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Business Officer Magazine

Perfect Pitch

As tuition sticker prices rise in a crescendo, parents, students, and legislators all wonder why. How can your message about cost control strike the right note?

By Margo Vanover Porter

*It's a message that few want to tell.

"Students are paying for more—and arguably getting less," states the executive summary for "Trends in College Spending." The report, issued in 2009 by the Delta Project on Postsecondary Education Costs, Productivity, and Accountability, in Washington, D.C., adds: "The economic downturn is likely to bring another round of above-average tuition increases, which means that students will be paying for a larger share of the total educational bill even as less goes to pay for classroom instruction. This will raise new questions about the appropriate role for tuition as a funding source for research, graduate, and professional education, or for high-cost programs that are no longer being subsidized by the state or federal government." (For a perspective on the evolution of costs and the higher education business model, see the companion to this article, "Out of Sync.")

While parents, students, and legislators denounce rising tuition and fee list prices, leaders of higher education ponder how best to vocalize their public and private predicaments.

"In private higher education over the past decade, the cost per student has tended to rise, although not by the same percentage throughout the sector," says Michael McPherson, president of the Spencer Foundation, Chicago. "In public higher education, the cost of educating students—that is, the cost paid by institutions—has gone up very little relative to inflation. This surprises people because tuition prices have gone up much faster in percentage terms in publics than in privates, but not because they have been driven by rapid cost increases. The driver has been reduced support from state governments." 

The cost influences on private institutions are quite different, he says. "If you focus on the private side, you will see investments in improving standard measures of quality, such as the class size, technology, residential facilities, and recreational facilities." He also notices an increase in psychological support services, academic advisers, and student activities.

Conducting the Cost Conversation

Higher education leaders have found these actions effective in getting their cost messages across.

Make a distinction.

  • Eliminate jargon.
  • Put information in context.
  • Examine productivity.
  • Build a partnership.
  • Hit the high notes.
  • Analyze data collection.
  • Remember that seeing is believing.
  • Repeat. Repeat.
  • Try for transparency.
  • Explain your cost controls.

Although both are suffering from rapidly rising health-care, technology, energy, and compliance bills, public and private institutions face sharply different circumstances, McPherson notes. "The gap between salaries in public higher education and private is growing. The patterns in class size are different. They've always been different worlds, but the differences are bigger than ever. Sometimes the data on the surface look similar, such as both sets of institutions having tuitions rising, but for really very different reasons. The privates are trying to compete on quality, and the publics are trying to cover their budgets as other funding sources dry up.

"The privates are changing their products," he continues. "They're paying more to their faculty, they're making classes smaller, they're building fancier gyms, they're getting more psychological help for students, they're offering more study abroad—all the things you try to do to entice students. Publics are just bleeding."

Spending Peaks in 2008

Despite the recession, few would dispute that spending by institutions continues to climb (see companion article, "Out of Sync."). The year 2008 "proved to be a peak, or near-peak, spending year in most higher education sectors and spending areas," according to the Delta Project's "Trends in College Spending 1998–2008." "Spending levels in 2008 were generally at historic highs across most functions of public four-year colleges and universities." 

Charlie Lenth can't argue with that. "The trend for costs is clearly up, and there are multiple reasons why, beginning with providing the type of education students are seeking and the type of support that students need to accomplish their goals," says Lenth, who is the vice president for policy analysis and academic affairs, State Higher Education Executive Officers, Boulder, Colorado.

William Troutt, who is no stranger to the study of college costs, agrees. "A rising cost factor that is difficult to quantify is the growing expectation by students and families for facilities and support services when looking at colleges," he says. "The bar continues to rise, and there are costs associated with that." 

More than a decade ago, Troutt was appointed by Congress to a bipartisan panel with the goal of obtaining a clear picture of college costs and then offering recommendations for keeping college affordable. Now, as the president of Rhodes College in Memphis, he's feeling cost pressures in several areas.

At the top of his list are faculty and staff compensation packages, driven not so much by salary increases but by health-care costs. "Maintaining current technology is another pressure point," he says. "For most independent colleges, one large and growing additional cost has been the provision of financial aid from their annual budgets."

Industry statistics back up his claim. The College Board's "Trends in Student Aid" (2010) report shows that total spending on institutional grant aid grew 65 percent in inflation-adjusted dollars from 2001 to 2010. In the same period, according to the "Trends in College Prices" report, average tuition and fee charges increased 30 percent in inflation-adjusted value.

Price Equals Cost Minus Subsidy

"College cost is a topic that grows in complexity the more you talk about it."

William Troutt, Rhodes College

Although they can pinpoint their cost drivers with relative ease, higher education leaders can become tongue-tied when trying to communicate their spending to the public and other constituencies.

"College cost is a topic that grows in complexity the more you talk about it," Troutt says. "While on the commission, we asked ourselves, why is this subject so difficult to communicate? I think several factors make talking about college costs challenging. First of all, college finance works very differently from the world of commerce. In the business world, it's pretty clear: Price equals costs plus profit. 

"In the college and university world, price equals cost minus subsidy," he continues. "The prices that colleges have to charge are not just about the money it costs to operate but also about the money it costs to subsidize the education students receive. The public is still perplexed about the college cost phenomenon. Until you make some of those distinctions, it's really difficult for colleges to explain costs, and it's really difficult for the public to understand them."

Another factor that contributes to the confusion: multiple definitions for a single word. "We don't have the best vocabulary for talking about college costs," Troutt says. "Unfortunately, the public gets confused when we don't use terms with precision. Price means the portion of costs that students and families pay through tuition and fees. Cost is the total expense an institution incurs to deliver education. Net price is the amount students pay after individual financial aid is subtracted. On the commission, we found that three out of four undergraduates in the country are getting some kind of aid."

Lenth agrees that communication with the public can be troublesome. "We don't have good, clear, and consistent ways to talk about our costs, the prices we charge to students, what students are getting in return, and why one place costs more than others," he says. "We just have never made that effort in higher education to find something that the public—and policy makers, for that matter—can readily understand."

He attributes part of the problem to the lack of good analytics, consistent cate-gories of expenditures, and clear data. "We work on fairly old-style accounting systems that are very difficult for most people to follow and extremely difficult to track by activity. Many institutions are relatively decentralized, so what one department provides is not necessarily consistent with what another department provides. You are trying to do analysis using data that are themselves not comparable."

Regardless of the challenge, Lenth urges leaders to make the effort. "Our inability to clearly communicate the costs in higher education is hindering the case we make for public investment in higher education," he says. "We simply need to be clearer and come up with ways of communicating that people can understand much more readily."

Follow the Right Score

"We spend a lot of time talking about the cost side of the equation.We're not nearly as good at talking about what those costs buy."

Dennis P. Jones, National Center for Higher Education Management Systems

The difficulty in communication isn't for lack of trying, says Dennis P. Jones, president, National Center for Higher Education Management Systems, Boulder, Colorado. "My sense is leaders are working very hard at it, but they may try to divulge too much too soon. It's the difference between doing a data dump and giving well-structured information. Leaders are so familiar with the information, and they know so much. It's not that they aren't willing to share. I've never seen that. The question is, how do you convert data into information that actually communicates? There's an art to finding the dashboard indicators or relatively simple metrics that communicate a lot but don't hide things."

McPherson mentions that the message should change, depending on the constituents being addressed. "If you're thinking about parents and students, you're going to want to connect what they are paying for the education to the price of production," he says.

When talking to faculty and staff, McPherson advises higher education leaders to maintain a constant flow of communication. "Build a tradition of shared information," he urges. "For example, at faculty meetings, you might say, 'We want to spend a half-hour today talking about where our college is positioned throughout the larger universe of higher education.' Talking about costs in small doses relatively frequently helps. I may be a utopian about this, but I think it makes it easier for staff, faculty, and alumni to be constructive partners if they have a better handle on what's actually going on and the difficult choices we face."

When interacting with faculty, some higher education leaders subscribe to what McPherson calls "the mushroom theory," which involves keeping everyone in the dark—until a fiscal crisis occurs. "Then, all of a sudden, they want faculty to be their partners. But if they haven't prepared the ground by inviting them to be partners when times are good, it's a very hard to build the relationship."

William O'Donnell, vice chancellor for finance and administration, Indiana University South Bend, relates the time he presented a budget to faculty members, explaining in detail how drastically appropriations have changed. "We used to get two thirds of our funding from the state and one third from tuition," he explains. "Now it's exactly the opposite. We get two thirds of our money from student tuition and one third from the state. The funding is completely reversed."

After his budget presentation, one of the faculty members came up to O'Donnell and said, "People need to know this," whereupon she worked with him to gather data and published a viewpoint piece, complete with pie charts, in the local newspaper.

Orchestrate Your Efforts

To improve cost discussions, higher education leaders offer a number of suggestions.

Make a distinction. "The public at large doesn't understand the distinction between tuition and cost," says Ronald G. Ehrenberg, Irving M. Ives Professor of Industrial and Labor Relations and Economics, Cornell University, Ithaca, New York, and director, Cornell Higher Education Research Institute. "For example, they don't understand that the major reason for tuition growth in public higher education has been that state support has not been able to keep up with the growth in enrollments.

"State appropriations to public higher education for full-time students are actually lower today than they were 20 years ago. Institutions have had to make that up by raising tuitions. In public higher education, most tuition increases don't reflect an increase in expenditures; they reflect a replacement of state appropriations."

Eliminate jargon. You and your colleagues may be the only ones who understand it anyway. "Successful communication coming out of a business office needs to be written or expressed persuasively and openly," McPherson says. "It's very difficult to get out of the jargon of your profession and use language that people can relate to. You probably don't even know how buried you are in jargon because it's so familiar to you."

Put information in context. To ensure that constituents understand your conversation about expenditures, put your information in context, says Donna M. Desrochers, deputy director of the Delta Cost Project. "Look at ratios and how things relate to one another. You can make it easier for people to understand what's going on, rather just saying, 'We spent $10 million last year on instruction, and this year we spent $11 million.' That doesn't tell your constituents anything."

Examine productivity. "In this day and age, the underdeveloped part of the conversation is about productivity," Jones says. "We spend a lot of time talking about the cost side of the equation. We're not nearly as good at talking about what those costs buy.  By that I mean, how much success in student terms is being achieved with the expenditure of these resources? What's the trend in the number of degrees produced? In rough terms, what's the cost of producing the degree? In spite of the fact that costs are going up, is the cost of a degree going down? That's an unattended part of the conversation. We talk about dollars per student but we very seldom link those to the outcomes."

Build a partnership. If you want people to understand your message, you need to approach your communication as an educational task, McPherson says. "If you just throw a bunch of numbers at people, it won't go anywhere. Administration presidents and provosts tend to use information tactically. They want to make a point. They want to convince people of something right now. It's healthy to think about a sustained information-sharing partnership."

Hit the high notes. "Be up-front and communicate your top five or six cost drivers," O'Donnell says. "Once you cover these costs, people start to shake their heads and say, 'Yeah, health care is really going out of sight' and 'It's true that utility costs are going up.'"

Desrochers concurs. "We have found that it's helpful to try to narrow down the number of metrics and pick the most important ones so people are not overwhelmed with data," she says. "Try to crystallize a dashboard of key metrics that explain your story or message. Don't flood them with minutiae. Elevate the conversation to the most important areas."

Analyze data collection. McPherson believes that traditional expense categories, such as institutional support and academic support, contain a wealth of information that could be useful if broken down into smaller bites. "Many schools don't have great internal accounting to really track expenditures related to the activities being supported," he says. "To perform activity-based costing you need to have much more detailed data.  You could actually ask questions such as, 'How much is it costing us per student to offer this course in American literature?' To run the place more efficiently, you need to have better information about where the money is going and what it is buying."

Remember that seeing is believing. Visuals have the power to reinforce your written or spoken words, notes McPherson. "Good graphic presentations can be effective."

Repeat. Repeat. When talking about costs, it's OK to sound like a broken record, Troutt says. "We just have to keep telling our story over and over again. Many times after a presentation, people will come up to me and say, 'Thank you for telling me this.' As with any kind of messaging, we need to be consistent and persistent."

Try for transparency. "Many colleges have become more transparent in laying out-at least by major category-their expenditures," Troutt says. "That's helpful. We're getting better. We need to continue to work on this challenge."

His advice is echoed by the "Trends in College Spending" executive summary. "The call for financial transparency in higher education is growing louder. Policy makers and the public are showing increasing skepticism about spending in higher education, questioning whether tuition increases are helping to expand access and improve quality. The data in this report show that this is a valid question. If colleges and universities want to successfully compete for increasingly scarce public dollars, they must be more transparent about where the money comes from, where it goes, and what it buys—in language that makes sense to consumers and policy makers."

Explain your cost controls. Your message should incorporate the steps you are taking to rein in spending, O'Donnell says. For example, if high utility bills are a concern, talk about your institution's energy conservation efforts. "It's incredibly important for higher education to say, 'These are things we're trying to do to make a college education more affordable to students.' Universities are responding with an increased emphasis on employee health and wellness to keep down insurance costs. Universities are doing more fundraising than ever before for building projects and scholarship funds.

"We need a better message about what is being done to control costs. That's where we need more work."

MARGO VANOVER PORTER, Locust Grove, Virginia, covers higher education business issues for Business Officer.