4 Reasons the College President Sleeps Well at Night….While Their Industry Awaits Disruption

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I can’t think of another industry that is more “ripe for disruption” than the higher education market.  

I’m not sure if being the President of a University would excite me or leave me up at night in cold sweats.  Probably both, but I suspect that most Presidents are sleeping well at night.  It reminds me of  the music, book, and traditional retailing industries overall.  These are industries that have long histories of stability that were turned on their head when a better, sometimes more efficient (ie cheaper) alternative came along.  I’m sure those companies did not see the disruption coming either.

While positive changes in higher education are certainly happening, it does not  seem to recognize the magnitude of what could lie ahead related to “disruption.”  So I will write this post as if I were the President of your beloved Alma Mater, commenting on his or her ability to sleep at night.

What Excites Me Leading The University:

1)  I sell a product that falls into the “no brainer” camp called a college education.  Employment opportunities, lifetime earnings and the overall “intangibles” of a college education (vs not having one) are numerous and in black and white numbers reported by the US census.

It’s worth PERSONALLY envisioning where YOU would be, had you NOT spent your time in college, and compare that to where you are now.  Chances are, you feel great about your college investment.  While your college experience may not be credited with 100% for all your life’s blessings, I do suspect it would be high on most people’s list.  As a result, these good feelings tend to be generational and self-sustaining, creating long term inertia and little need for fundamental change in the industry.  If it worked for me, than by golly that’s what I’ll do form my kids!  It is a self perpetuating cycle that leads to more of the same.

Unemployment and Earning comparison of education levels

 Back to the President….

It’s fun to market a “no-brainer, gotta have!” product that is universally recognized as being the link to “game changing” life outcomes as an advanced education is often linked too.  So my faith in PRODUCT, scores a perfect 10 on my ability to sleep at night.

2)  Don’t take my word for it, the population recognizes these facts, and their actions prove it over the past 50 years.  In 1950, about 5% of the population had a bachelor’s degree.  Today, that number approaches 1/3.

More importantly, that means there are tons of growth opportunities that lie ahead.  While there has been massive growthnearly 2/3’s of the population have NOT obtained that bachelors degree.  Plenty of HUNTING ground for new customers.  It’s great to be in the 3rd inning of a game that looks like we are winning by a wide margin.

Education Attainment of Population 1947 to 2003

 3)  When you have a GREAT product proposition, and more and more customers flocking to your door, the laws of supply and demand tend to be in your favor.  What does this mean?  PRICING POWER.  When you have the ability to price your product north, that creates more opportunities for re-investment (faculty, buildings, technology, marketing), and is simply less stressful than industries engaged in the race to the bottom.

And how has college tuition/fees been priced relative to overall inflation?  This chart sums it up.

College inflation vs overall inflation

 What’s important to Note:  While my factors #1 & 2 could RELATE to the pricing reality, it may not necessarily have DRIVEN the price of college increases.  In statistics, there is a saying:  “Correlation does not imply causation.”  Nevertheless, if I’m the President, I would rather see this chart than the reverse.

4)  There is a “big brother” in our corner, called the federal government.  They recognize the USA’s competitive position in the global economy is linked to a highly skilled and educated work force, and they put their money where their mouth is with grants, cheap loans, etc.  “Making college affordable” is a theme that does not seem to be going away anytime soon.

Abundant money supply with a growing consumer base also provides a “sleep well at night factor” that approaches a 10.

Incidentally, this may be a contributing factor to cost escalation as well.

Those are 4 big factors as President of this esteemed University I feel great about.  I have a great product.  More and more customers show up every year.  I can grow rapidly, as more people haven’t experienced this product than have.  And  I can price it strong, and while I wouldn’t abuse it, there seems to be no limit to pricing well above the overall inflation rate, the past 15 years prove it.  It’s also nice to have a pretty big check-book in my industries corner called the federal government.

Are there things that concern me?  

Sure.  But frankly, these 4 facts are kind of overwhelming, so I sleep pretty well at night.

Why do I feel that many University Presidents feel this way?  If this is true, the elements are ripe for disruption.  It may not be in the next 2-3 years, or 5 years.  But they are on the horizon…..and disruption likely will not come from WITHIN the industry itself.  Remember, they are not waking up at 3am trying to figure out how to break the model.  They have buildings to protect, long margins and lots of growth.

But what are those things that should give this President “pause”?

What if?

My customer base, and their parents who may help fund my service take a very hard look at the overall value proposition of the core product?  

In other words, they start to question the basic Return on Investment of this product?  What are the factors that could drive that calculus?  If I were to put myself in the shoes of my customer, here’s what I could be thinking:

1)  The Price Tag is Steep and going to be a scary number.

Parent’s saving for a newborn’s college education  in 18 years, depending on where they go, a 4 year degree will be expensive.

If I’m the head of a Private University, I sure as heck better be providing a “4x better experience” than the public school down the road.  I had these pesky things called competition, and public sources of education is sure one of them.

2)  My kid may need to fund this price tag with student Debt, lord knows I can not get a scholarship for my retirement!

  • According to USA Today, Two-thirds of the national college class of 2011 finished school with loan debt, and those who borrowed walked off the graduation stage owing on average $26,600 – up about 5% from the class before.  If the debt levels go up consistent with projected tuition increases, 18 years from now this debt level will approach $77,000+, simply staggering.

Note to President’s self:  Debt can be rationalized, but it is not limitless.  Look at the housing market and the driver of the great recession.  That didn’t end well.  But I can ignore that I guess.

3)  The great recession impact could have long term effects

  •  Unemployment rates of the college grad are nearly double previous recessions.  The college degree simply did not insulate graduates to the same degree as previous recessions where the unemployment rate jumped from 6 percent in 2001(previous recession)  to about 10 percent in 2009.  Obviously this was a better rate than for those without a college degree, but it’s still substantially higher than any time in recent memory.
Unemployment rate for young graduates 1989-2012

Source: The Class of 2012-Labor market for young graduates remains grim By Heidi Shierholz, Natalie Sabadish, and Hilary Wething

 

4)  What exactly am I getting for the projected price tag of $400,000 18 years down the road for this Private University degree?  I can think of 4 major things I am buying with a college education:

  • The “Sheepskin credential “:  An accredited university is still the standard for credentials and recognized by many.
  • The knowledge – The basics of the degree, core classes and specialized information.  If junior wishes to be a Marketer or accountant, they simply need to get that knowledge, put the time in to learn it, and prove they have grasped the pure fundamentals of their degree.
  • Possible work experience (internships, co-ops), which provides connections, on the job training and knowledge into “real world” application
  • The intangibles.  Said another way, “the college experience.”   Lifelong friends, memories, experiences.

All 4 are important.  But I have to say, all but the sheepskin I need to scratch my head.  Knowledge?  Google did not exist 20 years ago before the internet.  Intangibles?  Expensive life experiences.  It’s the Sheepskin I’m banking on as a Parent.  Right now there are few alternatives and the data is still in favor of the long term benefits of the education.  So I’ll plan for junior to attend college, and start saving as much as I can, early and often.  But only if there were an alternative….

Back to the mind of the President:  Those are 4 things my customers are probably thinking, and I can certainly appreciate them.  I weigh these on the scale against my 4 overwhelming factors that allow me to sleep at night with what’s on the mind of my customers.  And right now I’m sleeping pretty well.

http://www.nytimes.com/2013/04/21/opinion/sunday/bruni-questioning-the-missionof-college.html?pagewanted=2&ref=opinion&_r=0

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Comments

  1. Nice breakdown, Mark. I’m a little more pessimistic than you are (while standing in the college president’s shoes) — I think the bubble is going to burst and cause some pretty big shifts in how education is delivered. In my mind, the key to survival will be your last point — “what am I getting for the money?” If I’m a president of an Ivy League school on one end of the spectrum, or a trade school or community college on the other end, I’m sleeping well at night because I can prove value. If I’m the president of a small liberal arts college no one’s every heard of that charges $35k a year… I’m getting nervous.

    • Absolutely Tom, great point on the Ivy League, their brand and family legacies should insulate them well. No defined niche like the liberal arts college you point out are VERY exposed indeed.

  2. I bet they sleep like they pound a bottle of Nyquil every evening after relaxing with a fine scotch. College is a luxury item people go in debt to afford, and that is a mentality and reality that needs to take hold in the wider population less the wider population become indentured servants to those with large means. If I start off with $30,000+ in loans, and you start off with zero, I don’t even need to make it complicated by factoring in the effect of interest rates and compounding to point out that this is a significant financial advantage, in a number of areas (investing, retirement, housing, lifestyle, and so on). A tip to all: if you must go, go to community college first and then a state school, go to an Ivy, or don’t go at all. Three options.

    Amazing article.

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