|
Testimony of Dr. Rolf Wegenke
Committee on Education and the Workforce July 10, 2003 I. I am pleased to have the opportunity to speak to this distinguished committee about the important issue of college costs and about a revolutionary undertaking, the WAICU Collaboration Project, which is a national model showing great promise for actually doing something about college costs. The issue of college costs has been raised not only by the Congress in the 1998 National Commission on the Cost of Higher Education, but also by students and their families. Although it is less frequently publicized, the leadership in higher education is also concerned about college costs. Higher education should not be—or appear to be—defensive about the issue of college costs. Affordable, quality education is a priority for individual citizens, for government, and for educators, and we all must do our part, working together. In fact, when I was elected to the presidency of WAICU in 1992, the presidents of the 20 private colleges and universities who constitute the Board of WAICU charged me to give priority to addressing this issue. This was the genesis of the WAICU Collaboration Project. Before going further, it might be useful to the subcommittee if I would address how colleges and universities—or at least private colleges and universities—view the economics of higher education. Private, or independent, colleges and universities in most states, including Wisconsin, receive no operating support from the taxpayers, but function as a public service for students of every race, creed, and economic status. When the presidents of WAICU-member institutions lie awake at night worrying about the economic future of their college or university, they have essentially three options: (1) they can raise tuition; (2) they can raise more money through private philanthropy; or (3) they can change the way they do business. Despite what many think, raising tuition is a last resort for private colleges and universities. Sixty-five percent of our revenue comes from tuition. If tuition is raised too much, students will be driven to taxpayer-subsidized institutions, and we actually lose money. Securing more private gifts in good times is never easy, but in the current economy is even more problematic. Last year, for the first time in fifteen years, private giving to education actually dropped. So, changing the way we do business is our choice, but this does not mean cuts in instructional quality. We are unwilling to compromise the quality of the educational experience. However, until now, savings on the administrative side of the house have been hindered by the small size which otherwise is our virtue. II. This is the genius of the WAICU Collaboration Project. It controls costs and protects quality. The WAICU Collaboration Project is a comprehensive initiative to perform all administrative support (back office) functions of Wisconsin’s 20 private colleges and universities on a collaborative basis. The objectives are to save money, to improve the quality of services to students, faculty, and staff, and to serve as a national model for controlling college costs. This project moves beyond incrementalism. Never before in history have private colleges and universities considered as extensive a consolidation of functions short of an actual merger. It sends a message to the entire nation that something transformative has taken place. Our project in Wisconsin is modeled on the consolidation of back office functions which has taken place in the banking and other industries. Back office operations for colleges and universities include functions such as health care plans, purchasing, information technology, and financial aid administration. In its 1998 report, the National Commission on the Cost of Higher Education was highly critical of the way higher education operates and recommended that colleges and universities "…conduct efficiency self-reviews to identify cost-saving steps that are relevant to institutional mission and quality improvement… The commission [also] recommends greater institutional and regional cooperation." The seeds of the WAICU Collaboration Project were sown in 1992, when WAICU launched its first collaborative ventures. By the time of the formal launch of the project in 2002, the Association was already managing the WAICU Life and Disability Program, the WAICU Risk Management Program, the WAICU Energy Pool, and the WAICU Study Abroad Collaboration, along with numerous other group purchases, in addition to the WAICU admissions initiatives (Guidance Counselor Workshops, Private College Week, Private College Fairs), and IPEDS coordination. These incremental collaborations have saved hundreds of thousands of dollars for WAICU members and enabled them to extend their reach in ways they could not have done on their own. These incremental efforts also functioned as "confidence builders" for the 20 colleges and universities in Wisconsin. They learned that they could work together and save money without loss of quality or independence and without compromising their unique missions. In 1997, the WAICU Board voted to consider consolidating all back office functions. A feasibility study was conducted by Grant Thornton LLP, funded with support from the Teagle Foundation in New York and additional support from the Lynde and Harry Bradley Foundation of Milwaukee. The study, completed in 2000, estimated that it would take four years of intensive effort at a cost of $4.7 million for these colleges and universities to organize a comprehensive back office collaboration, and that at the end of this period, the project would be self-supporting and annually save between $17 and $46 million for these colleges and universities and their students. The major functions to be performed on a collaborative basis include:
III This collaboration is working. The WAICU Collaboration Project is ahead of schedule and exceeding expectations. WAICU has kept as its priorities the principal drivers of college costs—i.e., the major projects have addressed health care costs, technology, and financial aid. A key component of the costs of a labor-intensive enterprise such as higher education is the cost of employee health insurance. Colleges and universities, like other organizations, are experiencing annual increases of 30 to 60 percent. In its first ten months (not the two years originally projected), WAICU organized a joint self-funded health plan with a net savings potential of $3.4 million below current costs for the first year alone. Nine of WAICU’s 20 members are participating in the first year, and I expect another six to join in the years ahead. The outside funding was used only to cover the organizational costs (actuaries, legal counsel, etc.). Ongoing administrative costs are the responsibility of the participating members. It is important to recognize the amount of effort required in organizing this initiative. Joint health plans cannot be found on the shelf at your local discount store. WAICU staff brought our members together to agree on a common benefits package, select a third-party administrator, rate (price) the coverage, purchase co-insurance, and hire consortium administrators. Between September and January we will enroll faculty and staff. These are huge undertakings. We not only want to save money, we also want to do the right thing—in terms of our moral obligations to our employees, and in terms of the law of the land. In the area of information technology, we are assisting our members to migrate to a common administrative/academic system which would be operated off campus at an application service provider (ASP). There are over 40,000 "decision points" on which we must agree before we can proceed to construct an RFP, select a vendor, and implement a joint system. In conjunction with this project, we expect to hire IT staff who will circuit-ride, literally and virtually, among the colleges and universities. I mention this to illustrate the interconnectedness of the cost drivers of education. Technology is a growing cost, but so is staff (especially IT staff). WAICU expects to have a recommendation on a common system to its members by January 2004, with installation beginning in July of that year. Because negotiations with vendors have not yet begun, the precise level of savings has not yet been calculated, but it is expected to be in the millions of dollars. Student financial aid is the third driver, and the feasibility study for the WAICU Collaboration Project identified administration of federal student aid as a major opportunity for cost savings. Sixty-five percent of the cost of student aid administration at WAICU members is attributable to compliance with federal regulations and meeting federal reporting requirements. There are approximately 7,000 federal regulations related to student aid filling three large file drawers at each college. Participating colleges and universities would retain professional judgment (decision-making authority) and counseling functions. The routine, duplicative functions would be outsourced and consolidated, much as financial institutions have outsourced routine functions to companies such as Metavante and Fiserv. Estimated savings approach $2 million a year. This project is not yet underway because we have not had funding sufficient to undertake a task which, because of the extensive federal regulations, is more complex than either health care or information technology. WAICU has also begun to extend these collaborative opportunities to other states. Again, because these projects are complex and our startup funds are limited, we have not moved as fast as we would have liked to aid the rest of higher education. IV You may well ask why, if we are having such a high level of success, we cannot immediately self-fund the startup costs for collaboration. First, in the current economic climate, our members do not have the discretionary income to invest in complex undertakings for which there may or may not be an immediate payoff. Second, not all WAICU members will participate in every collaborative opportunity; it is not appropriate for one independent college or university to subsidize another. Put another way, self-support means funding of, by, and for the participants. Third, there is the issue of time. Enrollment in the joint health plan will not be completed until January 2004. It will be January 2005 before the savings are realized by the participating colleges and universities. V As I said, we set our priorities for collaboration based on what our feasibility study showed to be our major "cost drivers." What are our "cost drivers?" The first one is the cost of quality faculty. Education—even if "technology-mediated" or online, if done correctly—is labor-intensive. A second driver is technology itself—both administrative information technology and educational technology in our laboratories. The equipping of our science students must not only keep pace with industry; it must, in some ways, exceed it if education is going to undergird the knowledge economy. A third driver is financial aid. Every year, students come to us with more financial need, and every year we provide more privately raised grants to meet that need. In fact, financial aid is one our fastest-growing expenses. In the case of Wisconsin’s 20 private colleges and universities, 94 percent of full-time first-year students receive financial aid, the majority of which is provided by the institutions themselves. During the 2001–2002 academic year, our colleges and universities raised and distributed, on their own, $183 million in grant aid, an increase of almost $17 million from the year before. By way of contrast, federally funded grant aid for our students in the same year totaled slightly more than $23 million. In fact, when you take financial aid into consideration, college costs take on a whole new light. Take the case of the 54,000 students enrolled in my member institutions. The average price for tuition and fees at a Wisconsin private college or university during the 2001–2002 academic year was $16,116. At the same time, the average financial aid package was $12,055, leaving net tuition costs of just $4,061. Nationally, taking into account institutional aid, net tuition at private colleges (a student’s out-of-pocket costs once grant aid is subtracted from an institution’s list price) has actually grown less than the Consumer Price Index (CPI). From 1992–1993 to 1999–2000, private college net tuition increased 17.3 percent, while the CPI grew 18.7 percent. With inflation taken into account, net tuition at private colleges and universities actually dropped during the 1990s. VI WAICU has learned some very important lessons from our ten years of incremental effort and our one year of experience with the more comprehensive WAICU Collaboration Project:
VII As the subcommittee continues to focus on the costs of higher education during reauthorization of the Higher Education Act, I strongly urge that you consider ways to facilitate and encourage collaborative efforts like the WAICU Collaboration Project. I have two recommendations: First, fiscal resources must be provided to enable colleges and universities to work in collaboration and for one collaborative effort to partner with others. Because of the complexity of these undertakings, I can say, without equivocation, that the only way to save money is to invest money. The equivalent of venture capital is essential for collaborative, cost-saving measures to be organized. Second, the subcommittee should continue its commendable efforts to reduce costly regulation and, especially, those regulations that are obstacles to collaboration. WAICU is the Wisconsin Association of Independent Colleges and Universities, a 501(c)(3) corporation organized 43 years ago. WAICU’s mission is to:
|