r/RoastMe: Higher Education

What does the future look like for institutions in peril

Just 36% of Americans have confidence in higher education, down from 57% in 2015.

Source: Axios

For a society that is losing confidence in everything across the board, that’s a particularly steep drop.

And it’s largely a self-inflicted wound. Higher education lost the thread of the plot. Instead of focusing on upskilling generations at reasonable costs, they became all about that cheddar.

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Back at Guild, I used to spend a lot of time thinking about how to make higher education more accessible. My co-founder, Michael, probably thinks daily about how to create an alternate pathway to the systems of the past. TLDR, we want to make this dysfunctional system better. But let’s dig into the future of an industry that has 19 million annual customers and which generates hundreds of billions of dollars each year (Source: NCES).

Universities became fixated on generating revenue. They needed to pay ever-higher salaries for Presidents, build ever larger endowments, buy more real estate, and expand their managerial and admin officers:

• In 2003, Yale had 3,500 administrators and managers and 5,300 students. By 2019, they had 5,000 administrators and 6,000 students—a 45% increase in administrative staff but an ~11% increase in student enrollment.

• NYU's real estate footprint has grown from about $150M in 1992 to $500M by 2006 to nearly $20B today.

• Harvard’s endowment is now $53Bn, more than double what it was in 2006.

The most successful universities turned into luxury brands, obsessed with exclusivity.

Others became fast fashion or quick service brands, spending tons of money on customer acquisition.

And many—well, many are going to close down.

The Luxury Brands

Elite institutions became obsessed with positioning themselves as incredibly exclusive because this exclusivity translated into value: More alumni gave back, more people paid to get their kids in, and the schools themselves could charge higher tuition. Stanford, Harvard, etc., were the original brand-marketers. Their brand is a badge. Their alumni clubs are the VIP clubs. They are luxury brands, where scarcity is a bonus.

Their acceptance rates (along with the acceptance rates of every elite institution) has plummeted—on purpose.

To paraphrase Scott Galloway, universities bragging about their low acceptance rates is tantamount to food pantries being proud of how few mouths they feed.

In fact, these elite universities aren’t really about learning anymore. Or learning is incidental. They are brands, remember? They have other things to worry about, like appeasing their board, deploying their capital, and maintaining their brand value.

The thing about luxury brands is that they have issues scaling. They want to produce a low volume of units at an obscenely high average price per unit. Each year, Harvard matriculates less than 10,000 students, at an average cost per degree of $330K. This is about how many cars Ferrari manufactures per year, at similar price points.

Quick Service Brands

Then you have the University of Phoenix, Capella, Grand Canyon, Ashford University, etc. These are universities that do not want to be exclusive. The doors are wide open. Come on in!

The problem is they’re selling absolute garbage. And they’re selling it at scale. University of Phoenix has 171,000 enrolled students and a 27% 8-year graduation rate.

Wait.

EIGHT YEARS?! (Source: DOE).

In 2015, University of Phoenix students owed $35Bn in student loan debt, more than any other university. These for-profits aren’t so much educational institutions as they are pyramid schemes or full-on fraud.

What makes this all even worse is that these for-profits spend so, so much on acquiring students. Their ad spend is CRAZY. SNHU (which is slightly better with a 47% graduation rate) has a marketing budget of $139M and 132,000 students.

And University of Phoenix STILL dwarfs the competition.

They are targeting communities of color and veterans to enroll in a program that they know the average student won’t ever complete. University of Phoenix receives more GI Bill funding than any other school and briefly had that funding revoked because of their predatory recruiting on military bases (although they’re eligible for GI Bill funding again).

Between 2013 to 2021, University of Phoenix received $1.6B in GI Bill funding. In 2014-2015, they received more than $1.1B in Pell Grant funding.

The tax payer and government is subsidizing University of Phoenix and other for-profits. How lame is that? This is what our taxes go to?

But I have to give them credit where credit is due: These institutions know how to create and market a digital product at scale. And they know how to expand enrollment. Those are things that other traditional colleges and universities struggle with.

Which would explain why these for-profits are getting purchased by large public universities. University of Phoenix is owned by Apollo Global Management and Vistria Partners. They are in the process of selling University of Phoenix to the University of Idaho, however. Ashford University, arguably even worse than University of Pheonix, was acquired by University of Arizona. Go figure. Universities with large endowments (University of Phoenix has >$1.2Bn and University of Idaho has ~$500M) are effectively private equity firms that are, again, tax subsidized.

The play, I imagine, is that these public universities believe they have the content and university staff to inject quality into Ashford and University of Phoenix. And then Ashford and University of Phoenix can help with enrollment and customer acquisition.

“We’re going to face an enrollment cliff. We’ve got to be bold and innovative,” - Kurt Liebich, University of Idaho board member, on the University of Phoenix acquisition.

I personally don’t think these acquisitions make sense or will work out in the long run, but when your industry is being disrupted, you don’t have many good moves left.

The Leftovers

Speaking of no good moves left, let’s chat about the leftovers.

There are so many of these third category limbo-state universities and colleges. COVID exacerbated a pre-existing trend: The decline of small-to-medium sized regional universities. Over 43 have closed since March 2020 (and half of their students never ended up re-enrolling). Source: BestColleges.

These are universities like Cabrini in Pennsylvania, or St. Johns University on Staten Island, which couldn’t keep their enrollment numbers up.

They have less brand equity, so they’re not a luxury brand. They don’t have scale like their for-profit competitors. If Harvard is Gucci, and University of Phoenix is Herbalife, then these universities are the mom-and-pop retailers on main street.

I worry about this category a lot. I think a lot of universities believe they have a some brand value. I know they don’t have as much as they think. Especially as trust in these institutions declines as fast as enrollment: From 2010 to 2021, higher ed enrollment declined 15%.

I worry that these universities can’t compete on brand-value against the exclusionary luxury brands. And they can’t compete with predatory for-profits on customer acquisition. But we need these colleges and universities. They are important regionally. Most are pretty good quality with positive ROIs on the degree.

So what’s a school to do?

Scale Your Content / Leverage Your Brand

As I mentioned earlier, the issue with luxury brands is that scale has historically been anathema to them. Too much scale and you become a commodity. Which is so bizarre that higher education was so historically resistant to scale. You’d think they’d want to get their content out there at even cheaper marginal costs of production? That it might be better for the world to have education reaching more people?

I mean, I was in business school. I get it. “Capitalism! Shareholder value!” But you’d think that a non-profit educational institution would be a little more intrinsically motivated.

But no, the same professors teach the same exact freshman content every year for thirty years, with no intention of packaging that up as a high quality digital course.

But scale is how universities unlock their only competitive advantage against the swarm of VC-funded startup courses and credentials (Section, Masterclass, Reforge, Coursera, the list goes on).

What is that competitive advantage? Legions of poorly paid, somehow legal, graduate students.

To be fair, these luxury brands have realized that some mass appeal is necessary and monetizable: NYU is opening satellite campuses everywhere, MIT and Oxford are selling courses online, etc.

If you have a brand, leverage it. If you don’t, or if your brand is weaker (especially nationally or internationally), find the programs that help differentiate you. You might not be able to compete with University of Phoenix (or soon to be Idaho) on CAC, but if you have phlebotomy certifications, pharmacy technician certs, cybersecurity, etc., then you can compete on content.

I recently had a conversation with a friend who works as an administrator of a high quality college in Connecticut. They are struggling with attracting students. My recommendation was to go onto Burning Glass, find the jobs that are hiring and growing in volume nationally, and build your courses around that. As for the distribution, GetSmarter & edX (both owned by 2U) let brands white label their platform.

A Brave New World

The basics of market dynamics state that winners either have the highest quality product or the lowest barrier to adoption. Higher education has been somewhat immature, though, and those market dynamics weren’t playing out to the fullest. It hasn’t been winner takes all. Physical limitations—like living in a town with a state university, only being near a community college, government subsidies—kept some institutions alive.

That is changing. It has already changed. COVID and technology have pushed this market into maturity—after hundreds of years! Or at least, a state of slightly more maturity (a college student, perhaps).

High-end universities will continue to push exclusivity (my alma mater, Tufts, has been reducing enrollment—even though they’ve said they want larger class sizes), hoping brand value can carry them through the turbulence. The for-profits will continue leveraging tax-payer money to acquire customers—and probably at higher and higher CAC, given nationwide enrollment trends (there’s only so much blood you can squeeze from a stone). And middle-of-the-road colleges and universities will merge (St. Augustine and Lewis University; Saint Joseph’s and Pennsylvania College of Health Sciences) or shut down. Amidst all of this, we will have incredible alternatives (Khan Academy, Section8, Multiverse, 2U, Coursera, MasterClass).

People will choose to defer college or skip it altogether. There is the small but nascent movement around Skilled Through Alternate Routes (STAR). People are starting to drop degree requirements (very slowly). Apprenticeships are back in vogue. People can take high quality programs remotely (edX has a 73% graduation rate).

Finally, hopefully, the world is starting to see college as one possible route to skill development and acquisition.

And in sixty years, the luxury brands will probably be the only thing left standing.

From the Author,

Chris Blackett

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