Bigger is better?

Parents Forum
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<p>Continuing the thread on college economic models that was starting to get a little too long and unweildy....</p>

<p>If you want to read a real eye-opener, try this 2001 Discussion Paper on college size, "Grow the College? Why Bigger May be Far from Better". It's written by Prof. Gordon Winston at Williams, part of the on-going Econ department project looking at the economics of higher education.</p>

<p><a href="http://www.williams.edu/wpehe/DPs/DP-60.pdf%5B/url%5D"&gt;http://www.williams.edu/wpehe/DPs/DP-60.pdf&lt;/a&gt;&lt;/p>

<p>Here's a little tease:</p>

<p>
[quote]
...the conclusion that private colleges would be better off if they were bigger is usually 100% wrong.

[/quote]
</p>

<p>The reasoning is that student tuition is such a small component of per student spending that a college can never "make it up on volume". That what counts in marketing a college is the quality of the students. That what determines the quality of the students is the "per student subsidy" from the endowment and what that spending buys (smaller classes, more diversity, nicer campus, etc). And, that, when you add students at a rate faster than the growth of the endowment, you inevitably reduce the size of the per student subsidy.</p>

<p>He also adds that there is only one instance where increasing enrollment will not reduce the short-term quality of the student body. That instance is a situation when the below-average admits (athletic recruits, legacy/development, etc.) are such a high percentage of the student body that the students you are rejecting from the bottom of your applicant pool are actually better than the students you have. At that point, you can raise the average quality of the student body by expanding and, thereby, reducing the percentage of below average admits (assuming you don't also increase your athletic recruiting). However, you will still reduce your per student subsidy and ultimately undermine the attractiveness and prestige of your school.</p>

<p>Enjoy.</p>

2

<p>Interesting article. A few months ago I discussed this issue with David Leebron, president of Rice University. He wants to increase Rice's enrollment, while I disagree with him.</p>

<p>I e-mailed him a link to the article, asking him what his thoughts are on it. I'll let you know what he says.</p>

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<p>I haven't read the link yet. If Rice can cover its variable costs, it is worth adding students.
Edit:
OK, I have read the article. So I would add that it can be worth it to Rice to expand if the quality of the student body doesn't decrease, and the school can cover its variable costs.</p>

<p>I wonder what the Rice president will say.</p>

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<p>That's the problem. You can't cover the variable costs of expansion because your increased tuition revenues are such a small part of the cost per student. The exception would be if your college is operating significantly below capacity. This would generally apply to colleges that are having trouble attracting applicants. Prestige colleges don't have that problem and are usually operating at capacity. Thus, expansion means an automatic decrease in the per student spending and is really a conscious decision to reduce the quality of the product.</p>

<p>Rice probably falls into the athletic example I gave. Because they try to compete in Div I, they have one of the highest percentages of below-average admits relative to their peers and that number is fixed unless they change the priority on athletics. This problem is particularly acute for Rice because their athletics are increasingly uncompetitive. Football, in particular, is in a downward spiral because they simply lack the enrollment to compete. Yet, they must maintain their super-high quality student body in order to market the school as it is currently positioned. The only way they can enroll even worse students to make their athletic teams more competitive AND maintain the academic standards essential to prestige is to increase enrollment, even though that may not be a financially sound decision.</p>

<p>In a very real sense, Rice faces the same conundrum that Swarthmore faced a couple of years back. In order to keep playing football, Swat would have needed to increase its enrollment or lower the quality of its student body. Either decision would have had serious negative consequences, both finanically and in marketing in the "prestige" sector. Unfortunately for Rice, they probably don't have the same options Swarthmore had.</p>

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<p>Here's an example of the variable cost problem. I'll use Swat's numbers just because I know them, but the math is the same.</p>

<p>Swat has a student to faculty ratio of 8:1. So to increase enrollment by 8 students and maintain the same quality, they have to hire an additional professor.</p>

<p>An average Swat professor makes just under $140,000 per year. Just to make the math easy, let's say that by the time you add in the cost of sabbaticals, an office, addtional secretarial help, professional association fees, travel, etc, the real cost of a new professor is $160,000 per year.</p>

<p>That is an increased cost for each of Swat's brand-spanking new 8 students of $20,000 per year. That's before we even talk about adding eight dorm rooms, another table in the new wing of the dining hall, another bench in the science lab, the library expansion, another adcom, more resources for the health center, dean's office, campus security, etc. </p>

<p>But wait, Swat only gets $17,000 per student in tuition revenue. So, even before all that, we've already lost $3000 per year for each of our new students, just from hiring one professor!</p>

<p>Now, the increase in endowment is sufficient to cover 8 more students (or whatever the number is) annually on an ongoing basis. But, if we are talking a signficant enrollment increase -- say, if Swat went from 1500 to 1800 students -- there is no way. The per student spending (which is the sole determining factor of quality in an economic sense) has to immediately decline and the only real rationale for recovery is betting that those additional students will make sizeable contributions to the endowment 20 years down the road.</p>

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<p>It works if Swat charges more than $20,000+.
The new students are going to have to be full payers. This might be unacceptable.
If Swat can break even by adding new students, there should be a payoff down the road with increases in alumni giving.</p>

<p>I'm not saying this is the way SWAT should go, but a school like Rice may be able to expand and not hurt the school. Some of the reasons why are mentioned by you above.</p>

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<p>According to the Chronicle of Higher Education, a full professor at Swarthmore made about $105k. Given that not all profs are full, the average Swat prof would not make $140k. This figure is more plausible if you factor in benefits, which amount to about 40% of the salary. </p>

<p>Still, I agree with the general argument. As well, increasing the student size, even if all costs were recouped, would change the character of the student experience.</p>

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<p>Actually, the average base salary this year for full tenured professors is $114,000. The average for all full-time faculty inc. tenure-track and assistant profs is $92,000. But, I don't think that includes benefits.</p>

<p>For example, Swat professors get a paid semester sabattical for every six they teach.</p>

<p>My $160,000 number may be a little high. But, in any case, the incremental tuition from eight students would, at best, barely cover the costs associated with one average full-time professor. You might come out slightly ahead for a few years, but eventually your new hire is going to come up for tenure. Or, you could cover it by hiring part-time profs, but that is viewed by the prestige customer-base as a reduction in quality.</p>

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<p>IDad:</p>

<p>Could you provide the source? The CHE gives different figures for 2003-2004. Assistant profs salaries are listed at $60.4k, which is still high by most colleges. Since assistant profs can only stay at that level for 4-5 years, it somehow seems unlikely to me that they could jump to 92k. Associate profs at Swarthmore are listed as eaning $76k. This is the level where most profs will end up for the rest of their career.<br>
Professors's salaries at universities with professional schools are inflated by the salaries profs can command at these schools. In other words, a Prof of English does not earn as much as a Prof of Law unless s/he is a star.</p>

<p><a href="http://chronicle.com/stats/aaup/aaupresults.php?Year=2004&State_Type=Pa.&Category_type=IIB&Sort=&Unranked=0&limit=-1%5B/url%5D"&gt;http://chronicle.com/stats/aaup/aaupresults.php?Year=2004&State_Type=Pa.&Category_type=IIB&Sort=&Unranked=0&limit=-1&lt;/a&gt;&lt;/p>

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<p>
[quote]
The new students are going to have to be full payers.

[/quote]
</p>

<p>Ah, but now Swat's diversity falls and luxury-segment buyers value diversity, so it's harder to attract full-fare customers. On top of the fact, that the need-based aid policy means that we are already losing some of our wealthier customers to merit-aid schools. </p>

<p>We might be able to generate revenue by changing our need-based aid policy. For every Pell Grant type student we cut loose, we could offer two or three wealthy high-stat kids $10k each and make them Garnett Tide Scholars. That would probably keep the SATs up high enough to maintain the USNEWS ranking and incrementally increase our revenues. Diversity would take a hit which would change the character of the school and hurt us with the really wealthy customers.</p>

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<p>Marite:</p>

<p>Sure, here's the source, from Swat's Institutional Research department:</p>

<p><a href="http://www.swarthmore.edu/Admin/institutional_research/FacSals.pdf%5B/url%5D"&gt;http://www.swarthmore.edu/Admin/institutional_research/FacSals.pdf&lt;/a&gt;&lt;/p>

<p>The discrepancy is that the number I gave is the 2004-2005 number. The numbers you cite are the correct figures for 2003-04. </p>

<p>The $92 k is the average for ALL full-time professors, including full, associate, and assistant. Swat must have a high percentage of full professors to bring the average up to that number. That actually makes sense. Being a tenured prof at a joint like Swarthmore is a great gig and they probably don't lose too many before retirement.</p>

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<p>Marite:</p>

<p>Here's the other link of interest:</p>

<p><a href="http://www.swarthmore.edu/Admin/institutional_research/faculty.pdf%5B/url%5D"&gt;http://www.swarthmore.edu/Admin/institutional_research/faculty.pdf&lt;/a&gt;&lt;/p>

<p>This one give the headcount breakdown for the faculty. For example, 82% of the tenure-track profs are tenured.</p>

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<p>The only problem with Gordon Winston's analysis is that it is wrong, and he would know it by simply looking at his own institution. Williams is a far better place at 1,900 students than it was at 1,200. More depth in the curriculum, more breadth (new offerings like studio art, and majorly expanded music, theatre, and dance), a wider range of student interests. Same is true at Wesleyan, Wellesley, Amherst, Smith, Mt. Holyoke, Grinnell, and a host of others. The fixed costs are spread over a larger number of students. The character and quality of the institutions improve - more room for international students, more room for older students, more possibility for oddballs to find their niches. The larger departments mean fewer are crippled by sabbaticals, or unexpected departures. The larger size in a generation also means a much larger developmental base of loyal alumni. Endowments expand.</p>

<p>But, reading him more carefully, Winston is right. "Economies of scale run out at pretty small enrollments." Looking at his own examples, it's probably at around 2,500 to 3,000. As he noted - "in very special crircumstances -- such as extravagant wealth -- it can make good economic sense." (page 8) All the schools cited above (as well as Swarthmore) fall well into this category.</p>

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<p>Thanks., Idad. I am not surprised about the proportion of tenured profs. Many were probably hired in the late 60s. They were expected to retire and make way for younger faculty but lifting the retirement age has made this impossible. I once met a prof whose department had only one non-tenured person. This meant that no matter how stellar the non-tenured person was, s/he could not get tenured as the department wanted to have a modicum of flexibility!
Still, it would appear that Swarthmore has a higher proportion of full profs than of associate profs with tenure, hence the $92k average.</p>

<p>But your general argument about the costs of enlarging the student body while maintaining the faculty ratio, housing arrangements, labs, and other amenities that attracted students to begin with is very valid. And spots in HYPSM and top LACs will continue to be scarce commodities.</p>

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<p>
[quote]
The only problem with Gordon Winston's analysis is that it is wrong, and he would know it by simply looking at his own institution.

[/quote]
</p>

<p>I'm not at all sure that Winston would agree. In fact, in his 1994 economic comparison of Williams, Swarthmore, Amherst, and Wellesley, he says:</p>

<p>
[quote]
It’s useful to note that Swarthmore’s carefully disciplined size -- keeping its total enrollment below 1300 students despite the considerable temptations to grow -- is important to its very good performance. Swarthmore has been able to spend more per student than the other three schools yet its small size has increased the per student impact of its fixed gift and asset earnings to give it an even higher income base. What its small size costs it in lost tuition income is more than made up in increased asset and gift income per student -- the magic of reducing the denominator. Williams’ tendency to let its enrollment drift slowly up over the years has cost it in its ability to perform economically.

[/quote]
</p>

<p><a href="http://www.williams.edu/wpehe/DPs/DP-28.pdf%5B/url%5D"&gt;http://www.williams.edu/wpehe/DPs/DP-28.pdf&lt;/a&gt;&lt;/p>

<p>I also do not believe that the Williams faculty believes the quality of the school has increased with size. Quite the contrary. The faculty surveyed in the athletics report clearly believes that the average "intellectual" climate is not what they would prefer to see. This is also echoed by Prof. Sam Crane who posts on ephblog. I'm not sure the Trustees even think the college has improved. It was the Trustees that called a special meeting after last year's homecoming and told Shapiro, "this is NOT the Williams we want to see.." and they weren't talking about too much emphasis on intellectual pursuits!</p>

<p>Finally, a 1999 report done by a Williams Provost shows that the percentage of Williams grads earning advanced degrees (of virtually all types except MBA) has declined since the 1970s when the college began to grow at a rapid rate.</p>

<p><a href="http://www.williams.edu/admin/provost/ir/alumnigraddegree.html%5B/url%5D"&gt;http://www.williams.edu/admin/provost/ir/alumnigraddegree.html&lt;/a&gt;&lt;/p>

<p>To be sure, Williams offers more courses in more subjects to more students than it once did. And, because it has an inordinately high endowment, it has been able to handle enrollment growth better than most. But, I believe that Winston would view Williams' growth as having some costs associated with it, both from an economic model and from a "quality" standpoint, such as larger class sizes.</p>

<p>It doesn't matter because other papers in the "Morty Boys" series indicate that Williams is not trying to cater to the "intellectual/academic/progressive" market that, for example, a Swarthmore serves. Rather, it sees its market niche as the "competitive/income achievement" student, more business oriented -- more in competition with, for example, a Duke. In many ways, the intellectual/academic admits at Williams are there to create the prestige necessary to attract their core customer base and to offset the fixed number of low-stat admits required to be the Div III powerhouse. In other words, if Williams reduced their enrollment with the same fixed number of athletic slots, their median stats would decline. </p>

<p>It would be interesting to hear what Morty says. I was surprised to see that Williams' enrollment has actually declined slightly in recent years. Given the applicant pool, I have to assume this probably didn't happen by accident.</p>

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<p>BTW, Williams is also able to handle the growth because they have enormous annual giving and because they strictly limit the number of financial aid students, to higher degree than their competitors.</p>

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<p>Well, I guess Winston didn't mean Swarthmore when he talks about "extravagant wealth"? Whom, then, was he referring to? The lack of growth has left Swarthmore well behind "the competition" that grew in offering a balanced academic experience - from music, to foreign languages, to theatre, to creative writing, to art, to dance. They can make up for some of this by providing good resources for small departments in some instances (and they do!), but they can't make up for the lack of a core of students for whom they are a passion.</p>

<p>Swarthmore is a great, great school, don't get me wrong, but they've sacrificed a lot in my view for their rather narrow take of what a college education is all about. (And if you look back to the 60s, the school didn't use to be this way.) There are students of course who enjoy the fetish of being known as attending the school where students never stop studying (whether its true or not, or whether more so than a dozen other places, I would have no idea - you'd know a lot better than I. But if it isn't true, why do they revel in it?). I think it is terrific for those who like that idea. To me, and to the vast majority of talented, intelligent, creative students, that's more of a slam than something to be particularly proud of.</p>

<p>But that's why there is a market!</p>

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<p>How do you know that they are trying to limit the number of financial aid students??? Does the college admit a lower percntage of financial aid applicants or are fewer financial aid applicants applying?</p>

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<p>P.s. (I tried to add this to my last message)</p>

<p>We often forget that the vast majority of students do not go on to graduate or professional school - or at least not immediately. For many, college is the capstone educational experience (even if they do go on to further study, it is then pre-professional training.) The overall quality of these four years, for most liberal arts students, is what really counts. I would hate to have most of four years be spent in the library (and I do have all those extra degrees.)</p>

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<p>Princeton.</p>

<p>The three cases he talked about were:</p>

<p>Middlebury: expanding enrollment to bump their stats around their fixed cohort of low-stat students (mostly athletes).</p>

<p>Chicago: expanding to bump their enrollment of future big donors around their fixed cohort of high-stat nerds. Winston clearly doesn't think much of this strategy, wondering how they can maintain their academic market position in the mean time with signficantly reduced per student spending.</p>

<p>Princeton: expanding because they have more per student endowment money than they know what to do with -- the highest in the country. Winston's attitude towards this one seems to be, "what the hell, they've got the money."</p>

<p>BTW, Morty must believe that Winston is right. Williams has fewer students today than it did 12 years ago. Given that the natural rise in endowment allows gradual growth without impacting per student spending, this amounts to signifcant downsizing of the school in "students adjusted for inflation" over the last decade.</p>

<p>Swarthmore has actually grown quite a bit over that period of time: from 1300 to 1500 students. However, I think that this is "making up" for a period of time when they had zero growth. They were at full capacity and had to bring the student center, the Lang Performing Arts Center, the Kohlberg academic building, the new Science Center, and the new Alice Paul dorm on line to accomodate their normal growth. </p>

<p>Their growth has been a ruler flat line averaging 11 additional students per year since they opened their doors. In their most recent land use plan, the working assumption is that the linear growth rate will continue. Enrollment was held flat over the last three or four years (housing crunch). With the new dorm now on-line and renovations to the Parrish dorm almost complete, they are hoping to increase the size of the freshman class by 15 students this year. Most likely they'll get there since they increased ED acceptances by about 15 (as you say, these adcoms are professionals!)</p>

<p>Swarthmore's growth and Williams' inflation adjusted contraction have put their per student endowments back in concert. Swarthmore's is now just a tick higher compared to 10 years ago when it was quite a bit higher. It's all in the denominator.</p>

<p>All of this would be a lot more fun if you could isolate the undergrad endowments and spending at the universities. For the most part, their per student spending on undergrads is much lower than the top LACs. But, that's intuitive. I mean we all pretty much know that a lecture class of 100 is lower "quality" than 12 kids in a seminar. That doesn't take a rocket scientist to figure out. But, all of the statistical measures like student:faculty ratios and undergrad spending are so buried in the noise of the grad schools that they get a free pass.</p>