The Business of Higher Education

“The Business of Higher Education”

Driving operational efficiencies in order to lower tuition costs

There is a need for increasing concern over the educational future of our country and an objective look at how the system of higher education is structured and how it is paid for. The manner in which future leadership approaches these problems and challenges to the higher education system is likely to have an enormous impact on America’s global position in the long term. Students in the United States are currently swimming in a sea of educational loan debt with total student indebtedness nearing a staggering value of $1 trillion USD as of November 2012 (Doyle, 2012). Tuition costs in many states have risen more than 439 percent in the short seven years ending in 2005 (Auguste, Cota, Jayaram, & Laboissiere, 2010). These problems are very real and have the potential of causing a “crash” that greatly impacts the system of higher education if they go unaddressed. This trend in how costly a degree has become and how students are paying for their education is untenable. The best way to address this is to target how much a higher education costs and drive this burden on students down. If institutions of higher education could find cost efficiencies and reduce their own operating expenses then these savings could be passed on to their students through a reduction in tuition or by lessening the degree to which they require governmental funding assistance (Eyring, 2011).

Cost of Higher Education

(Figure 1: Hemelt & Marcotte, 2011)

Investing in a student’s future has historically been shown to pay off in years past, but is such an approach valid in today’s economy and with current job skill requirements? The attainment of a degree can no longer be seen as an indicator that a graduate will find successful employment. To show this situation clearly, one can look at a recent study by the U.S. Department of Labor from 2011, which reports that, nearly 16 percent of recent college graduates are unemployed and this pool of recent college students is faced with a part-time employment rate of slightly over 34 percent as well (as cited in Doyle, 2012).

American colleges and universities are not typically run like private sector businesses and often overlook cost-efficiencies in their production of graduates. If institutions could become more efficient and cost effective, they would be in position to improve the higher education system in several ways. This would place these institutions in the position of being able to pass savings on to students through lower tuition, reduce the amount of borrowing by students to attain their education, and ultimately reduce the nationwide risk of the student loan bubble bursting (Eyring, 2010). Areas where these institutions can effect such change are seen in the examples of course redesign and competency based instruction. These two proven models can modify existing processes at most colleges and universities and, as a result, can provide considerable cost savings and allow these institutions to become more student-centric at the same time. These types of efficiencies and approaches to education could be adopted to drive down costs at universities nationwide.

Innovations that have created proven efficiencies:

Course Redesign

The National Center for Academic Transformation (NCAT) was founded in 1999 by Carol Twigg and has since been experimenting with using various technologies to redesign courses in an effort to improve the quality of learning and drive down the overall cost of instruction (Meyer, 2011). NCAT uses a four stage iterative process which analyzes the results of course modifications as changes are made and communicates the lessons learned to the teaching and learning community to ensure that effective practices are shared collaboratively (Twigg, 2005).

NCAT Iterative Process

(Figure 2: Twigg, 2005)

The NCAT process, illustrated in the image above, allows for courses to be enhanced to serve a larger population of students and improve student-learning outcomes. While redesign of an online course can provide efficiencies and save money over the longer term, the process can be costly initially. The redesign process typically requires a team of individuals to be involved in the effort, which includes faculty, instructional designers, graphic designers, and software specialists (Meyer, 2011). The longer term costs are outweighed by the resulting benefits of such an approach when NCAT statistics are considered which show that cost reductions of 37 percent on average, improved test scores, and increased retention can potentially be gained (Twigg, 2005).

Subscription/Competency Based Instruction

Western Governors University (WGU) operates on a subscription style cost approach and a competency based instructional model. Students pay an annual tuition similar to a membership fee, which then allows students to enroll in and complete as many classes as they wish (Schejbal, 2012). Testing is utilized to prove mastery in this type of system and rather than traditional instructors, course mentors assist students by augmenting and supporting the provision of online educational materials (Auguste et al., 2010). This approach has captured the attention of states and other groups involved in educational planning. As an example, Wisconsin Governor Scott Walker, University of Wisconsin System President Kevin P. Reilly, and UW Colleges and UW-Extension Chancellor Ray Cross recently announced a competency-based degree model that will transform higher education in their state. This will allow students to begin self-paced classes anytime and will award students credit for prior knowledge, whether that be from other educational institutions, one the job, or on their own. “Working together, the UW System, the State of Wisconsin, and other partners can make a high-quality UW college degree significantly more affordable and accessible to substantially more people” (Walker, 2012).


Too often online education is considered a disruptive innovation that will transform the current provision model. While there is evidence of enrollment growth when expanding university offerings online, the need for business process improvement and modification of the human element is required to drive real innovation and change in an effort to achieve efficiencies (Meyer, 2012). If higher education institutions adopt the cost per graduate operational efficiencies of the most instructionally cost efficient quartile of their peer group, they would realize a cost per graduate reduction of 23% and as a result would be positioned to produce one million more graduates per year by 2020 (Auguste et al., 2010).

Engaging an institution in change requires a champion, an authoritarian figure dictating adoption of the efficiencies. In the absence of a strong leader, opinion leaders, who are both early adopters of innovation and serve as respectable members of the faculty, must assist in driving the change or resistance will ensue (Johnson, 2010).


Auguste, B., Cota, A., Jayaram, K., & Laboissiere, M. (2010). Winning by degrees: The strategies of highly productive higher-education institutions. Retrieved from

Doyle, W. (2012). Playing the numbers: The best bad option. Change: The Magazine of Higher Learning, 44(2), 49-51. doi: 10.1080/00091383.2012.655235

Eyring, H. (2011). Unexploited efficiencies in higher education. Contemporary Issues in Education Research, 4(7), 1-18.

Hemelt, S., & Marcotte, D. (2011). The impact of tuition increases on enrollment at public colleges and universities. Educational Evaluation and Policy Analysis, 44(3), 435-457. doi: 10.3102/0162373711415261

Johnson, K. (2010, May 1). The global campus: Examining the initiative from the perspective of diffusion theory. Distance Learning, 7(3), 49-53.

Meyer, K. (2011). Is online learning a disruptive innovation? Society for College and University Planning, 44-53. Retrieved from

Twigg, C. (2005). Increasing success for underserved students: redesigning introductory courses. Retrieved from

Walker, S. (2012, June 19). Governor Walker and UW system announce revolutionary online degree model. Retrieved from


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