HESA

Higher Education Strategy Associates

When Should McGill Go Private (Part 2)?

Yesterday, we saw how simply by adopting an Ontario pricing system, McGill could get almost two-thirds of the way to financial independence from the Quebec government. Today, we consider if/how it could get the rest of the way and close the remaining $111 million gap.

One advantage that McGill has over pretty much every other university in the country is the national nature of its brand. It is absolutely astonishing how many top students from every part of the country want to study there. As a result, McGill has something pretty much no other institution in the country has – an inelastic demand curve. Not only could it easily charge more than it currently does, it could easily charge substantially more than any other institution in the country and still keep its enrolments essentially unchanged or even increase them.

Let’s say it keeps enrolments unchanged. My guess – and it’s no more than that – is that McGill could fairly easily charge another $3,000 or so above tuition at equivalent Ontario schools and not see any drop in demand. Even assuming the institutions takes 20% off the top for student aid, that’s an extra $2,400 per student, or nearly $50 million – which brings the cost gap down to about $60 million. Increase overall enrolments by another ten percent and the gap falls to just $40 million.

That’s close, but no cigar. Getting those last few million would require some potentially painful choices, mostly on the cost side. The least radical would involve shifting the enrolment mix towards undergraduate arts and business and away from graduate students. This may sound counterintuitive (aren’t prestigious universities grad-student-heavy?) until you realize that once you’re out of the public system and its funding formulae, the imperative is to push enrolment into programs with higher margins. Doing this doesn’t increase revenue, but it does reduce the cost of instruction somewhat.

More radically, McGill would probably need to think about ditching a couple of faculties – preferably ones which cost a lot of money but don’t do much for prestige. The two obvious candidates at McGill would be education and dentistry (the school of social work could probably go, too). Music would be on the cusp (it loses a ton of money and generally isn’t a prestige discipline, but McGill’sreally good at it).

Even all that probably doesn’t quite make it to break-even, but we’re definitely down to the last $10 million or so. That’s close enough that even the smallest cut to their operating grant would make leaving the public sector a serious option.

When should McGill go private? Maybe sooner than you think.

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7 Responses to When Should McGill Go Private (Part 2)?

  1. Sean O says:

    There would be a lot of costs associated with ditching three faculties, plus tons of negative publicity. There was a move about a decade ago (or longer?) to jettison dentistry, justified by the perception that there was no faculty scholarship.

  2. Alex Usher says:

    Hi Sean. Thanks for reading.

    The Dentistry thing was the summer of 1991, I think. I’m not sure the admin was ever really serious about the threat to close – it seemed like it was a kind of kick up the backside to a faculty that had come to be seen (rightly or wrongly) as a bit complacent.

    You’re absolutely right to say there would be costs to losing a couple of faculties. But I think there would be a huge difference, perception-wise, between a decision to drop a couple of faculties because of poor performance and a decision to drop a couple of faculties because the institution wants to take a fundamental shift in direction like going private. The issue would just be framed completely differently. The debate would centre around things like tuition, student aid, “should education be private”, etc. Except among alumni, the actual faculties themselves would be afterthoughts.

  3. CM says:

    I don’t understand the logic behind the assumption that enrolments will increase. Why a potential student would choose a private university and pay double tuition fees when there is no shortage of affordable public universities around? International students are unlikely to enroll in useless majors, and even with higher tuition, the profit margin in Engineering and Science will be razor thin (Princeton and MIT are doing well, but that’s a totally different calibre).

    A potentially viable solution would be to align the teaching staff compensation with the current labour market trends: since there is an overabundance of postdocs and experienced adjunct instructors who would be glad to take, say, a 10-year contract at $65-70k base, plus CoL adjustments tied to CPI, plus merit increases, it should be entirely possible to cut the overall teaching expenditures nearly in half.

    • Alex Usher says:

      Hi CM. Thanks for reading our stuff.

      What’s the logic? Look at secondary education. Most provinces have pretty good public secondary schools, but there’s no shortage of people lining up to pay for private education. If those places are worth 10-20 K more than free secondary education, don’t you think there might be some takers for a private McGill? Especially if it had an aura of exclusivity. Experience from the US shows that to a considerable degree, sending your kid goes to particularly expensive/exclusive schools is part an act of conspicuous consumption. Never underestimate the value to a parent of saying “my kid goes to (X)”. They’ll pay a lot for that. Makes ‘em feel good.

  4. Alex Nevitte says:

    Another interesting component of ‘inelastic demand’ among students for a McGill education would be the impact of privatization on international enrolment, particularly from France. Students with French citizenship currently have the benefit of paying in-province tuition at McGill. Although I dont have the hard statistics, as a McGill student I know there is a thriving population of students with French citizenship, particularly in the management faculty (which charges a higher tuition rate than others). If McGill privatizes, I would assume that it would be free to charge the standard international rate to all international students. Depending on the demand among French international students for a McGill education (based on its reputation, rather than just its current outrageously low fees for French students), this could be another potential source of revenue available to McGill through privatization.

    Secondly,

    • Alex Usher says:

      Hi Alex. Thanks for reading our stuff.

      I didn’t go too far into the issue of international students. I am quite sure McGill does pay attention to tuition elasticites among foreign students, and I am quite sure that they are already pretty close to what they think they can charge. Composition is a different issue. If they were free to ignore the provincial rules on students from la francophonie paying in-province tuition, I’m fairly sure most of those french students would leave. But they might be replaced by Americans, or Russians, or Chinese. So, yes, there’s probably a little bit of extra money to be had there. Assume you’re talking about, say 500-700 such students, that would be another $6-8 million/year.

  5. Keanne says:

    Why would you want McGill to be a private school? Simply for the prestige? McGill is already a very prestigious school based on statistics, they are one of the top ranked schools not only in Canada but as well in the ranking of all Northern American schools. They don’t need to up the prices of the tuition or turn it into a private school to prove how great of a school they are. Just the fact of being accepted into this reputable school is an amazing honour, which is a well acknowledge fact by any employer. In life not everything has to be ridiculously expensive in order to exude excellence or to be coveted. For example, in Mexico the top ranked school is called UNAM, this is a government school and is practically free for mexicans. In México, UNAM is a very respected school and it’s not because of how much it cost or if it’s a private school, it is because to be accepted into this notable school one would have to be incredibly smart and in my opinion that is all that is needed. So in my opinion, I think it is great that McGill is a public school and it should remain as a public school.

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