Investing in Lasting Change: Productivity and U.S. Higher Education

SHEEO Annual Meeting, Boston, MA
July 18, 2008

I want to begin by saying how delighted I am to be here at this SHEEO annual meeting. As many of you know, I'm no stranger to the important work of SHEEO, having worked as a consultant to the organization dating back to before I founded the Institute for Higher Education Policy in 1993. And in my years at IHEP, I was fortunate to work closely with coordinating and governing board leaders in several states, some of whom are here today.

Given that it is quite early in the morning to be listening to a speech, I'd like to suggest that you approach my talk this morning as a sort of wake-up call, both figuratively and literally. My plan to keep you awake is to focus on three things that I think are key to the work all of us are doing to promote higher-education attainment:

First, there's Lumina Foundation's Big Goal: That is, dramatically increasing the level of higher-ed attainment in the United States by 2025.
Second, there's how you, as state higher-education leaders who share this goal, have a critical role to play. That is, I believe you have a unique leadership opportunity in bridging the political and higher-ed worlds as you guide public institutions through major changes to help raise attainment levels.
Finally, there's what Lumina, the largest private foundation in the United States focused exclusively on postsecondary access and success, is doing—and can do—to assist you as leaders in meeting our shared attainment goal.

Higher education in the United States has reached a critical threshold. Applications are up across the board, and many of the nation's top institutions are continuing to set a global standard for excellence. But a fundamental transformation is required to position our country for a world in which high school graduates are no longer guaranteed entry into the middle class.

The sheer number of jobs that require postsecondary education has doubled since the 1970s. Employers' demand for workers with more than a high school diploma will only continue to grow, straining our capacity to produce enough well-educated workers. As Baby Boomers retire, demographic trends suggest our national economy will depend increasingly on minorities, working adults, first-generation college-goers and students from low-income families who struggle to afford—and succeed in—college.

It's also clear that we have significant, persistent concerns with equity in our nation. The gap between Americans with college degrees and Americans without college degrees is wide. And it's getting wider. This is a complex, national problem that requires a comprehensive, national response. We all must mind the gap. Getting people into college and helping them stay through graduation is essential to our collective well-being. And this is especially true for traditionally underserved students—those in groups that represent a rapidly growing percentage of the nation's population. Closing the achievement gap isn't just the right thing to do, it's also the smart thing to do.

For these reasons, we have to join forces and identify ways in which we can do our work in higher education both efficiently and effectively. The savings achieved from those effectiveness and efficiency improvements must, in turn, be deployed to serve more students. If we fail to take bold, immediate steps to expand educational opportunity for all Americans, we increasingly risk a reduced standard of living and a weakened society.

A generation ago, the United States had the best-educated population in the world. But as you learned earlier at this annual meeting, today our nation ranks 10th among industrialized countries in the percentage of its citizens 25 to 34 with college degrees. Tenth. We're stuck in the same place we have been for nearly three decades while developed nations in Europe, Asia, and the Americas are sprinting ahead. The rest of the world, or at least the countries that make up our top economic and social competitors and partners, appears to be unstuck and working in different and innovative ways to significantly increase their attainment levels. I'll return to this theme of "being stuck" in a moment.

Now the good news is that educating a greater share of the U.S. population doesn't have to cost a lot more. Our nation already spends significantly more than the average industrialized nation on a per-student basis. Better investment, with a focus on productivity, can indeed lead to better results.

But states will need to work harder—and faster—to educate enough college graduates to sustain the vitality of local communities and the economy. To meet workforce demands alone, estimates indicate the United States will need a million more two-year and four-year college graduates a year than it's on track to turn out during the next 17 years. Without a major overhaul, the nation's higher-education system is simply too costly to meet this challenge. Meanwhile, global competition is roiling the U.S. economy. Failing to meet the need for a better-educated workforce could have terrible consequences for the ability of people here to earn living wages.

At Lumina, we like to joke that the fashion industry is our guide for higher education trends. Like hem lines and fabric colors, everyone is always looking to ride the latest trendy wave. Phrases like "moving from access to success" and "looking beyond assessment to learning outcomes" are just two of the numerous recent trends we have observed. The question is this: Is there anything behind those catch-phrases, or do they lead to real change? Is blue really the new black?

In our current thinking, with tongue planted somewhat in cheek, we like to say that we believe productivity is the new accountability. In truth, the rest of the U.S. economy, subject to greater market forces, figured this out years ago. Politicians and business leaders are quick to grasp it. But the higher education establishment in the United States is only slowly catching on. As SHEEOs, I believe you can be agents of change for a real productivity agenda for U.S. higher education and not just "red carpet" reporters for the latest fashions in our higher education system.

No doubt when many of you leave this conference, you will have more immediate concerns. You might ask, "How can we meet these challenges when state tax revenues are falling in real terms?"

In June, the National Governors Association and the National Association of State Budget Officers released their "Fiscal Survey of the States." They expect the nation's governors to recommend a 1 percent increase in general fund spending in the 2009 budget year. As you know, that would be the third-lowest spending increase in the past 31 years. It's well below the historical average yearly increase of about 6.5 percent.

Sadly, there are no big surpluses available to help boost participation and degree-completion rates in higher education. Even if there were, the superior lobbying prowess of K-12 educators and other fiscal demands such as Medicaid, public safety and infrastructure will likely continue to overshadow higher education. Over time, state taxes have come to cover a decreasing share of college and university operating budgets. In some respects, higher education has been a victim of its own success. The perception among legislators is that colleges and universities are big fundraisers in their own right and can be held to modest funding increases. The truth is these private resources are unequally distributed and students and parents are picking up the slack.

To reverse this dynamic, public institutions will have to submit to greater scrutiny of, say, spending per degree conferred in return for additional public funding. Significant funding increases in the future will need to be tied to the economic development priorities of individual states and to proof of more-efficient spending.

But if the challenges of prior economic slowdowns have taught us anything, it's that the absence of new money can make it possible to take action and propose change that wouldn't otherwise be possible. So, I hope you'll consider the fiscal storm on the horizon as an opportunity to develop and implement visionary approaches to remaking higher-ed systems in ways that will better serve society—and students—in the future.

No challenge facing society in general—and higher education in particular—is bigger than the need to educate vast swaths of the population who just 25 years ago would have been considered "not college material."

I expect governors, legislators and leaders of colleges and universities to look to you as honest brokers to help formulate responses. Focusing on productivity and the need to better invest money we already have will lend credibility to your efforts. In this way, we can work together to reposition higher education not only as a benefit to individuals but as a contributor to the well-being and prosperity of American society. That's the asset worthy of renewed public support.

So, is there a case to be made for productivity? At Lumina Foundation, we see our mission as rooted in the belief that higher education carries a fundamental power to change lives, drive the economy, and benefit society. But unfortunately, the United States is not doing nearly enough to make the promise of higher education a reality for the millions of Americans who need it. And here is where we return to the notion that the U.S. is really stuck in a place that many nations got unstuck from several years ago. Because while there are many ways to make the case for greater productivity, including changing workforce demands and an increasing need for social equity, we think one of the most compelling is to look at the international comparative data on higher-ed attainment. From this evidence, the need to graduate many more students is really crystal clear.

I won't recount all of the data for you, since you've heard about that from my friend and colleague Barbara Ischinger from OECD. But I will emphasize that while the proportion of the U.S. population with two- or four-year college degrees has remained remarkably stable over the past 40 years at about 39 percent, other OECD countries—especially the developed nations in Europe, Asia and the Americas—began years ago to increase their rates of higher-education attainment. They have now passed the United States by a wide margin.

So this is why, today, the United States has fallen to 10th in the world in the percentage of the younger-adult population with college degrees. Canada … Japan … Korea … several of the Scandinavian countries … all have surpassed the United States.

It might be fair to ask: Why should we care? Certainly our rallying cry as a nation should not be "Beat Finland!" That's not at all the point. But those of us at Lumina Foundation believe we should care, and urgently so, for at least two reasons:

First, we should ask ourselves, why are other countries doing a much better job than we are in educating more of their people? And why are we satisfied with an attainment level that we reached 40 years ago and that other countries have pushed well beyond? Do we believe that we have achieved the maximum human potential of the people who comprise our wonderfully diverse and constantly evolving nation? We hope not.
Second, the international data point to a critical underlying trend that is affecting all industrial and post-industrial economies. As a result of globalization, the demand for higher levels of skills and knowledge is spreading throughout the workforce. Simply put, the jobs that provided low-skill workers with a comfortable middle-class life are gone. They are never coming back. At the same time, opportunities exist for those with the skills and knowledge to take advantage of them, but these jobs increasingly require postsecondary education.

Some have argued that the growing demand for college-educated workers is not real, that it merely reflects "credential creep" and not a true change in the workforce. But the evidence simply does not support such a conclusion. In all but one OECD country that has increased attainment, the earnings of college graduates are rising faster than those of workers who have not finished college. If the increased supply of graduates in these countries were not reflecting an actual demand in the workplace for these skills, you would expect the gap in wages to narrow as the supply of degree holders increased.

This same phenomenon is visible in the United States. Since 1975, the average earnings of high-school dropouts and high-school graduates fell in real terms—by 15 percent and 1 percent, respectively—while those of college graduates increased by nearly 20 percent. This growing premium for workers with a college education reflects demand for the actual skills and competencies developed by graduates while in college, and not just for the credentials.

The analysis of the international and workforce data are more than idle statistical exercises. To underscore them, just look at the case of Ireland. In that country, it became national policy about 15 years ago to increase higher-ed attainment levels. Since then, attainment has increased dramatically, and Ireland has gone from one of the poorest countries in Europe to one of the richest. Keep in mind that 15 years ago Ireland also had one of the highest high-school dropout rates in the developed world. Many people around the world have looked at the Irish example and concluded that increasing educational attainment is an effective strategy for expanding economies.

So why hasn't the United States made this same connection?

Reaching the levels of college attainment we all agree are necessary will require us to find ways to assure every American has an opportunity to succeed in higher education, especially those from groups that today are grossly underrepresented. Disparities in educational attainment are, at their core, affronts to our nation's commitment to social justice. When we say higher education has become the only reliable path into the middle class, this has implications beyond just earnings potential. Almost 95 percent of college graduates have employer-provided health insurance, while only 77 percent of high school graduates have health coverage. Likewise, 90 percent of college graduates have employer-funded retirement funds, compared to 81 percent of high school graduates and 53 percent of high school dropouts.

The consequences of not succeeding in higher education are increasingly dire, and it is a fact that these consequences fall disproportionately on the members of the very groups that are not succeeding in higher education. The current generation faces a radically different future—one that mandates some form of postsecondary education for virtually all of the careers that lead to a more-secure and prosperous life.

In sum, I think the three-pronged argument of changing workforce demands, addressing persistent equity gaps in attainment, and rising international benchmarks while we remain stuck in place all make for a very powerful case for a more-productive U.S. higher education enterprise.

The next challenge is a more complex one, and that is defining exactly what we mean by productivity. I think the SHEEO white paper for presidential candidates helps to frame the issue quite well: "Strong leadership and a relatively modest investment can restore U.S. preeminence as the best-educated and most competitive country on earth." The paper then goes on to say:

"More than ever, the innovative and productive capacity of the United States depends on the knowledge and skills of our people. Advanced education has become essential in the 21st century: Low-skilled, well-paying jobs are increasingly scarce, and higher skills, adaptability, and the capacity to add value in the workplace are essential for economic security. For individuals, higher education and preparation for success in higher education have become urgent priorities."

At Lumina Foundation, we believe that higher productivity is one of the best solutions you can tout. I don't want to get hung up on a precise definition, because we're still thinking it through ourselves, with help from higher-ed leaders and experts in industries that already have grappled with what it means to increase productivity. But I think it's worth briefly surveying the obstacles, because as coordinating and governing board leaders, each of you should be playing a significant part in shaping a productivity agenda within your state.

Our own scouring of the research has found a surprising level of agreement in the academy about what productivity means, how it applies to higher education and the problems related to measuring it. There's also consensus that many of the measures that exist now are inherently flawed. So, we'll need to come up with some new approaches.

In simplest terms, productivity is what you get out of an activity per unit of input. The most common inputs are time and effort employed by faculty and staff as well as buildings, equipment, and assets (such as endowments). Usually, these inputs are measured in dollars—that is, the money it takes to cover salaries, incidentals and overhead. Clearly, student time and effort help determine output, but they are rarely included as inputs, because they are tougher to measure.

The most common outputs are teaching, measured as credit hours taught or degrees conferred; research, measured in terms of articles, books, awards and citations; and service, measured in various ways that affect the community, the academic professions or society at large.

While the inputs are similar to those of most organizations—essentially labor and capital—it is the nature of the outputs that distinguishes higher education from other enterprises. The problems inherent in measuring productivity in higher education generally focus on the inability to measure output. The most-recognized measurement problem occurs when higher-ed cannot account for the quality of outcomes. Two schools could be teaching or graduating the same numbers of students, but one school's students could be learning more, getting better jobs, contributing more to society or even ending up happier.

Furthermore, some of the tangible and intangible benefits of a college course or degree accrue to society at large, not necessarily to the student or to the graduating class. The benefits of a more informed electorate, law-abiding neighborhood or culturally tolerant community can sometimes be directly attributable to things learned in college. These benefits, therefore, should be considered output, but they often cannot directly be accounted for.

However, there are many things that we can measure and manage. That's why, at Lumina, we believe compiling and analyzing the right data are essential to improving higher education. As SHEEOs, you have leverage with the institutions and can make a real difference. Every institution needs to do some basic things like track the enrollment, progression and completion of students by race/ethnicity, income and age. Every institution should define and report learning outcomes in a manner that allows the value added by institution to be easily discerned. I would even argue what I advocated in my prior life at IHEP, which is that every state should have a student-unit record system that combines K-12, higher-education and employment data. These systems should permit cross-state tracking and analyses. Data that show how institutions are performing should be public and broadly disseminated. Taking these steps will allow us to more-precisely measure productivity gains.

Many policymakers and a fair number of higher education leaders appear willing to accept the flaws inherent in existing productivity measures. Generally speaking, however, we all know that many faculty members tend to see the problems with measuring the quality of outputs as fatal flaws in our ability to gauge productivity. Here again, I think you can serve as an important bridge.

There is a sense among many of our faculty that they will be the ones who bear the burden of higher productivity, because the direct benefits don't accrue to them. The benefits accrue either to students, in the form of more predictable and graduated tuition hikes, or to the general public, in the form of tax revenue that can be diverted to other uses.

To an extent, that's true. But it doesn't have to be the end of the story. We all know that some in higher education fear that raising productivity is code for diluting quality or instituting a one-size-fits-all approach to college. In fact, model programs have shown that containing costs can be an effective strategy for serving greater numbers of students. That's good news that SHEEOs could be spreading.

I think you may all be familiar with the series of pilot studies by the National Center for Academic Transformation. The studies concluded that 25 of 30 institutions that redesigned popular introductory courses, by making smart use of technology and engaging professors more efficiently, significantly improved their learning outcomes and reduced educational costs. These experiments, underwritten by the Pew Charitable Trusts, showed success at institutions as diverse as The Ohio State University and Riverside Community College in California. Researchers found that Web-based systems for managing coursework, online tutorials and automated quizzes and tests could save money by decreasing the number of times students have to repeat courses. This finding is significant because it takes at least two attempts for many community college students to pass basic math courses. In addition, the University of Tennessee found it could increase student enrollment in a basic Spanish course by pairing experienced instructors with graduate teaching assistants and making better use of online technology. The university was able to cut the cost per student by 74 percent, from $109 to $28, using methods that would be considered quite conventional in higher education today.

Other examples of creative approaches also are emerging. The California State University system instituted a college-readiness exam that gives high-school juniors a clear picture of where they stand. The Florida Community College system's Proficiency Examination Program enables students to test out of certain courses and graduate faster. And, under the leadership of Chancellor Brit Kirwan, the University System of Maryland has boosted its capacity to educate students by increasing faculty teaching contact hours on average by about 10 percent across the system, by enhancing student-advising services to help students finish work toward their degrees sooner, by limiting undergraduate degree requirements, and by encouraging enrollment at less-expensive public institutions. Faculty and staff members and student councils were involved and engaged every step of the way. These efforts, sparked by budget cuts, have made it possible for the system to hold in-state tuition steady for several years.

As SHEEOS, you have a unique ability to help college and university leaders and their faculty members understand the overall attainment challenge and why aiding in our efforts to increase productivity is ultimately in their self-interest. We need to avoid ending up with a higher-education system that maintains its prestige while the country falters economically because its workforce lacks postsecondary skills that the job market requires.

For that reason alone, our approach to higher education cries out for an immediate overhaul. Business leaders, the public, policymakers and some higher-education leaders are among those questioning how colleges manage their resources. There is a growing concern that current spending patterns are not sustainable in the face of demographic trends and keener competition for state funding.

So how can Lumina Foundation help? At Lumina we believe we need to use all of the tools at our disposal to accelerate progress toward the Big Goal of helping dramatically higher numbers of Americans earn high-quality postsecondary degrees. Naturally, our most obvious tool is our grant-making budget. And while that is a critical capacity of private foundations, it is not the only tool in the toolbox. For example, as we look ahead to the next several years of our work at the Foundation, I expect we will increase the Foundation's activity in two important areas: policy and convening.

The increased emphasis on policy, and particularly policy advocacy, should be no surprise, given my background. I know firsthand how policy can act as a lever for systemic change in higher education. I also know that philanthropy can play many important roles that government cannot. These include supporting innovation, disseminating research and programmatic lessons and building capacity in nonprofit intermediary organizations that help support our mission. At Lumina, we will be looking for ways in which we can support effective policy that promotes access to—and success in—higher education on many different levels.

At one end of this policy spectrum are activities such as building the capacity of state government entities, along with regional and national organizations, to support effective policymaking. We also will be supporting issue framing and analysis through our research and through demonstration projects. These are the kinds of tactics that philanthropy has typically endorsed.

But my goal is to move the Foundation toward more direct investment in public will-building—media outreach, coalition building—as well as investing in agenda setting by participating in policy development. Ultimately, we hope to provide resources that promote the development of model legislation, regulatory frameworks and other practical tools that go beyond the conceptual work that defines much of what philanthropy has done previously.

In our work to help make higher education more productive, we're especially interested in efforts to alter public funding for colleges and universities to reward course and degree completion in place of simply paying to enroll students in courses.

Lumina's second tactic will be to invest in convening as a tool for supporting and promoting change. Since arriving at Lumina, I have talked about the need to convene the nation's best, most-innovative thinkers, particularly by engaging new voices and fresh perspectives in the debates about how best to promote college access and success.

Foundations have the power to convene policymakers, business and higher-education leaders, and experts on higher education in ways that can accelerate progress on key issues. We want to actively look for solutions in new places while fostering discussion, debate and strategies among a wide array of stakeholders. Already, we have convened a group of international experts to examine how lessons of higher education attainment from other countries might be applied here, in the United States. Next week, we will begin to engage business leaders in a discussion about how they can help us bring about more-rapid policy change in higher education. In the fall, we will explore what successful minority-serving institutions can teach institutions with growing minority student populations.

All of these steps reflect Lumina's effort to meet a dual challenge: to accelerate progress so that more Americans gain access to a high-quality postsecondary education and to ensure that what students learn aligns with the knowledge, skills and ability to function in a rapidly changing economic and social context. To meet this dual challenge, Lumina—and all foundations that invest in this vital arena—must search for answers in some overlooked places. We must take a 360-degree-inquiry approach to problem-solving instead of focusing on intriguing and sometimes spectacular examples that often cannot be brought to scale.

Now let me try to relate all of this back to what both Lumina and SHEEOs should be doing to make higher-ed more productive. As some of the examples I've cited illustrate, there is ample evidence that greater efficiency and greater value can coexist within higher education, allowing us to serve more students. We must continue to identify and widely replicate practices that make college more affordable and improve results for students and society.

Unfortunately, no state has fully shouldered the challenge of tailoring its higher-education system to meet demand for increased productivity. To address this shortcoming, Lumina Foundation has been forming grant partnerships through its Making Opportunity Affordable initiative with state groups and other partners that want to experiment with innovative and cost-saving methods of delivering high-quality education to greater numbers of students.

Our home state of Indiana is among 11 states we are working with, and the focus is on funding incentives. At a gathering in North Carolina early last month, the Indiana team debated the degree to which Indiana's formula for funding public colleges and universities should be driven by performance. The Higher Education Commission and Legislature have taken the approach of tying any new appropriations to course completion and related outcomes.

The team's leader, a very capable and skilled thinker who works for the state Chamber of Commerce, noted that, with lean years ahead, it could be a long time before a substantial share of higher-ed funding rewards performance. As an advocate of the strategy, Indiana's SHEEO, Stan Jones, countered that if new appropriations were applied toward performance funding for a decade, or five budget cycles, the amount involved would comprise roughly one-third of Indiana's public spending on institutions. That's not nearly as much of a stretch as others might believe, and yet it represents a significant departure from the way we do business today.

The questions the group asked were, I think, the right ones: Does this go far enough? Can we do more? … Indiana's team is continuing to debate these issues. But Stan Jones made another important point during that discussion. And that was, if we wait until there's more money, we'll never move ahead. He argued that we should let the funding formula sort winners and losers even when there's very little new state money—or, even if higher-ed funding must be cut.

That dialogue brought another challenge: Is this approach politically sustainable? How do we get buy in?

In the end, the team acknowledged that if you rely solely on funding incentives, these can be undone. The real key to success lies in convincing people that making fundamental, lasting changes in how higher education does business is in the self-interest of the various players involved. That's the message all of us must convey every chance we get. And that's the message I hope all of you will think about as you look to the future of higher education in your states.

Thank you for the opportunity to be here with you today. We at Lumina Foundation are looking forward to strengthening and extending our partnerships with you over the coming years and working together to address the important challenge of significantly increasing the numbers of Americans with high quality postsecondary credentials.