Higher education services industry

On my flight from San Antonio to Chicago today, I caught up on my reading in The Chronicle of Higher Education. A few articles caught my attention, including Raynard Kington’s “A Cost-Control Lesson from an Unlikely Source.”

Kington, President of Grinnell College, writes about institutional research he commissioned at Grinnell. (I know, “Institutional research?!? Snooze.” But stick with me for a minute.) The Grinnell research compared expenditures per student across 30 of the country’s best liberal arts colleges. It was, as Kington writes, “eye-opening.”

In 2012, expenditures in this group varied from approximately $75,000 per student per year at the high end to $35,600 at the low end. That large variation raises the question: Is it really valid to assume that the quality of education at the highest-cost institution is more than twice as great as the education at the lowest-cost institution? Are the additional costs at the high end associated with any gain in terms of the educational quality or content—and, if so, is the gain sufficient to justify the added investment by students and their families? (The amount that Grinnell spends per student is approximately $50,500 per year, right in the middle.)

I would argue that the reason for the variation is unlikely to be simply a matter of regional differences in input costs (for example, that one area is more expensive to operate in than another). Even among clusters of colleges in the same geographic community there are substantial differences. In one such cluster of three institutions on the West Coast, the costs per student are $65,963, $58,405, and $51,725. In another cluster, of East Coast colleges, costs are $70,588, $59,417, and $51,967.

Based on my admittedly crude exploratory analysis, I hypothesize that the large variations in costs per student—even when in the same geographic region among colleges of a similar type—might be due to differences in educational “practice style,” similar to how the differences in health-care costs and use in the Vermont study were attributed to differences in health-care “practice style.”

What might be embedded in those different “educational practice styles”? What might be the marginal costs and gains in outcomes? Does the difference in cost between a college with a student-to-faculty ratio of 8:1, versus 9:1, versus 15:1 result in a meaningful (or, to borrow a term from health care, a “clinically significant”) difference in outcomes or quality? Is there a meaningful difference in outcomes for classes of 20 versus 25 students? Does the marginal impact of changes in class size vary by discipline? What role do size and composition of administrative structure play? What is their payoff in terms of outcomes? What is the impact of teaching and ancillary facilities on costs and outcomes?

Kington goes on to suggest that that higher education could a “‘higher-education services’ research infrastructure” that can “develop a strong body of evidence to guide incentives that will control costs and improve outcomes, with minimal unintended consequences." Kington draws upon his prior experience–he is a former principal deputy director and acting director of the National Institutes of Health–to model this idea after the burgeoning field of health-services and health-economics research.

As it turns out, I’ve been working on and off on a short post on this topic, which would have suggested the possibility of modeling higher-education services after energy services corporations. Energy services corporations (ESCs) agree to reduce the energy-related costs of another organization, and they take a fee for doing it, often a percentage of the reduced costs, which incentivizes the ESCs to drive costs down as far as possible.

Just to be clear, I don’t think think this is a good idea. The piece I’ve been toying with has been a parody of a sales letter from a higher-ed services organization to the president of a liberal arts college. (I don’t have much practice with parodies of letters, and that’s why I’m writing about it here, instead of publishing it somewhere.)

On the surface, the ESC model might seem to offend the sensibilities of those wary of efficiency as the measure of everything and committed to the idea of the liberal arts (or any other model of higher ed) as a tradition that embraces certain ideals and practices. It might seem to suggest that anything, so long as it can be justified by efficiency, goes. I’m not sure this is the biggest problem with the idea. In fact, the kind of research that Kington undertook implicitly defers to the idea that there is a tradition in which certain institutions have earned distinction and suggests that we should pay attention to them.

The biggest potential problems with higher-education services modeled after the energy services are the possibility of for-profit organizations incentivized to drive costs down as much as possible, the potential abuse of a one-size-fits-all approach (while it seems right to hope that costs can be better controlled in higher education, there may be very good reasons, related to differences in mission) that expenditures differ so greatly even among liberal arts colleges, and the potential to marginalize faculty governance.

This is not to say that the idea can’t be redeemed. It is probably possible to build a higher-education services infrastructure and proliferate a number of non-profit organizations, cooperatives, and consortiums, that do this work without doing an injustice to educational diversity and while still involving faculty at every level. If that’s what Kington is after, we should be all for it.

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