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Book Excerpt: Remaking the American University

In their new book Remaking the American University: Market-Smart and Mission-Centered (Rutgers University Press; 2005; pp. 224; $24.95), authors Robert Zemsky, Gregory R. Wegner, and William F. Massey decry the competitive preoccupation with rankings. The admissions arms race, they say, is draining institutional resources and energies. Here has excerpted a portion of their newly-released book. For ordernig information visit Rutgers Press or
University Business, Sep 2006

By the early 1990s, the admissions arms race was in full swing. Institutions of every stripe were spending more money not just on brochures but on state-of-the-art publications that included videos and then DVDs extolling virtues, both real and imagined. Marketing was in vogue everywhere. The College Board and later ACT had begun selling names and addresses of prospective applicants. Consultants proliferated, admissions budgets grew, admission officers became marketing professionals, deans of admission became vice-presidents for enrollment management. The annual ranking devised by U.S.News and World Report established itself as the market publication--higher education's equivalent of Jane's Fighting Ships. And through it all the pressure on young people increased--to make the right choice, to present themselves in the most favorable light, to tailor their interests to the task of winning not just admission but also the financial aid they would need to enroll in a selective college.

The silver lining in these high-stakes games was supposed to be the prospect that the market would exact the same kind of accountability from the nation's colleges and universities as it did from American manufacturers. In some respects, institutions of higher learning were already coming to resemble car companies, pricing their products like automobiles complete with sticker prices, discount rates, and accompanying credit packages. Why not expect the public to follow suit by viewing colleges as commodities that could be compared and ranked for quality, if not actually tested as Consumer Reports tests automobiles? Hadn't U.S.News and World Report done just that each year with its increasingly complex methodology since the mid-1980s?

What we expected of the market was progress on two key fronts. Better-informed consumers would make better decisions, sending the message to colleges and universities that ever-escalating prices would not be tolerated, and that educational processes that ignored customer wants and needs would no longer suffice. Like the engineers and workers in the American automobile industry, faculty would get the message that the way forward lay in a fundamental investment in educational quality. The American Association of Higher Education, and subsequently the Carnegie Foundation for the Advancement of Teaching, had already placed teaching and learning at the center of a national reform agenda that sought a fundamental reordering of higher education's priorities. In short, what the government and the media had failed to accomplish by jawboning, the market, in conjunction with a growing reform movement within higher education, would achieve through the forces of competition.

It just didn't happen. The prices colleges and universities charged continued to rise substantially faster than the underlying rate of inflation. While discussions of quality and accountability have gained some renewed intensity within governmental circles, there is scant evidence that much is happening at the institutional level.

Why didn't the market have the expected impact? Why didn't market forces impose the kind of accountability on colleges and universities that was being imposed on hospitals and health-care providers, as well as on the manufacturers of consumer products? A variety of answers could be given--none necessarily conclusive, but taken together they attest to how the market has unexpectedly changed higher education. Just as the lattice and the ratchet recast relationships within most institutions, the admissions arms race fundamentally changed the relationship between higher education's most sought-after customers and the institutions that were doing the seeking.

A first insight into the college admissions dynamic is that the relationship between price, product, and demand is different for different purchasers in different parts of the higher education market. The segment of this market that commands most attention comprises those young people--and their parents--interested in full-time undergraduate enrollment, most often at a private or public institution practicing selective admissions. For these consumers, what is being purchased at great expense is a degree, the value of which depends on the reputation of the institution no less than on the purchaser's natural abilities or the effort expended in earning that degree. Think dance lessons--the quality of the certificate doesn't amount to much if the student doesn't have rhythm and doesn't work at the tasks at hand. The combination of reputation and achievement makes this kind of transaction very different from buying an automobile. Automobiles are consumables in the sense that they are not expected to last forever. Most drivers will own several in the course of a lifetime. But purchasing a college education from a selective college or university is a singular event for most Americans.

For this select group of higher education's consumers, deciding where to enroll is also a shared experience in a double sense. On the one hand, the choice of institution is something to be negotiated with one's parents or other adult helping to pay for the purchase. As such, it is an event in which family forces and tensions can be expected to play a role as great if not a greater than market forces. Questions of price can get lost amidst the family drama.

At the same time, the choice of a college is also a transaction in which the selling institution has a direct role in the purchaser's choice and hence willingness to pay a premium price. The fact is that the selected college or university may choose not to sell its product to the would-be purchaser--and in the most sought-after institutions, the decision not to sell is made much more often than the decision to sell. The duality of the decision is made more complex because the normal rules of supply and demand have been suspended. While the prices the top institutions charge are high, they are not as high as they could be. That is, most of the medallion institutions at the top of the pecking order could fill their freshmen classes at substantially higher prices, but they choose instead to enhance their prestige from the surplus of applications. To make matters even more convoluted, the price an individual consumer is charged in this part of the market reflects his or her ability to pay--when a selective institution admits and enrolls a so-called full-pay, it will make money on that transaction. If, on the other hand, the purchaser is found to have "financial need," the selling institution may spend considerable amounts of its own funds to educate that customer.

For a second group of young Americans the choice of a college follows a less arduous path. Many of these students are not sure they want to go to college, but their friends are going, the job market isn't very promising--and what the heck, they just might like it. These young people develop largely local options, for the most part choosing among reasonably priced privates and even lower-priced public institutions. In contrast to those youngsters who compete for a place in a medallion institution, these students exhibit a price sensitivity from the fact that they are not sure what they really want, not even sure they intend to graduate within four or five years. While increasingly most college-going youth work, for those in this part of the market work is often as important as college itself.

The third and fastest-growing group of purchasers in the higher education market see colleges and universities principally as providers of spot courses and skills. They buy their college education one course at a time, often attending a variety of institutions over a wide span of years. These are higher education's most price-sensitive shoppers, though ironically they often end up paying higher prices than a student who attended full time and was eligible for financial aid.

Finally, in considering price and market accountability, it is important to note again that state governments, their rhetoric notwithstanding, have consistently used market forces to solve their own short-term budgetary shortfalls by driving up the prices publicly owned colleges and universities charge. This phenomenon occurs every time the business cycle reduces state revenues and forces state governments to choose between reductions in services or increased taxes. What the governor and legislature rediscover at that moment is that prisoners don't pay rent, Medicaid recipients can't pay much for health care, and public schools can't charge tuition--but thankfully, publicly funded colleges and universities can. Each time it is the college-attending public that pays the increase, grumbling to be sure, but not enough to reduce enrollments or spur a revolt next election day. The result is that state governments use the robustness of the market--not to control prices or hold public institutions accountable--but to raise the revenue they cannot or will not raise through increased taxation.

The larger result is the smoke of confusion that encourages most institutions to charge what they think they need to in order to balance their books. So pervasive, in fact, are the pressures to increase, rather than reduce or control prices, that genuine price-cutting--the tried and true way to increase volume in a saturated market--is a rarity in higher education. Those few institutions that have announced price cuts are, for the most part, small, struggling privates that provide financial aid discounts to practically all their students--making the announcement of a price cut more of an advertising gesture than a real reduction in the amount of money their customers are expected to spend in pursuit of their baccalaureate educations.

Given this set of circumstances, it is hard to imagine a scenario in which traditional market forces can be expected to yield a moderation of the price increases colleges and universities, public as well as private, impose. Indeed, the continued willingness of states to allow their public universities and colleges to supplant reduced appropriation with higher tuition suggests that the prices colleges and universities charge will continue to rise faster than the underlying rate of inflation.

Given the willingness of public agencies to make the student consumers pay more to attend public institutions, and the continuing demand for prestige or medallion degrees at very high prices, it is unlikely that market forces will limit the prices colleges and universities charge. But shouldn't those same forces at least hold American colleges and universities accountable for the quality of their educational products? Isn't that what markets are supposed to do? Couldn't the educational equivalent of a Consumer Reports lead the purchasers of undergraduate degrees and courses to more discerning choices of those institutions delivering the best demonstrated quality?

By the fall of 2001, there were at least three major enterprises promising just that kind of consumer information. The biggest, most successful, and most closely followed consumer guide remained the U.S.News' rankings, which last year providing detailed data on more than 1,500 colleges and universities. For the price of the magazine itself, students and their parents could learn which were the top 50 universities and the top 50 liberal arts colleges--the so-called "nifty fifty" national institutions in each category--as well as the relative ranking of regional institutions grouped into competitive tiers. All these data were in the public domain--and in those instances when U.S.News magazine itself did not present the detailed data, they were available for a nominal fee on the magazine's Web site.

U.S.News' principal competitors were two research projects: one supported by the federal government; the other initiated by The Pew Charitable Trusts. The CRS or Collegiate Results Survey, now a licensed product of Petersons, the publisher of college guides, was initially responded to by more than 40,000 college graduates from 80 institutions six years after receiving the baccalaureate degree. The NSSE or National Survey of Student Engagement has been administered over the last four years to a sample of seniors at 730 baccalaureate institutions. That instrument focuses on the extent to which the respondents' college experiences reflected agreed-upon best practices leading to a quality undergraduate education. As its name applies, the NSSE seeks to measure the level of engagement on the part of both the student and the faculty in the learning process.

Both the CRS and NSSE promised to do precisely what U.S.News had eschewed--to focus on the educational process itself (NSSE) and to ask whether it mattered if one attended one institution instead of another (CRS). Their best efforts not withstanding, however, neither the CRS nor the NSSE was able to convince a private medallion university to participate; none of the Ivies joined; not Duke nor Stanford nor the University of Chicago, nor any other universities belonging to the Consortium on Financing Higher Education (COFHE). A handful of public medallions--the University of Michigan, the University of Illinois, and the University of North Carolina at Chapel Hill--used either the CRS or NSSE, but in general public medallions also declined to participate. Among the eight campuses of the University of California offering undergraduate programs, for example, only UC Santa Cruz has participated in the NSSE and none participated in the CRS.

This absence of medallion participation was in itself an important market sign that should have surprised no one. Already enjoying superior market position, these institutions had nothing to gain and a potentially a great deal to lose if their outcomes or levels of engagement were no better than those of institutions charging substantially lower prices. Even institutions that did participate insisted, as part of their formal agreement to administer either the CRS or the NSSE, that they alone could make public their results. It was as if the producers of products or services tested by Consumers Report could decide after finding how well they had scored in the test whether or not to make the results public.

No one should be surprised that the nation's best-known and most selective colleges and universities dug in their heels, showing little or no inclination to provide the kind of quality-based data that would let the public decide which products or services were best. Just how entrenched this attitude had become was reflected in an email sent to one of the designers of the CRS. The sender, a principal consultant of a major firm offering enrollment management expertise to colleges and universities, wanted to know if the CRS, now that it was under license to Petersons, was available under any other terms. "I'd like to learn more about the Collegiate Results Survey for a client. Client doesn't want to give information to Petersons (fear of ranking), but loves the CRS."

It is not a fear that hampers U.S.News. Begun in 1983 as an almost casual experiment, the rankings started out as a kind of beauty contest in which college and university presidents were asked who they thought were the best undergraduate institutions in the country. Once the public's appetite for these rankings became palpably obvious, a steady stream of presidents and association spokesmen visited the editors responsible for the survey, telling them that such an important measure of quality should not depend on the vagaries of institutional gossip. U.S.News responded by assembling an extraordinary array of data, much of it supplied directly by the institutions themselves. The more precise and detailed the data requirements became, the clearer it became to institutions how they could improve their rankings--by increasing their six-year graduation rates, increasing their yield rates, giving more weight to an applicant's SAT/ACT scores, and increasing the newsworthiness of the institution.

It is hard to overestimate just how important the rankings game and U.S.News' annual reciting of America's Best Colleges has become. No matter how the results are pooh-poohed, everyone pays attention. Everyone's strategic goal is to move up in the rankings: from tier two to tier one, or from there into the top 100 and ultimately the "nifty-fifty." But what does it mean? What exactly does U.S.News measure? What are the terms of the admissions arms race?

What U.S.News Measures What U.S.News does not measure is the quality of the educational experience. The data U.S.News so arduously collects tell nothing about what actually happens on campus or in the classroom. Some have argued that the rankings reflect institutional prestige--and they do, though that concept is sufficiently amorphous as to lose most of its meaning when one tries to describe the difference between two institutions with similar profiles but ranked 20 places apart.

Over the last decade we--with the assistance of our colleagues Susan Shaman, Dan Shapiro, and Andrea Wilger--have periodically returned to this question of determining precisely what U.S.News measures. In 1997 our initial exploration resulted in our defining a market structure for higher education that ranged from a relatively small, extraordinarily high priced "medallion" market segment at one end of the spectrum to a slightly larger, more moderately priced "convenience/user friendly" segment at the other end. The single largest segment, comprised of "good buy-good opportunity" institutions, occupied the middle of the distribution. The analysis that produced this structural description of the market used admit and yield rates as surrogates for demand to predict price. Quite unexpectedly, however, the key variable turned out to be an institution's six-year graduation rate. Given that U.S.News used the same measures in its ranking scheme, not surprisingly our market structure and U.S.News rankings overlay one another. We concluded then that what U.S.News measured was market position: the higher the ranking, the better the market position, and the higher the price the institution could charge. Put another way, if you knew an institution's U.S.News ranking, you would know its market segment and roughly the price it charged. What proved even more astonishing was that all one really needed to know was the six-year graduation rate for any set of institutions to order them and in that sense define the market. Private medallion institutions were those that graduated 75 percent or more of each freshman class within six years of matriculation; private name-brand institutions, comprising the next market segment, graduated 65 percent of their freshmen within six years, and so on down the line. The same logic applied to public institutions at slightly lower graduation rates.

For the top of the market, we could replicate the U.S.News rankings using graduation rates alone, and once we added the reputation variable from the U.S.News survey, we could almost replicate the exact order of institutions in the "nifty fifty." For a full one-third of the 25 top liberal arts colleges, we were able to predict the precise U.S.News ranking. For the next one-third we were off by no more than two places. The analysis was not as clear cut for the universities, largely because this set of institutions included both public and private campuses. Nevertheless, using graduation rate and reputation, we could place two-thirds of the top 27 (because of ties) universities within three or less places of their actual position in the U.S.News rank ordering.

What then is being measured? The answer is remarkably simple: what the U.S.News rankings and our market analysis both measure is competitive advantage. The higher the ranking--or conversely, the better the market position--the better the institution is able to attract students, faculty, and revenue. That's half the answer. The other half derives from an understanding as to why graduation rate is the best proxy for an U.S.News ranking and the market segment designation for any given institution.

Zoomers and Amblers U.S.News itself believes that an institution's graduation rate is an output measure--an index of how well that institution serves its customers as well as the public. Graduation rates in general have come to be seen as a critical measure of accountability, such that when leading politicians and media pundits list higher education's failures, they principally cite just two: the inability of colleges and universities to control their costs and hence limit their price increases; and the fact that many more students enroll than graduate. Why, they have taken to asking in increasingly harsh terms, must students, their parents, and the tax-paying public pay so much for a system that fails to deliver what it promises?

Such attacks betray a fundamental misunderstanding of how the higher education market has evolved, how it sorts students and sets prices. Twenty years of intensifying competition have produced a market in which the higher the probability the student has of graduating in four or six years, the higher the price that student is prepared to pay for his or her college education. The market then sorts those students in terms of their probability of graduation, which not so coincidentally is correlated with their SAT/ACT scores, their rank in class, their parents' level of education and income, and certainly not least, their academic and professional ambitions. Those with the highest probability of graduation can be aptly described as "zoomers." For them, secondary school is a preparatory experience in much the same way that an Olympic training village prepares athletes for Olympic competition. It is primarily in secondary school that these zoomers get ready, not just for college, but also for the rigors of the selection process through which top-ranked institutions pick the students to whom they will sell their high-priced products and services.

For the nation's medallion institutions it is a win-win situation. They preserve their position in the marketplace principally by enrolling students who are seeking the competitive advantage a medallion degree confers. The top-ranked institutions win precisely because they can choose those students most likely to succeed and most willing to pay an extraordinarily high price for an undergraduate degree. Why? Because zoomers know that the baccalaureate degree is the next gateway in their run to the professional and academic credentials they have spent their young lives preparing to get. The better the undergraduate medallion, the better the law, medical, business, or graduate school to which they will win admittance. It is more than worth the price--because the prize is great and because they and their parents know that there is very little chance they will not graduate in four, let alone six years.

Twenty years into the admissions arms race, however, most college-bound high school students are not zoomers, but rather amblers, in the sense that they are less certain about what the future will hold, and less certain they will graduate from the institution in which they initially enroll, less willing to cut their social ties to their home communities. Because most college students are in fact amblers, most colleges and universities face the challenge of turning their amblers into bloomers--young, and sometimes not so young people who discover relatively late the rewards, even the joys of learning. When an institution succeeds in transforming amblers into bloomers, the first telling sign is an increase in the freshman-to-sophomore retention rate, followed by a slow but measurable increase in the institution's six-year graduation rate.

U.S.News has recognized both the importance and the difficulty of increasing the graduation rate by awarding extra points to institutions whose actual six-year graduation rate is higher than its predicted rate based on the average SAT/ACT score plus average rank in class for an enrolling freshmen class. In our terms, this bonus calculation becomes a kind of bloomer index. In terms of the actual rankings, however, this adjustment appears to make little difference, suggesting perhaps that even greater weight ought to be given to this corrector.

At the same time, however, there is simply no evidence that the students who consider these institutions pay much attention to their graduation rates or their success in nurturing bloomers. The population for whom graduation rate matters are those students and parents interested in medallion and name-brand institutions. The rest of the market seemingly understands that whether they graduate or not is largely up to the students themselves. To be sure, most of these "good buy-good opportunity-" institutions can do a better job converting amblers into bloomers--smaller classes in the freshman year, more individualized attention, more willingness to serve vocational interests during the years traditionally devoted to general education. Private institutions in these segments have generally done a better job, not because of market demand, but because they have worked to preserve enrollment and reduce marketing costs. What these institutions have learned is that a student retained is a student who goes on paying tuition. Public institutions, despite the use of enrollment-based funding formulas, do not seem to have the same incentive to increase retention and thereby maintain stable enrollment.

Through the last 20 years both public and private institutions have learned that the market accords no advantage to institutions that go to extraordinary lengths to provide quality educations. Indeed, there are plenty of institutions with exemplary teaching programs--Alverno comes first to mind--that have in fact struggled for enrollments. What foundations or the media may find attractive, the market largely discounts. What matters in this environment is not quality as defined by Lee Shulman and his Carnegie Foundation for the Advancement of Teaching, but rather competitive advantage. It is a lesson U.S.News has learned well, helping to assure its dominance as the collegiate consumer magazine of choice.

About the authors: Robert Zemsky is a longtime professor at the University of Pennsylvania where he currently serves as the chair of the Learning Alliance. He has served as Penn's chief planning officer, as master of Hill College House, as the founding director of the Institute for Research on Higher Education, and as the co-director of the federal government's National Center on the Educational Quality of the Workforce. Gregory R. Wegner is the director of program development at the Great Lakes Colleges Association. With skill and imagination he has brought clarity to the pages of Policy Perspectives, where has served as that publication's first and only managing editor. William F. Massy is the president of the Jackson Hole Higher Education Group, Inc., and professor emeritus of higher education and business administration at Stanford University. In the 1970s and 1980s he held senior administrative positions at Stanford University, where he pioneered the use of financial management and planning tools that have become standards in higher education.

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