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A University Is Not Walmart

The business model has taken over higher education and subverted its mission.

NEW YORK CITY - 15 April 2015: students, adjuncts and organized labor activists gathered at Columbia University for a rally and march to an UWS McDonald's demanding $15 per hour federal minimum wage. (Photo: a katz /

Imagine an institution that looks just like a university. It has a beautiful campus, a faculty with distinguished credentials, and students who pay tuition, take courses, and receive diplomas. It’s just like a university… and yet something is not quite right. The students are getting high grades and piling up debt but don’t seem to be learning that much. The professors feel powerless and alienated. But the administration looks at the bottom line, smiles, and says all is well.

Money is a useful way of measuring the success of a business, and universities need to balance their books. However, once universities adopt the business model, their primary mission changes from furthering knowledge and providing education to making money. This change in priorities alters both the nature and culture of the institution as well as its role in society.

This article, written mainly from a professor’s point of view, discusses the kinds of changes that have taken place in academia over the last few decades (though not all can be found at every institution of higher learning). Just as physicians have been turned into health service providers working for insurance businesses, professors have been turned into educational providers working for university businesses. And just as we have confronted the problems raised by turning medical decisions into business decisions, we need to deal with the problems raised by turning educational decisions into business decisions.

An illustration of the hazards of adopting the business model can be seen in the college loan scandal a few years ago, in which colleges received kickbacks for steering students to “preferred” lenders charging higher rates, and in which some loan officers made huge profits on investments in the lender company’s stock. Institutions involved in the scandal included a few of the country’s leading universities, such as the University of Texas at Austin, the University of Southern California, and Columbia University, where one financial aid official made a 900 percent profit.

This scandal was portrayed in the media as one in which rapacious loan companies enticed weak loan officers, while universities, taking their cut, were willing to look the other way. Framing the issue in this way leaves the universities’ business focus out of the picture. It is as if American universities are assumed to be more or less the same institutions they were 50 years ago, except that now and then they fall victim to bad influences from within and without. This is not to imply that the education/research model was without its faults. An old joke claimed that universities existed to produce research, and students were merely the funding mechanism.

The Cold War is over. Capitalism triumphed. Universities exist in a changed world where the profit motive, deregulation, competition, and globalization are ascendant; and their CEOs and boards of directors have learned their lesson. The mottos of Veritas and In Loco Parentis have been replaced by Caveat Emptor.

The problem is at its worst in for-profit colleges. They are a small, though rapidly growing, part of the higher education field and can be seen as a harbinger of things to come among the not for-profits. There have been scandals about false and misleading statements made to prospective students both about official acceptance of the colleges’ degrees (e.g., to qualify for a teaching license) and about the existence of jobs following completion. There were also financial payments to employees for each student they succeeded in enrolling. The colleges’ deceptive practices were captured on video in 2010, both by the “secret shopper” investigation of the Government Accountability Office and by ABC News and have been widely viewed over the Internet.

The GAO looked at for-profit colleges in six states and the District of Columbia. It reported that “Undercover tests at 15 for-profit colleges found that 4 colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements to GAO’s undercover applicants.” These abuses were investigated, but it appears that there was an abdication of enforcement responsibility by various governmental and accreditation agencies, including the Department of Education, the Federal Trade Commission, and the Securities and Exchange Commission. In response to the scandal, some changes have taken place at these agencies.

A report by The Education Trust, Sub-Prime Opportunity: The Unfulfilled Promise of For-Profit Colleges and Universities, concluded that “Students borrow heavily, resulting in heavy debt burden and high loan defaults, which indicates that few end up with a marketable degree or credential.” In addition, graduation rates are low. For example, at the University of Phoenix, just 9 percent of first time full-time students graduate within six years.

Luring poor people into inappropriate higher education programs with borrowed money they cannot afford is in many ways a smaller version of the housing loan debacle. Many students never complete programs of dubious quality, or fail to get promised jobs even if they do; and they wind up with loan obligations that worsen their already precarious economic state.

An illustration of the extent to which questionable business practices penetrated for-profit higher education (in this case to their detriment) can be found in the case of Johnette McConnell Early, a researcher who got top executives in charge of 20 homeless shelters and service agencies to sign a letter to Secretary of Education Arne Duncan, complaining that “for-profit trade schools and career colleges are systematically preying upon our clients.” It turned out that Ms. Early was working for a financial firm that stood to profit by betting that stock prices of educational companies would fall after the government cracked down on their predatory practices.

For-profit companies involved in higher education have fought proposed regulations with similar unsavory tactics – for example, by pressuring their employees to lobby against the regulations. In one instance, a public relations firm was hired to “astroturf” – i.e., to create what appeared to be a grass roots campaign by working with employees to devise individualized letters of protest to the Department of Education. (In addition to using these tactics within their colleges and universities, for-profit higher education companies have escalated their expenditures on political lobbying. A Huffington Post analysis of lobbying data compiled by the Center for Responsive Politics concluded that these grew from $3.3 million in 2009 to more than $8.1 million in 2010. A Huffington Post analysis of campaign finance records from the Sunlight Foundation also showed that industry PACs and executives increased their spending from $1.1 million in the 2008 election cycle to over $2 million in the 2010 election cycle.)

Higher education involves openness, sharing, debating ideas, and the free exchange of information. Do we really want a future in which economic competition leads universities to engage in tactics like these? What’s next – corporate spying?

There are nearly 3,000 for-profit universities, of which the University of Phoenix is the best known. (At its peak, its enrollment was nearly 600,000, though a combination of factors has reduced that number substantially.) Typically, there are no tenured faculty positions, nor are there any full-time professors. There may not even be any classrooms – most or all courses may be taught online. Professors are paid low wages by the course, with no health insurance, retirement funds, or other fringe benefits. University “brick-and-mortar buildings,” as they are referred to (in contrast to the less expensive locations in cyberspace) need not contain any classrooms. Instead, they are the home of administrators who oversee the educational business: marketing, getting loans for students, collecting tuition, and so forth.

With the proliferation of the business model in not-for-profit universities, they are becoming increasingly like their for-profit competition. Over time, the proportion of administrators has been increasing while the proportion of full-time professors has been decreasing in favor of less expensive adjunct faculty who are paid by the course for teaching in classrooms or online. One study by the Goldwater Institute concluded that “Between 1993 and 2007, the number of full-time administrators per 100 students at America’s leading universities grew by 39 percent, while the number of employees engaged in teaching, research or service only grew by 18 percent. Inflation-adjusted spending on administration per student increased by 61 percent during the same period, while instructional spending per student rose 39 percent.”

Adjunct professors suffer working conditions comparable to those at for-profit universities (low pay, no fringe benefits). It is easy to see that, in many cases, the quality of teaching offered by adjunct faculty who have less preparation time, and graduate teaching assistants who have less knowledge and experience, may not be up to the standard of full-time faculty. As the trends continue, and as the pressure of competition from for-profit universities increases, not for-profit universities can be expected to become increasingly similar to them.

Missouri State and Florida Atlantic Universities experimented with outsourcing the teaching of an online course. While the administrations involved presented the move as a cooperative venture, or partnership, with a nonprofit organization, professors were troubled that the process evades faculty procedures for curricular review. There is concern that the next step could be outsourcing the teaching of specific courses to for-profit universities.

Although administrators economize on the cost of instruction, they willingly pay for new logos, branding and advertising campaigns. They support market research, into which new programs will sell and how much tuition should be charged in order to attract new customers.

In many ways, the modern American university is not unlike a shopping mall – a welcoming ambience, especially for students who grew up in the suburbs. Many university presidents now refer to students, without irony, as “customers,” and work to keep them happy and in a spending mood by fostering on campus the bland cheerful atmosphere found in shopping malls.

When students arrive on campus, already saddled with debt arranged by college loan officers, they are enticed by a variety of credit card offers. Many universities provide students with a credit card containing the university logo and designed for use on campus (and most likely off campus). While other cards might offer more reasonable terms, they would not provide the university a percentage of all purchases. If, after graduation, the student is unable to pay off the credit card debt, that is not the university’s problem. (Over time there have been investigations into and some changes in colleges’ credit card practices.)

In a similar way, the university doesn’t lend the student money – it gets its tuition up front. If the student defaults on a college loan, that is someone else’s problem.

In addition to traditional sources of income for universities – rent for dorm rooms and meals at the student cafeteria – there are other places to get a cut of money spent – from food courts and snack bars to vending machines to Xerox machines in the library. At many universities, the bookstore pays for the privilege of selling books to its captive population. It also sells clothes, sports equipment, and other items with the university logo from which the university gets both a direct profit and a percentage from the credit card company. There are also special features used as recruiting tools to attract students (e.g., “free” laptops for freshmen), the costs of which are hidden in the tuition bill.

The scheduling of courses may be adapted to the differing segments of the market: Monday-Wednesday and Tuesday-Thursday classes are for the full-time students, so they can have a three day weekend, and evening and weekend courses are for the part-timers. This is a win-win-win policy. The university makes more money, the students are happy, and some professors have a two-day-a-week teaching schedule. The scheduling of courses is also arranged to make it possible for some students to have only morning classes, so that they can work a 40 hour week in the afternoons and evenings to pay for tuition. (Naturally, students who have a full schedule of classes and a full-time job have little time left for homework. The result is pressure on professors to cover less material, or to dumb down content, to accommodate their customers’ schedules.)

Students in a given class may pay differing amounts for the course – just as passengers on a plane pay differing amounts for their seats. This occurs because market forces determine what tuition the traffic will bear for different programs – so that, for example, doctoral students may pay more per credit than master’s students, or students from one department or program may pay more than those from another.

Unpaid internships have also become a source of income for universities. They receive payments from students in exchange for course credit, and may even sell course credits to placement agencies who get paid by companies in exchange for students’ free labor.

Research grants are another (and longstanding) profit center for universities. There are two main ways the university makes money from professors’ grants – overhead and payback for released time from teaching. The overhead percentage varies but is often approximately half the size of the grant, excluding certain items, such as equipment. (The university’s share differs depending on many factors – whether it is a large or small institution and whether public or private, the size and research area of the grant – medicine, engineering, science, social science, or even occasionally humanities – and whether the granting source is public or private.)

Let’s say a biology professor earns $100,000 a year and gets a three year research grant for $1,000,000. This is a great deal for the university – in many cases, its overhead recovery already exceeds the professor’s salary. Because the professor needs time to do the research, the university permits this by reducing the professor’s course load and is reimbursed by the grant. It then hires adjuncts to teach the courses at a much lower rate than the professor’s salary. This profit is added to the profit from the grant overhead.

Consider, for purposes of contrast, a philosophy professor with a salary of $60,000 who has no grants because there are no grants to be had. The philosopher may feel mistreated for earning so much less than the biologist of comparable rank and academic achievement, but that is not how the administrator sees it. “We’re making money on biology but losing money on philosophy. So why do we need a philosophy department?”

There was a time when the road to a university presidency led from department chair to dean to provost en route. Many presidents, however, are not academics – they are lawyers, politicians, business people and others who, intelligent and competent as they may (or may not) be, often do not understand academic culture. They have not taken a comprehensive exam or written a doctoral dissertation, they have not taught courses and been confronted with crises in their students’ lives, and they have not done research and grappled with the difficulties of funding and publication. So when they make business decisions affecting academic priorities and the culture of learning, even if they get the dollars and cents right, they may be blind to the intellectual costs to the academic enterprise.

Under the business model, the pay of university presidents has gone up dramatically (varying considerably, with many earning more than $1,000,000 and a median of over $400,000), paralleling at a lower level the rise in corporate CEO compensation. Furthermore, university presidents often supplement their income substantially by sitting on corporate boards. In addition to offering corporations their expertise and prestige, the presidents get an opportunity to observe corporate strategy up close, thereby giving them ideas they can apply at their full-time jobs. For example, Erroll B. Davis Jr., Chancellor of the University of Georgia, left BP’s board five days before the Gulf of Mexico disaster. He was named as a defendant in a class-action suit because, in part, he had sat on BP’s committee on safety, ethics, and environment assurance. Similarly, Ruth Simmons, President of Brown University, earned over $320,000 in 2009 for serving on the Goldman Sachs board, where she was one of 10 people who decided on the size of executive bonuses. She left the firm following student pressure in the wake of the Wall Street economic debacle.

In addition to university presidents sitting on corporate boards, business people dominate the governing boards of universities. According to a 2010 report by the Association of Governing Boards of Universities and Colleges, about half of the members of both public (49 percent) and private (53 percent) universities’ governing boards come from the business world. These interlocking directorates are yet another way in which corporate culture and the business model have taken over higher education.

Along with highly paid Wall Street executives, university administrations invested heavily in real estate during the housing bubble – building expensive athletic facilities, fitness centers, student centers, and resort-like dormitories with entertainment and recreational facilities. They also followed the “Yale model,” investing much of their endowments in high-yielding risky assets that turned out to be part of the bursting bubble. In 2009, Harvard, Yale, and Princeton were looking at losses to their endowments in the 25 to 30 percent range, and other institutions with smaller endowments faced potentially unsustainable debt burdens. The severe cutbacks necessitated by these losses fell primarily on instruction, rather than on the numbers and salaries of administrators.

A study by the American Enterprise Institute concluded that “In 1961, the average full-time student at a four-year college in the United States studied about twenty-four hours per week, while his modern counterpart puts in only fourteen hours per week.” In addition, cheating and plagiarism are widespread, facilitated by modern technology – from answers on cellphones to copy-and-paste materials from Googled sources to online “research services” that provide term papers to order for a fee. Professors learn quickly that serious intellectual standards lead only to poor teaching evaluations and conflict with the administration. The penalties for cheating and plagiarism are drastic, but they involve lengthy, conflict-riven, and time-consuming procedures. If a professor brought charges for every violation, there would be no time for anything else – and besides, professors learn early that they can’t count on the administration to back them up on enforcing standards. Part of the reason for administrative avoidance is the difficulty of obtaining clear and sufficient evidence (“I was not looking at his paper;” “you never told us that was plagiarism”), and part is a fear of lawsuits by students’ parents. But part is that, under the business model, from the administration’s point of view, cheating and plagiarism are the professors’ problem – not theirs. Their job is the bottom line.

As a result, professors play a cat-and-mouse game with students, trying to minimize cheating and devise paper topics that are hard to plagiarize – for example, integrating library sources with a topic in the news. At the same time, however, professors’ pragmatism leads to the watering down of courses and to grade inflation – because less homework and higher grades are presumed to lead to fewer student complaints and better teaching evaluations.

The lowering of standards is consistent with other educational trends. Comparative research shows that proportionately fewer students graduate from high school in the US than in other developed nations, that those who graduate here arrive in college less well prepared, and that we are falling behind other countries in the proportion of adults with postsecondary degrees. If student-customers arrive in college expecting to do less work, it is not surprising that businesses competing for their tuition dollars will accommodate to their expectation.

The results of these lowered standards were documented in a study by sociologists Richard Arum and Josipa Roksa that evaluated college students’ critical thinking, reasoning, and writing skills (Academically Adrift: Limited Learning on College Campuses). The authors followed over 2,000 students in two dozen institutions of higher education, and found that “45 percent of students in our sample did not demonstrate any statistically significant improvement in Collegiate Learning Assessment performance during the first two years of college,” and that after four years “36 percent of students did not show any significant improvement.”

So this is the arrangement in the modern university run on the business model. Students pay high tuition and are vulnerable to economic exploitation by the administration. In exchange, students get to study less and learn less. Professors come to recognize that this is the way the world is; and, rather than tilt at windmills, they teach their courses and occupy themselves with other aspects of their job (research and writing) and with outside consulting.

Professors feel a mixture of frustration and anger over the decline of standards, and sadness for the students – this is their chance to develop themselves intellectually, and they don’t recognize or value the opportunity they’re passing up. Professors also worry about the future of the country. Our democracy needs an informed citizenry of critical thinkers to shape the country’s future – but that entry doesn’t appear on the balance sheet.

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