The Rising Non-Instructional Cost of College Exemplified By University of Minnesota

This past weekend the Wall Street Journal published an insightful article on administrative bloat at the University of Minnesota and how it typifies a major problem relating to rising tuition and student debt. The article is heavily based on the new president of the university, Eric Kaler, and his attempts to address rising costs. Unfortunately the article was posted over the weekend and is behind a paywall, but I’ll excerpt some relevant sections.

When Eric Kaler became president of the University of Minnesota last year, he pledged to curb soaring tuition by cutting administrative overhead. But he hit a snag: No one could tell him exactly what it cost to manage the school.

Like many public colleges, the University of Minnesota went on a spending spree over the past decade, paid for by a steady stream of state money and rising tuition. Officials didn’t keep close tabs on their payroll as it swelled beyond 19,000 employees, nearly one for every 3½ students. “The more questions I asked, the less happy I was,” Dr. Kaler said.

Charles Lane at the Washington Post wrote a column today based on the WSJ story, which thankfully is available without a paywall. He summarized some of the key findings of the WSJ study.

At the University of Minnesota, the number of employees with “human resources” or “personnel” in their job titles has grown from 180 to 272 since the 2004-05 academic year. Since 2006, the university has spent $10 million on consultants for a vast new housing development that is decades from completion. It employs 139 people for marketing, promotions and communications. Some 81 administrators make $200,000 per year or more.

In the past decade, Minnesota’s administrative payroll has gone up three times as fast as the teaching payroll, and twice as fast as student enrollment.

Oh, and tuition more than doubled in that same period, to more than $13,000 per year.

These numbers provide a valuable reminder that while educational technology and online education offers the potential to provide lower-cost options, the larger challenge of fixing existing institutions should not be solely focused on changing instructional models. The WSJ then calls out that Minnesota’s growth in administrative costs far outpace instructional costs.

Across U.S. higher education, nonclassroom costs have ballooned, administrative payrolls being a prime example. The number of employees hired by colleges and universities to manage or administer people, programs and regulations increased 50% faster than the number of instructors between 2001 and 2011, the U.S. Department of Education says. It’s part of the reason that tuition, according to the Bureau of Labor Statistics, has risen even faster than health-care costs.

The problem goes beyond simple administrative overhead, however, and the Journal highlighted three such areas:

  • Health care costs for all employees
  • Retirement and pension costs
  • Construction boom and associated cost of servicing debt

Schools also compete—by necessity, they say—to offer fancier dorms, dining halls, gyms and other amenities, to raise their rankings and attract students. “It’s a competitive business, and institutions compete for students the same way Lexus and Mercedes compete for car buyers,” says Paul Lingenfelter, executive director of the State Higher Education Executive Officers Association.

To compete, schools have stepped up borrowing for construction. Total debt at public four-year colleges more than tripled between 2002 and 2011, to $88 billion, according to the Department of Education. At the University of Minnesota, the yearly cost of servicing debt more than doubled to $106 million in that time.

The effect on students is of course rising tuition.

The article then describes the various challenges that the university faces as it attempts to lower its total costs, including reducing the number of help-desk phone numbers from 73 to 1. Another challenge highlighted in the article is that despite the massive investment in ERP systems, universities such as Minnesota do not have visibility into critical data needed to manage costs.

Dr. Kaler, in his inaugural address in September 2011, criticized the costs of “long meetings, excessive committee deliberations and endless email chains” that contribute to a “tangled web of bureaucracy that dogs us.” He pledged to reduce administrative expenses.

One hurdle: The system’s chief financial officer, Richard Pfutzenreuter III, says that while he can track the cost of heating a particular floor of a building or of serving a cafeteria meal, he can’t specify elements of the hierarchy such as how many people report to each manager. The human-resources system doesn’t track such chain-of-command information, he said, because “it wasn’t a priority in the past.”

If you have access to the WSJ articles, it is well worth reading the whole article. The Washington Post column is also worth reading.

Comments welcome below or on Google+ post.

Update 1/5: Erik Kaler posted a letter to the editor responding to Charles Lane’s column, arguing that Lane missed much of the context in his analysis. I don’t believe this context is missing in the WSJ original article – it is a better source if you have access.

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About Phil Hill

Phil is a consultant and industry analyst covering the educational technology market primarily for higher education. He has written for e-Literate since Aug 2011. For a more complete biography, view his profile page.
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9 Responses to The Rising Non-Instructional Cost of College Exemplified By University of Minnesota

  1. Pathetic way to manage a national education system, huh? Bout like our disfunctional health care system. The US of the 21st C is rapidly looking like the former British Empire of 1913…on the verge of collapse under its own weight.

  2. mikecaulfield says:

    But is it really exemplfying a trend? Or is it just that some schools are really bad at this, some not so bad, some good — and the much larger pressure of cost disease means that these differences don’t mean much.

    Case in point — here’s the Delta Cost Project sheet on MN:

    http://deltacostproject.org/data/state/pdf/mn.pdf

    Looking at this you can see that Univ Of Minnesota-Twin Cities has decreased instructional share of education and related costs by 6% from 2004-2009 as part of the ‘spending spree’. And tuition has gone up by 14%. so that fits the narrative above.

    But head over a couple columns and you see that there is no national trend of note here at all — nationally in every single category instructional cost as a percentage of total cost has gone down a miniscule %2. Meanwhile, national tuition has risen at levels comparable to Minnesota.

    If you look at my state (and my institution) you’ll find that we have increased instructional cost as a percentage of total cost, almost by as much as U of MN has decreased it (check the Public Master’s column).

    http://deltacostproject.org/data/state/pdf/nh.pdf

    According to this narrative of bloat, Keene State and Plymouth have made massive strides in reducing administrative bloat. Have we reduced tuition? Nope — we’re up as much as anybody.

    Talking about solving the tuition by cutting administrative bloat is like talking about cutting the deficit by “eliminating waste” — in any set of departments or institutions about half of them are going to have above average bloat, and if the bell curve holds a small percentage will have a mind-blowing level bloat. But like the deficit, the real drivers are long term issues of productivity, demographics, etc.

    Admittedly, we could get in a discussion about how Delta defines instructional cost. But it’s probably the closest thing to good national data we have, and at the moment it is showing no real correlation to tuition increase. If we don’t see it there, why do we believe the narrative.

    Incidentally, I think you are one of the smartest analysts in this space, so please correct me if I’m wrong here. But I think these sorts of stories tend to draw attention away from the cost disease issues which are the true core of our problems.

  3. mikecaulfield says:

    Sorry — a should read above a miniscule *one* percent.

  4. Phil Hill says:

    Mike, , in your original comment at e-Literate, I’m not sure I follow the logic you have. If I read the data provided:
    – UMinn: decrease instructional costs by 5%, total ed costs up 14%
    – Keene: increase instr costs by 5%, total ed costs up by 3%

    By this measure, I’m questioning your statement “Have we reduced tuition? Nope — we’re up as much as anybody.” It seems like Keene St is a leader in keeping non-instructional costs in control and students are better off at your school than others. Doesn’t that support the hypothesis of “solving tuition by cutting administrative bloat” [as one of the methods] ? To be clear, I’m not arguing that it is THE solution, but should be part of the mix.

    Again, looking at the Delta data provided, it seems that with rare exceptions, total ed costs (tuition plus subsidy) consistently has been rising, but that in most cases instructional costs have not been rising and are even flat or falling. Therefore, we need to look beyond just instructional costs as part of the solution.

    My real argument in summarizing the article (unfortunately buried in the middle of the post) [emphasis added]:

    “These numbers provide a valuable reminder that while educational technology and online education offers the potential to provide lower-cost options, the larger challenge of fixing existing institutions should not be SOLELY focused on changing instructional models.”

  5. Peg Wherry says:

    Are there any studies on the cost of IT? When I was a college student, we couldn’t have popcorn poppers in dorm room because the wiring couldn’t handle the load. I took FORTRAN as a senior and used a keypunch in the one campus computer “lab.” There was no network. We “pulled cards” to register for classes. IT has made many improvements in administrative procedures and undoubtedly have led to reduction in personnel needed for administrative tasks, but the devices used are not free, nor is the network. Our network manager told me a couple years ago that however much new bandwidth he acquires, it’s never enough. Students go to class and leave computers streaming video in their dorm rooms. It may be that personnel needs have shifted from, let’s say, the Registrar’s office to IT. And those are usually lumped in as administrative personnel. I know a lot of computing capacity is covered by direct grant funds or overhead, but that resource a) doesn’t cover enterprise systems and b) is unequally distributed across higher ed institutions. I would LOVE to see an analysis of the cost of IT in higher ed and how it has trended.

  6. Phil Hill says:

    Peg, the best data I know of is the historical EDUCAUSE Core Data. Unfortunately, they have changed how they report and share data since 2010. But there is at least some trend data to find in the 2008 and 2009 reports (for 2004-8 and 2005-9 trends, respectively):
    http://net.educause.edu/ir/library/pdf/PUB8006c.pdf – 2008 data pp 14-15
    http://net.educause.edu/ir/library/pdf/PUB8007b.pdf – 2009 data pp 16-17

    What’s interesting is that there is an increase in centralized IT spending over that time, but adjusted for student FTE it is relatively flat from 2004-8. There appears to be a spike in centralized IT spending per student FTE in 2009. Is that an aberration or start of trend? Thanks to inconsistent data reporting, it would take forensic analysis to answer that question.

    Such a good question, such a difficult answer. That is a disease of higher education in the US and one of the takeaways from the U Minnesota story.

  7. Peg Wherry says:

    Thanks for the info. But I was thinking of a longer-term trend. Usually the complaints about extensive administrative costs use a comparison from the 70s or 80s. In addition to IT, I believe the increasing complexity of the regulatory climate has required additional administrative roles. Not to mention beef-up student counseling and other safety and support services post Virginia Tech.

    There probably is some administrative bloat–more on some campuses than others. (My colleagues and I used to joke 20 years ago about who would be declared the most useless administrator on campus, and there were at least two major contenders.) But I believe that the increase in number of positions can be traced to some very real needs in IT, compliance and student services.

  8. Phil Hill says:

    Peg, like you I wish there were better sets of trend data.

    One issue I would like to clarify based on your last sentence, however, is that even if there are valid reasons why different administration costs have gone up (in other words, not just a power grab), that still means that administrative bloat is part of the problem. For example, servicing financial aid and all the myriad federal and state regulations leads to an enormous bureaucracy, which itself causes costs to rise. Valid reason, but still part of the problem. StraighterLine tackles this problem by having no provisions for financial aid and having costs so low it is not needed. I’m sure there are other examples.

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