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Can a bold new business model save soaring education costs?By Christina Couch
While the majority of those graduating college this year will spend the next five to 10 years struggling to pay for the average $20,000 in student-loan debt, senior Joy Lekar is financially focused on something bigger. "My husband and I just got preapproved for a house because we have no debt," Lekar says. "We just got married last year and now we're going to have a house. It's awesome."
Hailing from a middle-class background, Lekar chalks up her financial success to one simple fact: She doesn't pay tuition. Neither does her husband nor any of her 1,300-plus classmates. At College of the Ozarks in Point Lookout, Mo., every student is proof that higher education doesn't have to come with a price tag.
One of a handful of "work colleges," -- institutions that require students to incorporate work as part of the educational curriculum -- College of the Ozarks provides full scholarships to all students who make it in, and free room and board as well for every student willing to give up summer break. Students enrolled there jokingly refer to it as "Hard Work U."
Instead of hiring outside contractors to manage school-owned facilities, students attending College of the Ozarks each pitch in 15 to 20 hours per week in positions ranging from computer-lab technician to hog-farm worker and receive a grade for their performance and work ethic. College of the Ozarks president Dr. Jerry Davis says that student labor at the school cuts tuition costs by about 25 percent. The rest is subsidized by the school's $300 million endowment as well as by revenue generated from businesses owned by College of the Ozarks, such as the student-run hotel and conference center.
"Students who don't need to be in debt wind up in debt each year," Davis says. "Institutions are partly to blame. Colleges and universities aren't known for controlling their costs. The government is certainly a problem, too."
Davis point out that allocating more money for loans instead of scholarships and work-study funding means we should not be surprised by the continued rise of tuition and subsequent debt.
Where are other free schools?
As more families scramble for financial aid, schools such as College of the Ozarks beg the question, why aren't more schools free, or at least cheaper? Instead of fine-tuning the financial-aid system, could a different business model reduce student debt faster? That depends, says Ken Redd, director of research and policy analysis for the National Association of College and University Business Officers. While free-tuition models might work for schools with nine-figure endowments, most institutions, especially those that rely on public funds, simply don't have the money.
"While the listed tuition price is expensive, it's still far below the actual cost that institutions bear for educating each student," Redd says. He cites a study by the Washington, D.C.-based think tank The Delta Project showing that among public undergrad institutions, tuition accounts for only 51 percent of each student's total cost. At private schools, it accounts for 65 percent and in both cases, the rest is subsidized by school funds.
"Higher education has to pay the cost for providing new technology to students and faculty, health insurance increases every year, and states are cutting their appropriations," says Redd. "Colleges and universities try to keep costs down, but there's just no other choice than to pass those cuts on to students." Redd adds that while institutions as a whole can certainly do more to control costs through sharing resources with neighboring institutions, pushing more online classes, invoking hiring freezes and directing financial-aid funds to lower- and middle-class families, tuition will still increase, especially as markets continue to tank.
Where education and business meet
Instead of relying solely on an endowment, a possible alternative is to increase the tie between education and business. "You could certainly support a university out of the earnings of a Google or an ExxonMobil," says Dr. George Campbell, president of The Cooper Union, a New York City-based engineering college that offers free tuition for all students.
"If you could get the CEO of one of these companies to say 'OK, we would like to support a higher-education institution,' that could work. Alternately, you could get a higher-education institution to develop a business that would generate enough profit to support the academic infrastructure."
To support its 1,000 students and $50 million yearly operating budget, The Cooper Union takes the latter approach. The school's real-estate holdings include an array of residential and retail outfits throughout New York City, the most famous of which is the Chrysler Building, and generate approximately $23 million to $24 million in rental income each year, roughly half the amount required to fund free tuition for all students. The rest is made up in annual fundraising, which accounts for approximately $22 million each year, and the remainder comes from the school's $607 million endowment.
The problem with applying this business model to other schools is that it requires initial startup funds and then years for universities to build up revenue streams in the millions. It requires a different student mindset.
"Many students from a well-to-do background are looking for a traditional college experience, a pretty campus, a relaxed ivory-tower environment with climbing walls and swimming pools and facilities that we don't have," Campbell says. "We attract kids who need free tuition and that's in part because we're a no-frills kind of college."
Instead of focusing on offering free rides, Dr. Michelle Cooper, president of the Institute for Higher Education Policy, a Washington D.C.-based education think tank, says that schools can get the biggest bang for their buck by turning their funds over to students who need them most. "For students whose families can pay for them to go to college, the free-tuition model is not going to be a good investment," Cooper notes. "Over the next decade, we want to see colleges restrain their costs as much as possible and hold low- and middle-income families harmless from rising tuition costs."
To do that will require a combined effort from everyone involved in the financial-aid process.
"It's not as simple as making a new business model," Cooper says. "There are over 3,000 institutions in this country and they all have unique finance policies. When we peel this onion, we have to think about the federal government's role, the state's role, the institution's role and the family's role."
About the Author
Christina Couch is a freelance education writer and the author of "Virginia Colleges 101: The Ultimate Guide for Students of All Ages." Her work can also be found on aol.com and Yahoo! Finance, and in Entrepreneur magazine and Wired magazine.
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