“New” Business Models for Higher Education: What, Me Worry?

So I’m listening to Marketplace Money (Sept. 8), and hear host Bob Moon lament that “the lousy economy is causing colleges to keep raising their prices or lowering their quality,” or both. A “vicious, unsustainable cycle–until now.” But here’s commentator Kim Clark with an “example of something done right.”

The something right is Clarkson University’s adaptation of Milton Friedman’s old idea to let some poor students in without tuition, and collect a surcharge on their later earnings instead. Clarkson is admitting a few go-getters, free, “in return for a 10-percent share of their start-ups.” It’s investing in two, this year; next year it will recruit “up to five more teen entrepreneurs”; and still more after that, if these “educational investments” work out. “Imagine if all colleges’ revenues depended on their students’ success,” Clark continues. “The invisible hand of the market would quickly crush diploma mills and party schools. Colleges would realize they couldn’t afford to be soft on do-nothing professors or cheating students.” What a great idea, as Kim Clark puts it, “to align the financial interests of colleges with those of their students.”

Right, I say. Imagine how much better Harvard would have done, had it followed this business model. By giving only two (2!) teen entrepreneurs free rides, in exchange for a 10% share of their startups, Harvard would have cruised through the crash of 2008 with no decline in endowment–a big increase, in fact. Since neither Bill Gates nor Mark Zuckerberg actually needed an education in order to make $billions, the University could have fired all of its do-nothing professors but a few whose jobs would have been to catch and get rid of cheating students. The place would be rolling in dough.

Of course Harvard’s present model for aligning its interests with those of its students isn’t so bad: select a few students (qualified or not) whose families run the world; charge them hefty tuition fees (much higher than $60,000 a year, I recommend); let them party to beat all; collect their multi-million-dollar gifts and estates over many decades; and keep the class system humming along.

Let’s call this the Cabot-Rockefeller business model, and the other one, the Tea Party business model. RT readers: which do you prefer? Which would be best for community colleges? For the University of Phoenix? And what, me worry?

By Richard Ohmann

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