples that are not anomalies and not profit-skimmers, but rather are re-imagining higher education. I do have to say, however, that with this study I feel a bit like the man searching on the ground under a light pole, at night, for a lost item. When asked where he lost the item, he replied “over there.” When asked why, then, he was looking over here, he said “the light is better here.” Certainly the light is better with the IPEDS universe of existing colleges and universities.

It may very well be that searching the murky fringes of the existing world of higher education will uncover the energy, creativity, innovations, and attention to social impact that I seek. But for a start, I’m content to look under the lamp. I’ll let you know how it turns out.

Originally posted 25-February-2008 by Gary M. Lewis on http://garymlewis.typepad.com/educational_imaginations.

Permalink: http://garymlewis.com/instchg/2008/04/25/looking-under-light-poles/

Just to recap briefly in case you missed the drama or, like me, initially yawned it off as merely another illustration of the inanity of college pricing in the United States. On December 10^th, Harvard announced it had revised its financial aid policies with three new features designed to make Harvard more affordable for middle- and upper-middle-income families (see here). The three new initiatives are:

• Harvard will no longer consider home equity when determining a student’s need for financial assistance.
• Loans will no longer be a component in the mix of aid offered to students.
• And, most notably, the price of a Harvard education will be capped at 10% of family income for “families with incomes above $120,000 and below $180,000 and with assets typical for these income levels.” At present, the expected family contribution is zero for families with incomes of $60,000 or less. This policy will remain intact. Families with incomes between $60,000 and $120,000 will also benefit from a cap, but on a sliding scale between 0% and 10%.

According to Harvard, the impact of these changes on pricing will be substantial. Families affected by the new home equity policy should expect to see the price of a Harvard education decline by an average of $4,000. And the new zero to 10% standard should reduce Harvard’s cost by one-third to one-half. For example, Harvard estimates that a typical family with income of $180,000 would pay about $18,000 compared to more than $30,000 under the current awarding policy.

I’m not going to try to summarize the reactions to this announcement, because I want to move from this point in a different direction. But the reactions were entertaining, to say the least, and included: consternation that $180,000 could be considered upper-middle-income; concern that Harvard’s shift would increase the degree of family haggling over pricing at other institutions; claims that Harvard had masked, in an altruistic cloak, the awarding of merit financial aid to students whose financial need did not warrant it; and assertions that Harvard had taken preemptive action to thwart attempts now in Congress that would require non-profit colleges and universities, as a condition for maintaining their tax-exempt status, to annually distribute a minimum percentage of endowment to operations.

If you’d like to follow these reactions, here is a cross-section of responses (New York Times, Boston Globe 1, Boston Globe 2, and Inside Higher Education).

As I read these stories, I started to wonder just how much impact a $35 billion endowment could have on pricing. The answer is that Harvard could, if it so chose, redefine college pricing … which is probably a fearsome thought for presidents of colleges and universities who compete with Harvard for students and yet do not enjoy multi-billion dollar endowments.

That is a conclusion I reached after spending several days mired in the intricacies of Harvard’s Financial Report for Fiscal Year 2007 (here, pdf). I don’t mind telling you, this was not easy. The audited financial report includes 22 pages of notes that provide detail to the 4 pages of standard statements. Harvard is a complex institution and its financial statements reflect that fact.

I believe I have accurately interpreted the financial information, but there undoubtedly are nuances that I’ve missed. So you should probably view the story I’m about to describe as true but not exact. If anyone would like to pursue this summary in greater detail, I’ve also included page locations in Harvard’s financial report. The dollar amounts in my story are expressed in millions. So $3,247m is actually $3,247,000,000. And please note that we’re speaking about the whole university here and not just the undergraduate college, for example.

Harvard’s fiscal year runs from July 1 to June 30, so the financial statements I reviewed refer to the year from July 1, 2006 to June 30, 2007. During that time, revenues used for operations came from five sources (p16). These were student income (e.g., tuition, room, board); sponsored research (e.g., external funding from the federal government for research); gifts given for current use; investment income, including endowment income distributed for operations; and other operating income (e.g., rentals, royalties, publications, etc). About 20% of the $3,211m total operating revenues came from net student income (i.e., student sources after removing scholarship aid to students). A similar percentage (20%) came from sponsored research. Investment income provided about 38% of total operating revenue, while gifts for current use and other operating income contributed 7% and 15% respectively.

This, of course, is a revenue distribution that most private non-profit colleges and universities can only envy. A mere 20% of Harvard’s annual operating revenue is dependent on the vagaries of the student marketplace. Tuition-dependent institutions are much more the norm in the U.S.

As I read the reaction around the country to Harvard’s announcement, I kept returning to the same question. What would it take for Harvard to become totally independent of student income? Could Harvard afford to offer all students a free education?

The answer is yes. And the degree of financial pain it would inflict on Harvard is minimal. Here’s the rest of the story.

In fiscal year 2007, the largest single category of Harvard’s operating revenue came from endowment income ($1,044m or about one-third of total operating revenue; p16). Stated somewhat different, Harvard distributed over a billion dollars in one year from endowment to general operations. So we’re not talking small potatoes here.

But by distributing another $658m from endowment to operations (p16), Harvard could have eliminated the need for any student income. That is, no student in undergraduate, graduate, continuing education, or executive education study would have needed to pay tuition, room, board, or fees. Their education would have been free.

If solely based on financial considerations, Harvard could increase its endowment payout to operations by the $658m with minimal impact. Each fall, the Harvard Corporation approves an endowment distribution rate (p30). This rate is stated in an obscure way as dollars per unit of market value at the beginning of the fiscal year. For fiscal year 2007, the endowment distribution set by the Corporation was 4.3%. Meaning that about 4% of the market value of Harvard’s endowment at the start of the fiscal year could be available for operating revenue. The market value of the endowment was $29,219m on June 30, 2006 (p17).

As I mentioned previously, Harvard actually distributed $1,044m of endowment income for operations. This amount is 3.6% of the market value of the endowment at the start of the fiscal year. By increasing the endowment distribution to 5.8% (i.e., another $658m), Harvard could have provided a free education to its students during fiscal year 2007.

The value 5.8% is significantly greater than the target identified by the Corporation, but it is also near the range planned for the future. As stated in the financial report, “in an effort to accelerate progress on priority initiatives, the University recently increased its targeted aggregate spending rate range to between 5.0% and 5.5% of the endowment’s market value annually” (p5). The use of the word “aggregate” refers not just to the payout for operational use but also includes what Harvard calls a “strategic payout” to provide funding for key programs and goals.

Clearly the provision of free education is not one of Harvard’s goals, but the fact that the Corporation would consider a range of 5.0% to 5.5% means that finances alone would not prohibit Harvard from redefining its pricing structure to achieve institutional goals.

There’s no doubt that an additional $658m is a considerable amount of money, but it also needs to be put in context. The market value of Harvard’s endowment increased by $5.7 billion in fiscal year 2007 (from $29.2 billion to $34.9 billion; pp16-17). Endowment would still have been $34.2 billion after covering all income from student sources with income from endowment.

Harvard enjoys huge latitude for future price movement. Of course, some of this latitude is constrained by factors other than finances, so I don’t think we’ll see free and Harvard mentioned together any time soon. That much is clear.

But just as clearly, if college costs ever truly become a national concern, Harvard does not provide a healthy model for the rest of U.S. higher education to follow. The path to less costly higher education does not lie through multi-billion dollar endowments. Rather, it depends on educating students differently.

Originally posted 02-Jan-2008 by Gary M. Lewis on http://garymlewis.typepad.com/educational_imaginations.

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