October 20, 2014
Hi Strategic Planning Committee,
Thanks,
https://www.dropbox.com/s/sam6tk6wt027cls/CCA%20Report%20-%20Pentagon%20on%20Climate%20Change.pdf?dl=0&utm_source=Pentagon+Report&utm_campaign=date+change+and+panel&utm_medium=email
http://securityandsustainabilityforum.org/
October 14, 2014
I write to suggest that the goal of the plan be to maintain Oberlin as “being peculiar in that which is good[1].” In particular, I would urge those participating in the planning exercise to focus in particular on improving the College’s ability to address the problem of economic inequality in this country by increasing social mobility through the education of students from families with low incomes. Oberlin is well poised to consider its strategic alternatives thanks to the outstanding leadership of board Chair Clyde McGregor and President, Marvin Krislov. The education provided by the College and Conservatory continues to meet its historic high standards and the institution’s financial situation is responsible and stable.
I write as both a parent of a recent Oberlin graduate and as an active volunteer for the College, having recently completed a three-year term on the executive board of the Alumni Association. I also spent some time as the CFO of one of Oberlin’s peer schools as its Vice President for Finance and Administration (fully cognizant of the possible reaction to my thoughts here being like those to William Deresiewicz’s recent, and perceptive book, Excellent Sheep, which was accused of sour grapes, as its author had been denied tenure at Yale.[2]).
The reality is that the education provided by Oberlin, like that of its peers, is very expensive. I would like to suggest that this is because, in substantial part, elite institutions of higher education have been able to free themselves from the kind of market forces provided by consumers – and do not experience constraints on costs in a material way.
Like most of its peers, because of its cost structure and it’s limited endowment resources, Oberlin is essentially in the business of educating the children of college graduates – providing access for them to the American upper-middle class. As reported recently in the New York Times (http://www.nytimes.com/2013/
It is essential to note that Oberlin fulfills the educational part of its mission uniquely well. It provides benefits of the quintessential liberal arts education at a very high level to its students. It does so in a singular arts rich environment with the continuation of the tradition of western art music an essential component. At the same time, it preserves an on-campus culture of dedication to social progress in a wide-range of forms. My recent first hand experience with the College is that the education it provides – with an emphasis on intellectual engagement and breadth – is all we would want it to be (in Deresiewicz’s writing, he emphasizes the superiority of liberal arts college education to that of the big, elite universities[3]).
Oberlin reports that more than 80% of its students receive some form of aid from the College. It states that its largest expense is on aid. But looked at from another perspective the College’s budget is only about 60% of the size that it reports, as the other 40% actually discounts from tuition and fees provided to students based on both merit and “need.” That 40% is phantom income that College doesn’t receive from students and their families. While endowment income provides some subsidy to the College’s budget, some could also be said to come from cross-subsidy from full-paying students to those receiving aid. Again, I would venture to guess that the majority of students receiving aid are the children of college graduates whose parents made life choices that they perceive to make it difficult for them to pay the so-called “sticker price.” Given the small number of Oberlin Pell grant recipients, only a small portion of those on aid, I speculate, are the first in their families to go to college. As the College’s Admission Office has acknowledged, Oberlin’s financial aid program’s first priority is providing enough students who can pay enough in tuition and fees to fill its classes and balance its budget. Providing a uniquely high quality liberal arts education to a cadre of well-prepared students is in itself a worthy goal. But it is not the same thing as providing access to higher education to facilitate social mobility to the bright and talented.
There are a large number of strategic initiatives that Oberlin might take on to reduce its cost and make access to an outstanding liberal arts education therefore more broadly available. Many of them are unconventional – some are being done by one or two peer institutions; some are being done by none. Selective colleges tend to measure themselves by their peers and to limit their options to paths chosen by others similarly situated. They are highly resistant to striking out on their own. But in its strategic planning, Oberlin has the opportunity to lead and it’s progressive history and supportive alumni body creates unique, if not peculiar, opportunities. I’ll provide three examples.
1. Eliminate active endowment management. The college could increase the return on its endowment by more than 1% by moving its endowment investments from actively managed funds to a portfolio of low cost index funds, in five or six asset classes, rebalanced regularly. This is a strategy suggested by Yale endowment manager, David Swensen (I recommend his book, Unconventional Success, to everyone with a 401-k or 403-b account).[4]
Investment managers generally charge around 1% of the amount invested as a fee for their services. Hedge funds, and other alternative investment strategies, generally charge twice that, plus 20% of the return over a specified index. In addition Oberlin has created an internal investment office with a full time staff. Index funds charge less then .20% of the amount invested (a fifth of the amount charged by actively managed funds and less than a 10th of what hedge funds charge). Since the economic downturn, Oberlin’s endowment has substantially underperformed the broad market indices and substantially underperformed a model portfolio comprised of rebalanced index funds. So the College has paid experts millions of dollars to do worse than the market. That money could be better used to lower the cost of attending Oberlin.
2. Stop building new buildings. Most selective colleges are educating the same number of students they have for decades, and yet they continue to expand their footprint and build new facilities. This happens because college leaders like to leave a legacy of new structures and because donors like to put their name on buildings. But one way to control the cost of college is stop incurring new debt to build new buildings. It was a priority of no one at the College to build a new stadium with a clubroom including a bar – and yet it do so anyway[5]. What the College needs is to update Phillips Gym; and its leaky pool.
Expanding the College’s physical plant is at odds with its professed desire to lower its carbon emissions. The most energy efficient building you can construct will not re-capture during its useful life the energy used in tearing down its predecessor. The focus should be on maintaining the College’s physical plant in a state of good repair; and increasing its energy efficiency. When there are space needs the College should prioritize the adaptive re-use of existing structures. Lowering Oberlin’s debt service requirements by resisting the need to engage in an “arms race” with its peers and to build monuments to alumni is a sure long-term means of reducing costs.
3. Reduce the College’s payroll costs. This is the third-rail of higher education. Most of the College’s expenses go to salaries and benefits. There are two observations that inform my analysis of this issue. First is that open tenure track faculty positions at Oberlin attract hundreds of applications, at least scores of them qualified. Further down the pipeline, hundreds of prospective graduate students apply for Ph.D. programs in the humanities for a small number of slots. Economics 101 would tell you that if supply exceeds demand, the price of something should go down. But that hasn’t happened in elite higher education. This is not to say that Oberlin’s outstanding faculty shouldn’t be fairly compensated. But it is to say this is a cost that has to be examined if we are truly committed to educational access.
The second fact is that an examination of the balances in the retirement accounts of senior faculty and staff of the College would be deemed by most objective observers to be out of scale with what professionals in the economy receive. These accounts amass amounts in the millions of dollars. Elite college staff also tend to get generous health insurance benefits (beyond what is provided to most other private sector employees) and they tend to get them for life. Faculty and staff also often get generous tuition discounts for their children both at Oberlin and elsewhere (contributing to insulation from the impact on family budgets of the costs of a private college education).
In conversations with senior Oberlin faculty over the years, I have heard them uniformly express that they are over-worked and under compensated. It’s hard to have an honest discussion about these kinds of issues with any group of employees – but in the case of teachers and senior administrators at selective institutions of higher education by any objective measure their pay has been divorced from market forces. Clearly this is a very appealing field in which to work to a very large number of qualified people given the number of applicants both for open jobs and for graduate school places. If we are serious about lowering the cost of higher education, compensation and benefits need to be seriously discussed.[6]
I hope each of these areas are explored and honestly examined by those engaged in College’s strategic planning process. There are many other avenues of expenditure that are susceptible to similar analysis. My personal experience was with an institution (which was far from the best endowed among its peers) of which serious advantage was taken by outside vendors of all sorts and at which the expensive personal preferences of senior staff members were regularly accommodated. These are not expenses around the edges of the enterprise – these are issues that require the serious consideration of structural institutional changes in order to enable these high quality, essential institutions to fulfill their stated missions.
It is indeed wise that President Krislov and Chairman McGregor have chosen this time to engage in a deliberative process of strategic analysis. I would urge those participating in the process to narrow the range of goals to those the community has deemed most important for the institution and to cast a wide net with regard to possible initiatives and strategic options in fulfillment of those objectives.
[1] Derived from Oberlin co-founder John J. Shipherd's phrase in an 1834 letter, "Our Institute and Colony are peculiar in that which is good." Shipherd coined the double entendre on the common alllusion to slavery as a "peculiar institution," and to Oberlin's stance in opposition to slavery on moral grounds.
[2] My article on the pricing of higher education in the Wall Street Journal (http://online.wsj.com/
having met with an e-mail from a former high ranking faculty colleague at that institution saying “with friends like you, who needs enemies.”
[3] http://www.newrepublic.com/
[4] Swensen’s management over the last 20 plus years, by the way, has delivered endowment returns in excess of broad market indices in an amount exceeding by many times the entire amount of money donated to Yale during its history.
[5] I would also suggest that inter-collegiate football is an expense that should be a low priority given the College’s other strengths and values. It is no service to student athletes to field loosing teams, in an expensive sport, that may cause permanent damage to its participants, year after year.
[6] These issues are markedly different at public institutions; which have become increasingly reliant on undercompensated journeyman scholars.
October 3, 2014
A big challenge for Oberlin is to lower the cost of tuition, fees, room & board. I want an initiative to lower those costs from the current amount by 1% per year for five years.
A related challenge is to reduce the non-teaching to faculty ratio.
For-profit corporations keep their costs under control. So can colleges.
-David Nisbet Stewart, composer (B.Mus. 1965)
October 3, 2014
Dear members of the Strategic Planning Committee:
As an alum of Oberlin and employee at another university, I hope that the Strategic Plan includes a road map for strengthening the staff at Oberlin. When my university created their strategic plan five years ago, about 5 pages of the 100 page document was dedicated to staff issues. This include issues round diversity, retention, and recruitment of staff.
Sincerely,
-Curtis Ferguson II
