HESA

Higher Education Strategy Associates

August 25

Why Angela Merkel Matters to the University of Windsor

I was interested to see the coverage in the Windsor Star of President Alan Wildeman’s recent note to staff about the 2012-2013 budget.

The Star focused on the gap between $12 million increase in new costs and the $6 million increase in revenue as a reason for a coming round of tuition hikes. To me, though, this misses the real story:  namely, crappy pension fund returns.

Windsor, like many Ontario universities, is in a bit of a pickle about staff pensions.  The fundamental assumption behind defined-benefit pensions in the 1990s and 2000s was that one could expect pension-funds invested in the market to make serious money.  This meant that one didn’t need to fully pay for one’s pension obligations – the magic of economic growth and compounding interest would do part of the work for you.

But the Dow has been going sideways for a decade now and bonds yields are tinier than Brazilian bikinis – meaning that most pension funds haven’t been meeting their targets.  At Windsor the gap between pension plan liabilities and the current market value of pension plan assets is about $50 million (could be worse: at U of T it’s $1 billion), meaning it has a “going concern” solvency issue which needs to be addressed by a $5 million annual payment starting this year.

There’s most of your tuition increase right there.

To put the pension problem another way, as you can see in UWindsor’s admirably concise and transparent budget documentation, institutional pension spending has had to rise by 78% over the past four years and now takes up almost 8% of institutional spending.  Just to put that into perspective, the library only makes up 5% of spending. To put it yet another way, over the past four years the university has essentially has to reallocate a sum larger than the school’s entire IT budget just to deal with the pensions issue.

To repeat: this isn’t Windsor’s problem alone.  Pretty much every university with a defined benefits pension scheme is going through something similar.  And it could get a lot worse: if Eurozone bank problems cause credit markets seize up again this fall, equity markets will take another Lehman-like beating and university  pension funds will be headed for serious solvency problems that will require more than cosmetic tuition fee increases to solve.

So when you see all those stories about Angela Merkel, Nicolas Sarkozy and Euro bailouts, don’t think of them as a foreign issue.  Think of them as being possibly the cause of the next big Canadian university financial crisis.

 

August 24

Data Point of the Week: Comparing Academic Salaries

If there’s one subject we write about that gets people riled up, it’s academic salaries in Canada and the U.S. It’s a complicated issue – so let’s look at concrete examples at three of the better-paying Canadian institutions (Trent, Calgary and McMaster) and three prestigious American universities (Dartmouth, Washington and Berkeley).

If you just look at baseline salaries for two sets of institutions, you see some pretty big differences as shown in Figure 1, below. The gap is bigger for associate professors than for full professors, but either way, Canadian professors appear to be making out a lot better than American ones.

Figure 1: Unadjusted Average Base Salaries at Selected Institutions, in Thousands of Dollars.

But this isn’t quite the whole story. Our professors get a 12-month salary, and receive the same pay no matter what they do in the summer months. In the U.S., however, pay is on a nine-month basis – in the summer, many profs are working on research and drawing a separate income from their research grant. Different funders have slightly different rules about how much salary professors can take, but the basic rule of thumb – based on National Science Foundation (NSF) rules that came into effect in 2009 – is that they can take another two months’ worth of salary (i.e., 2/9 of their regular annual pay).

How does that affect average compensation in the U.S.? NSF data seems to indicate that about two-thirds of all professors at research universities hold grants. So, multiplying that out, average compensation across all faculty would look like this:

Figure 2: Adjusted Average Base Salaries at Selected Institutions, in Thousands of Dollars.

At the associate professor level, there is still an advantage to being in Canada – Trent, for instance, still has better salaries than Berkeley. But because promotion carries greater rewards in the U.S., the advantage reverses for full professors. There, all three Canadian universities have higher salaries than the University of Washington, but lower than those at Dartmouth and Berkeley.

If we only looked at research-active faculty, the numbers would look even better for the U.S. than they do in Figure 2. On the other hand, if we look at research-inactive faculty, the accurate comparison is Figure 1.

Another way of putting all this is that for older, research-active faculty, Canadian institutions may still face a bit of a compensation gap. For younger (i.e., associate professor rank) research-active faculty, Canada is the better bet; even Trent  outspends Berkeley. But where Canada really kicks tail is in research-inactive faculty, where faculty at our three selected universities have a collective compensation advantage of almost 25% for associate professors and 10% for full professors.

Which raises an interesting question: given the choice, is that the category in which we really want to have an advantage?

August 23

Some Tropes We’d Like to Bury

It’s back-to-school time, which inevitably means we’re about to get a raft of journalists dubbing various things as “trends” (step forward, the Ottawa Citizen). Here are three that we should just ditch right now:

(1) Rising Costs Mean More Students are Working. Wrong, at least if we’re talking about the last ten years. In the mid-80s, the student in-school employment rate jumped from about 30% to 40%, where it stayed through to the end of the 1990s, when it jumped another few points to just over 45%. It has stayed there ever since.

(2) Rising Costs Mean Students are Working Longer Hours. Wrong again. Average working hours have bounced back and forth between 16 and 17 hours per week ever since 1997. There is absolutely no change at all over the past fifteen years.

The bottom line here is: recession? What recession? The student labour market doesn’t move in tune with the economy. It’s rock solid, with trend lines so flat you could shoot pool on them, regardless of the state of the economy. What seems to move it are large increases in participation; when the system goes through a major expansion (as it did in the first half of the 80s and again at the end of the 90s), it takes on a new group of students who – for whatever reason – are less likely to work.

(3) Rising Costs Mean Education is Less Affordable. The standard story will note that tuition and fees are currently running a little under $6,000, whereas in 2000 it was about $4,500. Hey! That’s a 33% increase! Must be a crisis!

Well, no. As we pointed out a couple of years ago, there have been some considerable increases in tax credits as well. And, of course, family incomes have been rising, too. Just looking quickly at data from the last decade, it seems that real net tuition (i.e., after tax credits) has increased by about 19% since 2000. Over the same period, average after-tax family income for two-parent families with children has risen by 16%.

In other words, net tuition as a percentage of family income has increased by 3% over a decade. Not much of a headline, is it?

August 22

What We’re Reading Now – The Innovative University

If you’ve had the faintest contact with management theory in the last 15 years, you’ve probably heard of Clayton Christensen, author of The Innovator’s Dilemma and originator of the theory of disruptive innovation.  A couple of years ago, he teamed up with a co-writer to look at K-12 education in Disrupting Class, and now he’s done the same for universities with Henry Eyring in The Innovative University: Changing the DNA of Higher Education from the Inside Out.

There are a couple of reasons you’ll want to read this book.  One is because everyone else is doing it, and you won’t want to be clued out.  For instance, le tout Washington seems to have read it; various worthies including Assistant Secretary of State Ochoa seem to be dropping bon mots from the book at will.

And two is because the first hundred pages or so are a very interesting look at Harvard’s historical development, the innovations it undertook under Presidents Eliot, Lowell and Conant from 1869 to 1953 (that’s right – three presidents in 84 years) and how they formed the blueprint for higher education across North America ever since.  It’s as enjoyable a slice of educational history as we’ve ever read.

It’s also very instructive (if sometimes lacking in concrete detail)  on how certain ingrained traditions in academia – notably the way new courses  and programs are approved – have a way of radically escalating costs, and it shows some interesting ways in which institutions can reduce expenditures through better process.  Even if you don’t buy the theory that online providers pose some sort of existential threat to universities (and we don’t, by the way), or that Brigham Young University – Idaho represents some sort of new paradigm in education (it’s an interesting case study but probably not much more), cost containment is still an important issue and on that score this books provides plenty of food for thought.

August 19

Recession Not Going As Planned

About two-and-a-half years ago I (along with my colleague Ryan Dunn) wrote a piece called On the Brink, which considered the then-looming recession and its effects on universities. Looking back on it now, I think we were mostly correct, with two exceptions.

First, I think we overestimated most governments’ desire to stay out of the red. Clearly, as a country, we may not have learned the lessons of the early 1990s as well as we might: governments have proven more willing to borrow – and more willing to keep spending high, including on higher education – than we expected. That’s been good for universities and colleges so far, though the prospect of large and swift cuts may have been delayed, not avoided.

Second, we overestimated the likelihood that governments would turn to tuition fees as a way to supplement revenue in the manner they did in the 1990s. Governments are choosing to couch this in the language of “preserving accessibility,” though the research on accessibility suggests tuition caps do considerably less than is asked of them: basically, every piece of serious research on the subject conducted during the last decade has suggested that modest tuition increases have little effect on accessibility. Nevertheless, university is such a common factor of middle class life that raising fees is considered a tax hike on the middle class, and has similar political consequences. We see this phenomenon at work in many U.S. states as well as Canadian provinces.

This attitude encourages governments to think of universities essentially as utilities. For institutions that had their sights set on something more – “world-classness,” say – this is a significant, long-term, strategic problem, if and when government funding tapers off. For research-intensive institutions, it may even be the defining problem of the next decade.

August 18

Pick a Number Out of the Air… Any Number Out of the Air

So I see that Colleges Ontario has released its wish list for the provincial election campaign. Some of the recommendations are interesting (e.g., the recommendation to give colleges a greater management role in apprenticeship training), some of it is run of the mill (more money for underfunding, etc). But one recommendation in particular is completely baffling: the suggestion that the government should guarantee that students that switch between public institutions within the province should be able to carry two-thirds of their credits with them.

Now, I’m all in favour of credit mobility, but this is grasping at straws. Why two-thirds? Why not three-quarters? Why not 100%? All Ontario institutions at the moment are governed by a qualifications framework that suggests that the learning outcomes at the diploma level and the degree level are quite different. On what basis should we suddenly understand an equivalence of 1 = .66? Or is Colleges Ontario suggesting we should just ignore the framework altogether?

If there is one thing that the we can learn from the experience of Europe – the Bologna process, the Tuning process and the European Qualifications Framework – it is that mutual recognition of credit has to be based on recognized learning outcomes. It means actually going through some fairly hard and detailed system-wide work to get system-wide agreement about how to define learning outcomes, and from there, to actually discuss how learning outcomes at one level relate to those at another. The European Credit Transfer System, for instance, found a way to make credit transferable by standardizing the amount of “expected student effort” per course.

But we don’t seem to like that kind of thing in Canada. We’re lazy. We think we can just wave a wand and tell people to recognize each others’ credits without examination. Colleges Ontario is hardly alone in this – the Council of Ministers of Education, Canada has repeatedly passed resolutions about mutual recognition of credit across the country. The Government of Ontario was so shy of doing the real work required to get credit mobility that in January it decided to throw a lot of money at colleges and universities to encourage more one-off articulation agreements and call it a victory.

So, by all means, let’s get serious about credit transfer. But please, no more gimmicks. Let’s do the hard work, and get down to the business of defining the real learning outcomes on which an intelligent and durable credit transfer system can be based.

August 17

Data Point of the Week: These are Fantastic Graphs

…from U.S. researchers Stuart Rojstaczer and Christopher Healy on the subject of grade inflation. So fantastic, in fact, that I think I’ll mostly let them speak for themselves.

 

And this, of course, is at a time when institutions are becoming less selective, not more. Interestingly, though, it’s U.S. private universities – generally speaking more selective than publics – that are leading the grade inflation charge.

 

Since there’s no data to suggest that students are working harder than they used to, this is pretty much a straight-up change in grading practices. But what’s causing the change?

Canadian commentators James Coté and Anton Allahar would probably have you believe that grade inflation (or grade compression, as they more accurately dub it) is all due to the way that larger classrooms, disengaged students and manipulable teacher- evaluation schemes have given professors incentives to reduce standards – “they pretend to learn, we pretend to evaluate,” so to speak.

But this data – which shows that grade inflation/compression was more severe at the smaller and more selective institutions – suggests something different may be going on. In fact, Rojstaczer and Healy posit that the reverse is true – that diminished faculty disengagement expectations might be leading to disengagement.

Food for thought.

August 11

What Toronto Can Learn from Mike Bloomberg

Here’s an idea that deserves a lot more attention than it has received in Canada: the City of New York has issued an international RFP for schools that want to build a new engineering and applied sciences campus in the city. The winner gets $100 million and some free land. So far, over 20 universities from around the world (including the University of Toronto) have indicated an interest.

It’s brilliant: not happy with the mix of skills in your local economy? Don’t bother the provincial government. Don’t get local institutions to expand into areas in which they aren’t competent. Task an expert foreign institution to do it, and let them worry about issues like tuition, supply, demand, curriculum, etc.

Toronto has a similar problem to New York in that it has a massive hole in the local provision of education. But rather than missing subject fields like applied science, what’s missing in Toronto is an entire class of institutions. The GTA is filled with behemoths both at the university and college level because the provincial government has this weird size fetish; anyone who might benefit from a smaller school environment that is more capable of giving one-to-one instruction is simply out of luck.

Toronto should copy Bloomberg and offer two or three spots for providers to offer small, boutique liberal arts or professional institutions to fill this gap. There’s loads of land around town that is available (Downsview? The Docks?) and after a small initial investment for infrastructure, we could let the institution maintain itself through fees.

Sure, there are potential objections, but they’re easily dealt with. Worried about for-profit education? Put a rider on the contract to restrict the bidding to non-profits. Not happy that local, domestic providers aren’t being paid to do it? Well, they can compete for the award – and win it, if they are good enough. Worried about costs? We already have public institutions charging $20K or more for some programs, so it’s hardly a stretch.

If the United States of America – self-proclaimed home of the World’s Greatest Higher Education SystemTM – can mentally cope with the idea of turning to the world’s best to fill a market niche, maybe it’s time for us to think about it, too.

— Alex Usher

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