The value of a college degree is widely acknowledged in the United States: 20 million students attend our 5,100 schools of higher learning. Per the Bureau of Labor Statistics, a college grad can expect to earn 1.7 to 2.7 times the lifetime income of a student who finished high school and entered the workforce. A college degree provides higher employment security. In 2012, the unemployment rate for college grads was 4.5 percent vs. 8.3 percent for those with high school diplomas. A February 2014 Pew Research survey found that 9 out of 10 people with college degrees believe the investment has paid off or will.
For the majority, a college degree appears to be a worthwhile investment, but how much is too much? And what happens if a degree is priced out of the reach? The facts and trends are alarming:
- Since 1985, the price of higher education has increased 538 percent vs. medical costs (+286 percent) and the consumer price index (+121 percent). Stated differently, annual tuition increases have been 7.4 percent more than health care (5.8 percent) housing (4.3 percent) and family income (3.8 percent).
- Last year, students and families paid $154 billion in tuition and fees to attend college. Sixty percent borrowed $106 billion to help pay their bills. In the end, 38 percent enrolled in four-year degree programs and 21 percent in two-year degree programs will not graduate on time. One in seven with student loan debt will be delinquent on their debt, and student loan indebtedness, now at $1.13 trillion, will shortcut household discretionary spending that otherwise might be injected into our economy.
- From 2010 to 2012 enrollment at 25 percent of private four-year colleges and universities declined 10 percent or more vs. 20 percent for the period from 2006 to 2009. To replace traditional students, adult programs and nondegree classes have taken their places.
- And incomes for college grads have stagnated for the past 12 years.
Sticker shock is an emerging issue in higher education. While some of the elite private institutions are able to command higher tuition and fees, most institutions face growing pushback from legislators, employers and students who see tuition hikes as menacing. And as cheaper alternatives appear — online programs, competency-based customized curricula, accelerated degree programs et al. — the traditional players are being forced to adapt. Consider the value proposition of Western Governors University in Salt Lake City: A bachelor's degree in 3.1 years from an accredited university for $19,000 total. Test scores for grads and job placement meet or exceed the majority of traditional schools with whom they compete.
Higher education and hospitals are kin: Both operate institutions that anchor communities. Both depend heavily on their brands and shun attention to their prices. Both employ high-cost talent. Both are experiencing increased overhead and operating costs that can't be passed through in prices and are increasingly dependent on nontraditional revenue sources. Both cater to affinity groups with whom they're connected —alumni, friends, community leaders, and family — and depend on unrestricted gifts from donors for major capital projects. Both depend on cash flow to stay afloat and acquire modern technologies as well as maintain facilities. Both discount their work to accommodate specific needs and groups, and both are expensive. Independent websites like Payscale.com, CollegeRiskReport.com, CollegeRealityCheck.com and others are enabling comparisons akin to HealthGrades, CMS Hospital Compare and others. The bright light of transparency is targeting both sectors.
Granted, there are big differences between higher education and hospitals:
- Higher education is optional to most consumers; health care use is not optional, though health insurance is. Everyone's a user of the health system.
- Higher education uses a B2C operating model. Colleges and universities target prospective students and their families. By contrast, health care operates in a B2B world. Consumers play a lesser role in deciding which drugs and devices are used and have nominal influence on prices and the quality of service delivery.
- Higher education is largely self-governed; health care is more heavily regulated at the state and federal levels.
But there are more similarities than differences. And for both, the status quo is no longer a viable option for their futures.
I have spent more than $450,000 educating my children in public and private undergraduate and graduate programs through the years. As a parent, it's an investment we gladly make no matter the sacrifices made. But sometimes I ask myself how much I might have saved and whether I could have spent less and gotten more.
Sticker shock is hitting colleges and hospitals. It sparks anxiety among incumbents doing business in traditional ways and prompts opportunistic success among disruptors not fearful of change. The stiffest competition facing colleges and hospitals comes from the disruptors who operate by their own set of rules. They break rules set by incumbents. They don't worship sacred cows. They're nimble. And they're gaining ground lost by those married to their traditions.
While hospitals are competing head to head, CVS is promoting its health programs and care management services. Cardinal Health, a major drug distributor is launching Cardinal Health at Home. And Microsoft is advertising its cloud solutions that enable geneticists to decode the secret to cancer detection. They're among the growing array of disruptors who, like Western Governors University, see opportunity in the midst of the pressures to demonstrate value.
The parallels between hospitals and institutions of higher learning are uncanny. There will be winners and losers in both sectors, but the best bets will be those not paralyzed by their prior successes. They're the organizations that disavow the excuse "we never did it that way before" and plot their strategy without fear of ruffling a few feathers.
Paul H. Keckley, Ph.D., a health economist and expert on U.S. health reform, is managing director at the Navigant Center for Healthcare Research and Policy Analysis. His H&HN Daily column appears the first Monday of every month. He is a member of Health Forum's Speakers Express. For speaking opportunities, contact Laura Woodburn.