America's Higher Education Collision Course -- Who Will Pay?

With tuition costs rising at double the rate of much-maligned health care costs, is it time for higher education to face the same pressures to reform how instruction is delivered as those confronting how health care is delivered? Both sectors are aiming to serve millions more Americans without major increases in spending. After decades of escalating spending, doing more with less will not come naturally or easily.

Like healthcare, the financial shortfalls in higher education cast a bright light on the need to find permanent savings and reinvest those savings in different delivery models that graduate many more Americans with a credential of value. Recent struggles in Congress to find funding to fill a Pell Grant shortfall illustrate why it is higher education's turn to become much more efficient and productive.

Unless Congress finds another source of funding, the $5.7 billion deficit in the Pell Grant program imperils NIH funding for lifesaving cures and disease research contained in the 2011 Labor-HHS-Education Appropriations. The crowding out of other worthy investments marshaled the forces of biomedical research and disease-fighting advocates, who normally do not weigh in on higher education policies. This vicious cycle of shortfalls and emergency spending will repeat in a chase to keep up with runaway costs. Increases in Pell eligibility and a down economy accelerate the chase.

If necessary changes are not made to deliver higher education more effectively and efficiently, it is estimated that colleges and universities will need to increase state funding by 52 percent over the next 15 years. Generating that kind of revenue given so many competing state priorities (implementing health care reform is a top one) is simply unrealistic. And responding with increases in tuition and constricted access to college is wholly irresponsible.

The United States is already a leader in per-student higher education spending - in 2009 state and local governments spent $88.8 billion to fund higher education - but ranks only 10th among developed nations in college degree attainment among adults age 25-34. Half of those who enroll in college are dropping out. Extraordinary new research by the Georgetown University Center on Education and the Workforce declared the US "on a collision course with the future" with so few college graduates.

According to this groundbreaking research, the US economy will have jobs for 22 million new workers with college degrees by 2018, but there is a projected shortage of 3 million workers who have some kind of degree (associate or higher) and of 4.7 million workers who have a postsecondary certificate. "This shortfall will mean lost economic opportunity for millions of American workers," the report says.

Lead researcher Anthony P. Carnevale, director of the Georgetown Center said the colleges that most students attend "need to streamline their programs, so they emphasize employability."
We are simply not getting value for our spending. It must change.

Enter the higher education "productivity agenda" - doing more, much more, with the budgets we have and doing away with the faulty assumption/premise that funding must go up to preserve or enhance quality. Productivity starts when we make strategic cost reductions.

States and the colleges they help finance need to find permanent savings for everything from personnel costs to purchasing. At least seven states, including Iowa and Washington, are turning state government - including state-supported higher education systems - upside down to bring spending in-line with best business practices.

With the support of the Lumina Foundation for Education, our firm, HCM Strategists, helped deploy "Productivity Strategy Labs" to help states tune up and overhaul their higher education funding and policies to dramatically increase productivity.

Productivity builds when colleges streamline curriculum and eliminate low-enrollment/high cost programs. Take Pennsylvania, where nearly 80 degree programs with low enrollments and diminished future career relevance are being discontinued or suspended at 14 state-owned universities. Students are being encouraged to instead enroll in programs that are run collaboratively by more than one campus. The state will expand shared courses, which would be offered at any campus either online or through other interactive technology and would be available to students across the system. The result of this restructuring presents new opportunities for students, providing higher education in new times and places that are more responsive to students' schedules.

Productivity accelerates when states embrace "innovation" to deliver high-quality credentials at a lower cost. Last month, Indiana Gov. Mitch Daniels announced WGU Indiana - a lower-cost model of offering entirely on-line, competency-based education to yield 10,000 more graduates without increasing the budget.

One of the most alarming statistics to goad the biggest reform in health care since Medicare was that an estimated 30 percent of healthcare spending is waste - unnecessary and even harmful treatments. While no one has quantified "waste" in higher education, the initiatives in Pennsylvania and Indiana reflect a growing recognition that higher education can and must be much more productive.

While far from ideal, the depth of the recession and its prolonged impact on states offers an opportunity for more strategic reinvestment and delivery system reform in higher education. As the nation's governors prepare to meet in Boston in a few weeks, they can demonstrate resolve to lead in trying times. They can be champions of productivity by taking on the challenge of creating high-performing higher education systems that are responsive to our students' and our national economy's needs - and help engineer long-term economic prosperity.