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Phil’s Own Words: Tuition

At the Thought Project talk on May 3, President Phil Hanlon ‘77 responded to a question about the increasingly high cost of a college education. Here is a transcript of his response:

Thought Project Logo.jpgQuestion 3: Can you speak to what you called the affordability crisis?

Phil Hanlon: Right…well….great question. Let me talk a little about cost and affordability and then I’ll come to your last point about how it relates to the things I was just talking about.

So, you are absolutely right, you know, if you look at the cost of higher education across the U.S., not Dartmouth specifically, across the U.S., it’s, the sticker price has gone up, you know, 2-3% above any reasonable rate of inflation forty years in a row or something like that. And so now the sticker price for the top privates or even the non-resident cost for the top publics exceeds $60,000/yr, which is more than the median household income in the country. So, so we have a problem. This is unsustainable. Probably near the breaking point.

So, you might say, ok, well, what’s caused that? And, you know, one quick comeback always is, well, you know, its really need-based financial aid, and, it’s actually the net price, the actual sticker price minus what people pay on average or people get on average for financial aid is growing more slowly, hasn’t grown 2-3% above inflation. But quite reasonable studies, that I believe show that the need-based financial aid piece is about a percent, a little less than a percent.

So, in other words, even if you factor in inflation and the amount going to need-based aid. you’re still growing at 1-2% growth that is unexplained. So, why is that? In my mind, it’s actually not that complicated. It’s all about the ways that higher ed has handled innovation. So, I, universities they’re kind of the ultimate innovation places. They are always teaching new things, teaching in news ways. If they do research, all these things require new kinds of facilities, you know, staff with different expertise, so, so the innovation is just part of our lifeblood.

However, we have been, like, we have had this luxury, and we have fallen into the bad habit of innovating by addition rather than substitution. So, if we want to do some cool new thing, what we do is, what we have done, is to say, OK, let’s just add it to the sticker price, rather than say just let’s stop doing something so we can do the cool new thing. Okay?

So that’s I think what has led to this, you know, this situation where, so to me its really, the solution going forward, you know, its hard to go backwards four years and do this, is to say, OK, we need to make sure that a least something like a percent and a half of our budget is reallocation to cool new things, to innovation, so that’s something we started since I came in, and that we’ve done at Michigan there when I was as Provost.

So, every year each major, you know, like Arts and Science, housing or facilities and operations, or Thayer, they each have to say each year, here’s one and half percent of my spend I am going to stop doing, and here’s how I’m going to put it into doing cool new things. So, so I think, you know, going forward, I believe that that’s something higher ed really needs to do. It’s interesting that even though that view has gotten a lot of attention, and I have been quoted about this in the Wall Street Journal a couple of times, and major, sort of, higher ed business journals.

Right now there is no forcing function for this. So, if you were to take a pure supply and demand perspective of Dartmouth’s cost, you’d say, you know what, we turn away 90% of the people who want our business, so we should just increase the price a whole lot. We are not at equilibrium right now, so, and I would never suggest we should do that, but the point is, there is no, sort of, forcing function to say that other universities should adopt the kind of discipline I was just talking about.

I believe the real peril here is political. You know it has become a big political issue, and if we don’t fix this, if we don’t dramatically slow down the increases in sticker price so that’s its within inflation plus the percent we are doing in need-based aid, then we are going to be, then the next Affordable Care Act is going to be the Affordable Education Act, and we are not going to like that very well.

So, let me talk about the bigger question about the picture I just painted, about the places that lead are going to be the ones emphasizing skills and what I, there are a lot of universities who are at the lower end of the quality spectrum, who are really focused on knowledge and information so, and, you know I don’t want to pick anyone out, but go to, sort of the, within the Cal State system, or something like that. They are largely providing lecture-based transfer of knowledge. I think those places are in for a really rough ride in the future, because there will be technology that can essentially do that for free.

So the product they are offering is all of a sudden available without charge. So I think that we may see, sort of, a sharp and disruptive bifurcation in higher ed where there will be some top places, and Dartmouth will be amongst them, which begin to focus much more on the skill side, and prepare people to be very successful, ready to lead, and then those who are much more knowledge-based and a lot of their instruction will be delivered online, the cost will drop way down for that kind of degree. Maybe to zero, but, you know, I think you may well see, you know, I mean, who ever said it had to be four years that you went to college? Where did four years come from, right?

So, I think you may see systems where people do online study for two years and then they actually interact with faculty directly for two years or less or something. I think new models are going to emerge, and I think it’s going to be it’s going to be a pretty dramatic disruptive change ahead for some fairly large sector of higher ed.

So Phil thinks growth in tuition and the overall cost of college is because “universities, they’re kind of the ultimate innovation places,” does he? We’ll look at that question tomorrow.

Addendum: An alumna and Dartmouth parent writes in:

It’s interesting that Phil pointed a finger at the Cal State system. It is a good cheap system with its own flaws but places like Cal Poly San Luis Obispo are nothing to sneeze at. Cal Poly is large but almost 100% undergraduate. They have a decent endowment for a state school and the price is right. I wouldn’t be surprised if Phil felt threatened by them. We lose admitted students to those fine institutions year after year. Maybe I should have encouraged my daughter to accept Cal Poly’s offer of admission instead of Dartmouth.


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