The graph below present the historical picture of how the state of California has allocated and spent their budget in the past years. Future projections are also shown in the same graph. Education spending in CA has steadily increased over time. It seems increases in the spending has been taken from other posts such as health and welfare.
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One of the hottest topics discussed in the US national news recently is on UC System decision to increase tuition by 5 percent for the next 5 years. The pros and cons have their own arguments. As part of the Association’s commitment toward improving higher education in the US, it shares a study on cost and revenue of universities and colleges in California (2000-2010). These data show the administrators’ performance on managing their respective institution. Judge yourself, which side of the argument is supported by the facts and which one isn’t. Please click the following link to study the facts.
Please click the following link to express your opinion. SURVEY.
Despite the students’ protest, the UC school system’s governing board voted a 5% tuition increase a year for the next 5 years. If you are concern about the country education and US higher education system in the future, voice your opinion and participate in the following survey. Please click the following link to express your opinion. SURVEY.
While we, at AAEA have little surprise on what happens in California, we would like to remind the whole country again that tuition increase may happen across campuses in the US. If you study our previous research results which have been shared to the American public many months ago, then you know what we meant and why tuition hike will be the next reality that the American public has to face.
It is truly funny to read the news that an administrator is trying to convince the regulator to agree on her or his budget proposal. Even though there are evidences which show that colleges have to streamline or downsize. However, some college administrators are still did not see it. Of course the easy ways are to beg the state to increase the funding and if that does not work then pass the budget increase to the students. But folks have to realize that there are many other ways than begging to deal with the new reality. Unfortunately, this administrator is still using the old paradigm, instead of the new mindset in managing colleges in the US. If one still has time, why not start downsizing by applying the LEAN and ABC costing. Unfortunately, others as AAEA has predicted do not have time, but closing their campuses.
Please let us know what do you guys think on college education cost increases by clicking the following link to participate: Survey
Survey results will be shared to members of both US Senate Committee on Education and Workforce.
AAEA launches a new college education cost study through a survey as an effort to understand the American public opinion on current higher education system in the US, including, but not limited to student loans. Participants will not be identified and this survey is completely voluntarily. AAEA will present the results along with its statistical analyses as soon as it is available. This is an independent assessment of how the American public feels about the US higher education system in general, student loans and administrative cost in general.
There are fifteen questions in this survey, and it will only take less than 5 minutes of your valuable time. It is easy to participate, just click the following link: Survey of US Higher Education Cost and Student Loans.
As Part of our commitment to participate in the national discussion on College Education cost, the Association shares to the American Public of its most current research results as shown in the graph below. In the past three posts, AAEA has introduced the idea to apply standard costing to control the overhead cost as an integral part of the LEAN and ABC Costing approaches. Recall that all these new approaches meant to lower college education cost and make college education more affordable to the American society.
There is no standard in the education industry on the maximum amount of overhead cost that can be spent. This is one of the reasons why the spending spree is part of the current culture at some US colleges. Have you ever thought that higher institutions spent millions of dollars to build a stadium without any impact and budgeting analyses what so ever? What about spending over $500.00 for an administrative assistant chair?
This is one of AAEA motivations to conduct this research. To put a ground work that can be used as a future standard to curb the cost of education. Any percentage above this maximum number should be considered as inefficient or reckless spending indicator. Looking at the graph below, one may notice that most schools will spent around 40% on its operating cost which can be grouped in the administrative cost category. Sadly, this overhead cost may not have direct relationship with student learning outcomes, except for certain sub-category such as electricity spent at the library or at the class rooms or labs. The activity analyses and running a simple hypotheses tests will tell exactly where the overhead cost has little correlation with student learning outcomes and therefore needs to be reduced. Will it be a disaster if the big chunk of that overhead spent on the college president’s mansion and salary?
This means, there is a lot of room for improvement. By any standard, forty percent overhead will surely not a competitive figure. Think about one dollar that you contribute to a non-profit organization of your choice (example: to ease the villagers’ suffering from Ebola in country ABC) will be spent to pay the person who runs the nonprofit organization. That means only 60 percent is available to help the villagers who really need your contribution.
This is a new approach that need to be considered by the accreditation in college accreditation process or by state and federal agencies can apply in the process of rewarding the federal student loans in addition to the CAR. Hopefully, one day, it will become a reality.
Please share your opinion on College Education Cost by clicking the following link: Higher Education Cost.
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If people just read the title of the article, she or he may get very misleading information. From the title alone, a reader may not be able to know which US student loans (per capita or aggregate) are referenced. This kind of misleading article title has been around for many decades. Instead of providing an honest assessment, the report got twisted. Even the title of the article is so illogical–the two clauses of the title contradicts themselves. Increasing student loans have a positive correlation with rising tuition. Therefore, it surely irrelevance when the student loans dropped while the cause of the loans to drop, i.e., college tuition is rising–a Fallacy of Relevance type of logical error.
The fact that US student loans dropped is in TOTAL or AGGREGATE need to be added into it. Decreasing of total students loans in the US occurs because of the negative reactions from the American public and not from any other reasons. The society gets tired of supporting college reckless spending. The consumers get smarter than ever before by not supporting (read: buy) those colleges that have acted recklessly by keeping the cost of education higher every year with no viable reasons in decades. As results, consumers’ (students and their family) willingness-to-pay have finally hit the wall. In economic jargon, they become indifferent toward having a college degree or not. At that point they may choose to attend a trade school. When people gets smarter, then they can see that the charged price of the services or products that the college is trying to sell is much higher than its value. In other words, it is not worthy to spend that kind of money, when the buyers (students and their family) cannot get anything out of it, but debts that they need to bear for thirty years. The coming of consumers’ adverse reaction is predictable and has been expected for many years. Even people with less economic theory background understand the impacts of charging too much for something too little will harvest negative consequences in the future. Some US colleges have dug their own grave. It is just a matter of time which among them will soon be buried to the hole that they have patiently and diligently dug for many years.
When enrollment dropped 70 percent from the target, then one knows that the end is near for some. This is one of the most important reason why the total of US students loans has declined by 13% as suggested the College Board. Declining in college student enrollment is the driving factor behind the College Board story.
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Let us continue our analyses on the FTE and Spending Analyses which was posted before. Supposed, Campus D’s spending is the same with the revenue it has generated. Applying the IRI paradigm enables one to look beyond the numbers. Analyst applying the old IR concept usually will stop and conclude that College A, at location D did a good job by balancing its revenue and expenses. However, if one digs deep-down, then the story could be VERY different. After further analyses, one may find that the actual spending varies among different programs. To illustrate this important IRI mindset, let us expand the example that we have analyzed before and add other information at the program level as shown in Table 2 below.
There are three programs that have not been managed appropriately and these programs are A-3, A-5 and A-8. The management has to be able to use such a simple approach to identify which program that needs to be streamed line. This table is very important and can be used as an unbiased yardstick during the program review. After this step was done, then one can move on to identify the causes of inefficiency in the second round of the analyses. The second step consists of analyzing in detail what activities or processes that are redundant and can be eliminated without disrupting services provided to the students. Some people call step two as the LEAN process. The concept is borrowed from manufacturing industry and TQM (Total Quality Control) field. None of LEAN or ABC costing that we have previously discussed were ever known in the past (old IR). Again, after we introduced the NEW IR paradigms or Institutional Research Intelligence (IRI), US colleges start to see the need to move away from the reporting (old IR) and to apply the new management tools that are in line with IRI principles. That being said, the transition from the old IR to IRI can only be done by those institutions that can see the future and not the past supported by a big data expert.
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Data supported by rigorous analyses have shown and confirmed that the current US education system will not sustain unless dramatic changes are taken. While the evidences are clear, some colleges however, are still operating under the BAU mindset. Therefore, the decision to make a change depends on how far the management wants to make the change. College decision makers can make whatever decision they want, and of course with all the consequences. There is a clear trend that they, the administrators move around when the reckoning (accreditation) days get closer. Hoping from one institution to another is one of the many practices that college administrators usually do when it comes to avoid accountability.
In this opportunity, AAEA would like to introduce a way where US colleges can apply to navigate the new sea of competition and regulations. The cost saving, in no doubt needs to be done. There are many ways to do it. For example, one may need to cut the operating cost based on where it occurs. In other words, a particular college can break down its expenses based on the activities or one may need to break down the cost by program or by any other possible measurable way. In the real world, it is easier to break down each activity and to relate it with a specific location. Supposed College A has five campuses as shown in Table 1 below.
These are the cost centers that generate revenue. In order to apply the cost analyses, one needs to know the expenses at each cost center at each location. As shown below, location H is the champion in generating the revenue. While it looks good, the number only shows part of the story. Without information of what is the total spending on that location, one cannot make any conclusion. It will be good if total expenses are lower than $11 million. Even under such a case, it does not necessary mean that each activity at that particular location has been managed in the most efficient way. For example, if 50 percent of revenue is spent to pay non-teaching activities at Location H while it is 10 % in location C for the same category, then the decision makers surely can say, something fishy may have happened at location H. The efficiency (spending to revenue) ratio tells it all. If the ratio is greater than one at location A, then appropriate action needs to be taken. The same principle can be applied to any unit within College A. Some people call such an approach as ABC costing. It all about wise business practices–whatever you want to call it. The hardest part will be to control the administrative or overhead cost, and AAEA suggests to combine standard costing and ABC concept to deal with the issue.
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Again we heard the unfortunate situation where the young Americans were cheated left and right, and from north to south. Recently we learned more from CFPB (Consumers Financial Protection Bureau) how students get cheated when paying their loans. Not only that they have to deal with the ever increasing college education cost, but they also have to deal with other financial burdens in the loans repayment period. How should Uncle Sam deal with this reality? If the country can send the first human to walk in the moon, why can’t it deal with the skyrocketed college education cost, student loans and other negative financial impacts related to paying back the loans? The student loans problem must be very difficult (yes, you read it right–VERY DIFFICULT) to be solved. It must be more difficult to overcome the challenges compared to those of preparing Neil Armstrong as the first human to step on the moon.
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