Author: Ryan Strong
In his 2013 State of the Union address, President Barack Obama made his bluntest call yet for colleges around the country to control the skyrocketing costs of higher education and not to consider his improved student aid program as a license to continue raising administrative costs.
“Taxpayers can’t keep on subsidizing higher and higher and higher costs for higher education. Colleges must do their part to keep costs down, and it’s our job to make sure that they do,” Obama said. “So, tonight, I ask Congress to change the Higher Education Act so that affordability and value are included in determining which colleges receive certain types of federal aid.”
Obama’s administration also released a college scorecard on the Whitehouse website that grades schools by their value and affordability as part of his effort. The report indicates that Occidental has a high tuition cost but high graduation rates and low loan default rates.
Obama’s aggressive and candid campaign to get institutions of higher education to control massive administrative costs and tighten their belts is a direct response to tuition raising multiple percentage points ahead of inflation.
Occidental has hardly been immune from the trend. Two years ago, the college raised tuition and fees by more than 5 percent. That was in addition to a major change of policy that required students to purchase health insurance through the college even if they had their own. Parents were originally told that additional cost would be included in tuition but the college subsequently issued a mea culpa, explaining that it actually meant the separate fee for the health insurance would be conveniently located on the same invoice as tuition to make for easier payment.
Last year, the college promoted its 3.9 percent increase in tuition as a decrease in the rate of increase from previous years. Though a baby step, the increased tuition was just a few decimal points lower than the average for private colleges last year of 4.2 percent, according to the Chronicle of Higher Education and the College Board. Despite the decrease in the rate of increase, full-paying students at Occidental still pay more than $44,000 per year in tuition and fees. While that is significantly more than private four-year institutions on the whole, according to the College Board, it is more consistent with other small private liberal arts institutions.
But the costliness of the published tuition is not the whole story, given Occidental’s commitment to offering financial aid for students. According to W-9 tax documents for the 2010-2011 financial year (roughly coinciding with the academic year), Occidental spends less on its general payroll for staff, most administrators and faculty than peer institutions and more on student scholarships, stipends and other awards.
The college also asserts that a large percentage of its scholarship money comes straight from its operating budget and tuition revenue rather than its relatively low endowment compared to peer institutions. That is unique and puts full-paying students in the role of more directly subsidizing students unable to pay the full amount, so the college can keep its major commitment to diversity and equity. Moreover, the college touts its ranking as a 2013 Kiplinger Top 50 “Best Value,” among other value rankings.
Generally, the college’s rising tuition is attributable to the same trends that are consuming all colleges. Rising health insurance costs and the constant perceived need for more central administrators have eaten up college budgets. In addition, an issue commonly referred to as the “Amenity Wars,” has put more strain on budgets. The issues involves colleges competing to attract top students and faculty not just through excelling academically but also by spending millions of dollars trying to outdo other colleges by offering the largest set of luxuries such as fancy dorm rooms, new athletic facilities and other amenities.
According to Occidental President Jonathan Veitch, the college has stayed away from the amenity wars while investing heavily in updating its campus, citing Swan, Johnson Hall, Johnson Student Center and the yet-to-be funded Academic Commons as examples.
“Like any property owner, we have to maintain and upgrade facilities as time goes on, and we have a 100-year-old campus. We try to be smart with identifying projects that help us in terms of supporting the mission, enhancing the student experience or improving efficiency,” Veitch said. “I think we’ve been thoughtful about finding projects that enhance the Oxy experience but that aren’t frivolous.”
To gauge how Occidental spends its money, The Weekly conducted research using publicly available 2010-2011 W-9 tax documents from Occidental College as well as five other randomly selected institutions from a college-developed list of “peer schools” for comparison. The schools are Dickinson College, Franklin and Marshall College, Pomona College, Macalester College and Union College and the study body size of the colleges was analyzed to ensure they were similar to Occidental’s.
The research shows clearly that Occidental makes less total revenue than its peers (approximately $10 million less), spends more on student scholarships and less on wages, and compares somewhat favorably to other colleges when it comes to basic functional expenses.
Veitch cited numerous examples of administrative cost-cutting at Occidental, including instituting a Position Review Committee that examines all new or vacant non-academic positions and has already cut Vice President positions, negotiating heath insurance premiums and other similar costs, and instituting across the board cuts to non-academic departments.
“Last year, a year-long, campus-wide review focused on cost-cutting measures and strategic planning,” Veitch said. “All non-academic departments had their budgets cut 5 percent to provide seed money for new academic initiatives, rather than relying on tuition revenues.”
The exception to the general trend is the college’s investment management expenses that nearly totaled $4 million in 2010-2011. None of the other five colleges listed spending more money on that than Occidental and only Pomona was in the same ballpark. Pomona, however, has a much larger pot of money that needs managing with its $1.7 billion endowment, which is roughly five times larger than Occidental’s endowment of about $340 million. Dozens of other peer colleges’ investment management fee reports on Form 990s were checked, and Occidental generally compared poorly to those as well. College officials assert that their investment management expenses are normal, though sometimes they may pay a slight premium if they think they are going to get a better investment return.
“Comparing $3,827,929 of investment management expense with total investments of $375,618,824, one can see that we pay approximately 1 percent for management fees. As I understand, this is very common, and I am so surprised that you [the Weekly] have found Oxy to be an outlier with our peers,” Associate Vice President of Finance and Controller Barbara Gillett Valiente said.
The difference in investment management rates between Occidental and its peers may be attributable to differences in how colleges report their expenses on their Form 990 tax document.
The college spends about 5 percent of the endowment each year, or approximately $17 million, to finance student scholarships, professorships and more. That money usually comprises a piece of the endowment’s investment earnings. But, $4 million or nearly a quarter of the $17 million payout goes simply to paying for having the endowment at all.
The similarity of much of the expenses, revenues and other finances between Occidental and its peer institutions is not all that surprising, given that it is common practice among institutions to closely track peers and align with them in many areas – all while trying to search for a niche and a way to distinguish the institution from others at the same time. In fact, according to the Chronicle of Higher Education, the process of peer research is formalized as all colleges are required to submit a list of peer institutions to the Department of Education who studies them and provides feedback to colleges on how they match up.
While that practice has definite upsides, a question must be raised on its potential side effects. Does the intense and detailed alignment of colleges, especially in regard to administrative costs and expenses, reinforce and provide cover for the status quo of high tuition? It is easy for Occidental to justify spending nearly $2 million on its top five administrators combined salaries when other colleges do the same. All officials have to argue is that they will be unable to attract top talent unless they are willing to pay what other colleges offer (or more). Colleges that don’t have that cover have a much harder argument to make.
The question on tightening belts, slashing central administration and cutting other costs becomes: Which college will take the first plunge? And will the others follow or simply stay seated comfortably on their perch with the rest of their peers? Is there a way to make them all move at once – and quickly?
The Association of Governing Boards (AGB) for colleges and universities did a survey in 2012 of 2,500 board members that helped shine some light on the problem. Fifty-five percent of respondents agreed that higher education is too expensive, but 62 percent said the cost of their institution’s tuition is a good value. That seems like an obvious contradiction to observers, especially given the amount of research that is done by the Department of Education and schools themselves to align with other institutions in so many areas. The Executive Vice President of AGB Susan Wheeler Johnston was quoted in the Chronicle of Higher Education arguing that the survey results indicate there is a gap between board members’ public perceptions and their actions in the board room, where they have the final call on tuition rates.
Students leading PIE Week activities, though, point out that even with tuition at is high level, it still does not come close to paying the full cost of an Occidental education. PIE Week, which occurs two-thirds of the way through the year to signify when tuition runs out and contributions from alumni take over, recently ended but the students hope to keep the conversation going about the importance of gifts and contributions from alumni to fund a full Occidental education throughout the year.
“PIE Week is important because it helps educate the student body about the importance of alumni giving,” Assistant Director of Annual Giving Lucy Richardson, who helps coordinate PIE Week activities said. “I think many students don’t realize that everyone receives a ‘silent scholarship’ made possible by the generous support of alumni and parents.”
Tuition rates for the next academic year typically get released some time in the mid to late spring semester. The final decision on the decision made by the Board of Trustees based on the college’s financial position and other information. President Veitch would not give a date for the release of 2013-2014 tuition rates, only saying they would be made available “soon.”
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