Understanding the Economics of Education

💰 🧮 💸 🎓 A common refrain I hear when talking to college and university trustees: budgets in higher ed are unlike anything in the business world. How colleges make and spend money remains mysterious even to those who've spent their careers in higher education. That's why in the latest installment of the Higher Ed 101 series on the Future U Podcast, Michael Horn and I took a deep dive into college budgeting with Rick Staisloff, a former college CFO and founder of RPK Group. Whether you're a board member, college professor, or tuition-paying parent, this episode offers valuable insights into college budgeting—what works and what doesn't. My three takeaways: 1️⃣ College budget buckets are too large. Most institutions don't really know where they're making money or where they're spending it. "We have to get into unit cost to really understand the financial health of an institution," Staisloff told us. Most colleges don't know how much it costs to graduate a biology major versus an English major, for instance. When enrollment was growing and public funding flowed freely, this approach probably wasn't fiscally responsible but it functioned. Now, when institutions need to be strategic, leaders need greater insight into resource allocation—otherwise they're moving pennies instead of dollars. In other words: show me where you spend your money, and I'll show you what you value. 2️⃣ The lack of transparency leads to lack of accountability. While colleges might set enrollment goals, their leaders often don't know what financial targets they should be hitting. "I'm always struck at the institutions we work with at how seldom deans, chairs, budget unit heads are given a clear sense of what good looks like and what they're supposed to be achieving," Staisloff explained. 3️⃣ It's business intelligence, stupid. My biggest takeaway: how little higher ed leaders know about their business. Part of this is cultural—campuses resist discussing ROI of individual programs. Part is technological—colleges have underinvested in ERP systems, leaving them flying blind in financial forecasting. This becomes increasingly problematic as we face an enrollment cliff and federal funding uncertainty. 🎧 Listen to the full episode here: https://lnkd.in/e8zV_PSy 📺 Watch highlights of this episode as well as select full episodes on our YouTube channel: https://lnkd.in/dRRBvpiR I'm biased, but this episode should be required listening for new board members:

Just so we’re clear: international students aren’t draining the system — they’re funding it. In the 2023-2024 academic year, over 1.1 million international students contributed a record-breaking $43.8 billion to the U.S. economy and supported more than 378,000 jobs. Source: NAFSA At public universities, #InternationalStudents often pay 2-3x more in tuition than domestic students, with zero access to federal aid. That revenue doesn’t just sit in a vault. It helps keep tuition lower for in-state students, fund domestics student scholarships, and sustain campus operations. Source: Business Insider, Reuters So no, they’re not just “visitors.” They’re economic contributors, cultural assets, and critical to the future of higher education. Let’s stop the narrative that they’re “taking and start acknowledging what international students are giving. #theBOLDjourney

There are so many indicators like Ricardo Azziz writes about here that strongly suggest a demographic pattern that cannot support the current number of colleges and college seats. No reasonable person can look at all of the data and suggest the future is bright for the current higher education model. Yet, we continue to see college after college (mostly private) unwilling to do what every other industry has done: consolidate. Industries that have been through materially significant consolidation in the form of closures, mergers, and acquisitions included airlines, restaurants, car rentals, hotels, banks, hospitals, agriculture, telecommunications, media, and many more. Higher education leaders who ignore this market and economic reality are doing a disservice to their students, faculty, staff, and communities. Sadly, it is too late for many colleges. Their operational and enrollment data suggests financial doom is only a function of time. However, opportunities exist for those private and public colleges that still have assets available. Their runway for survival and even growth is long enough -- if they act sooner rather than later. Some will. Some won't. For those that will, scale on both the cost and revenue sides of the business is critical. Mom and pop mergers of 2 colleges will not generate enough cost nor revenue to scale. Those looking to consolidate should think big. 5-10 or more colleges coming together.

“Thank you for your interest in working with my group. Unfortunately, I don't have any openings now or in the foreseeable future. I wish you the best as you go forward in your career.” I’ve written this email in response to #postdoc seekers at least two dozen times this week alone. So have my colleagues. It’s not because we don’t want to hire these amazing postdocs. It’s because our funding has been decimated. You’ve seen the waves of posts of prospective #PhD students who had their offers withdrawn as the US government capriciously cut funding as part of the current administration’s war on higher education. The consequences of these actions are much greater than hurting us academics. I’ve had three calls this week from equipment vendors trying to get me to upgrade or buy new equipment. If we’re cutting student lines, how could we afford to buy equipment now? Who is going to use said equipment? For those who gleefully think they’re winning this war on #science and #highered, the consequences could be disastrous. Cuts in science funding will cause: 1. Economic Decline and Job Losses Innovation Slowdown: Federal funding fuels basic science, which underpins technological innovation. Without it, the pipeline of new technologies—from medical devices to clean energy—slows dramatically  Local Economies Hit: Research universities contribute billions to local economies. For example, UC Davis alone generates around $2 billion in economic activity and supports nearly 10,000 jobs. Cuts could lead to job losses and reduced economic vitality 2. Loss of Global Competitiveness The U.S. has historically led the world in science and technology due to robust federal investment. Reducing this support risks ceding leadership to other nations that continue to invest heavily in R&D 3. Stifled Medical and Scientific Breakthroughs Research into diseases, public health, and emerging technologies often begins with federally funded basic science. Without this foundation, life-saving discoveries may be delayed or never realized 4. Brain Drain and Talent Loss Young scientists and researchers may seek opportunities abroad or leave academia altogether if funding dries up. This weakens the talent pipeline and reduces the nation's capacity for innovation 5. Undermining Education and Equity Many research grants support graduate students and early-career researchers. Cuts disproportionately affect underrepresented groups who rely on these opportunities to enter STEM fields, exacerbating inequality 6. Long-Term National Security Risks Scientific research contributes to national defense, cybersecurity, and pandemic preparedness. Undermining this work could leave the country more vulnerable to future crises 

If the Goal Is Jobs and Trade, Make it About Jobs and Trade When a nation sets out to rebalance its economy — to reduce dependence on foreign manufacturing, strengthen domestic industry, and bring jobs back home — it can come with economic sacrifice. We’ve seen that. Markets react. Supply chains have to be reconfigured. Consumers pay more and feel the pain. But it’s all framed - if one belives in it - around a long-term objective: improving our trade balance and creating durable American jobs. So what happens when, at the same time that we say we’re trying to improve our trade balance, we start weakening one of our strongest exports? That’s the question we need to ask as we watch efforts unfold to restrict international student enrollment at some of America’s top universities. ⸻ The Hidden Export: Higher Education Education may not be sent overseas in shrink-wrapped boxes, but make no mistake — it’s one of our most powerful exports. When a student from abroad comes to the U.S., pays tuition, and spends on housing, food, healthcare, technology and travel, that’s foreign capital flowing directly into our economy. And it’s counted in our national trade balance — as a service export. At institutions like Harvard, thousands of international students pay roughly $90,000 per year. Multiply that by four years, and the total direct economic impact is over $1.25 billion from a single institution. Now expand that nationally. The result? A $40+ billion annual export sector that supports more than 300,000 U.S. jobs. ⸻ And Here’s What Most People Miss: International students don’t receive federal aid. TThey frequently pay full tuition, often upfront. And those dollars help subsidize the education of American students. There so many meaningful non-financial benefits too, but we’ll leave that for another time. At many institutions — elite and public — international students offset fixed costs, reduce the burden on U.S. families, and in some cases, help keep tuition flat for in-state students. Take them away, and either tuition rises for Americans, or cuts hit faculty, research, and student services. ⸻ So What Happens If We Shut That Down? If we remove even a portion of these students — say, by revoking the ability of certain schools to enroll them — the results are clear: • Exports go down • Jobs go away • American student costs go up • Our innovation pipeline slows • And communities across the country lose millions These actions are then in direct misalignment with a broader agenda focused on rebuilding American competitiveness, reinvigorating job creation, and shrinking the trade deficit. Targeting universities that are among our most successful exporters undermines that very goal. It doesn’t help the trade balance. It doesn’t create jobs. And it doesn’t make tuition more affordable for U.S. families. If the stated mission is jobs, growth, and national strength, then stick with the plan.

The Real Crisis in Higher Education: Faculty and staff can’t afford to live, and students can’t afford to learn. Both are true, at the same time. I’ll say it again: Both are true, at the same time, and miss the point. Faculty and staff—positions that often require graduate degrees—are frequently paid around $40,000 a year. Adjunct faculty often teach at multiple schools, struggling to piece together health care benefits. Meanwhile, the sticker price of tuition for students can exceed $65,000 annually, before factoring in housing, food, books, and childcare. Graduate programs can run into the hundreds of thousands of dollars. Some might argue that low faculty pay and high tuition are driven by the pay of senior leaders or debt. But if you look at institutions’ 990s or public disclosures, executive pay and debt almost always accounts for less than 2% of total expenses. Even eliminating both wouldn’t significantly impact faculty salaries or tuition costs. I’m not saying leadership pay or debt shouldn’t be scrutinized, but after nearly 20 years in higher ed, I’ve heard too many simplistic arguments about why the sector isn’t adapting to meet the current and future needs of our communities. I’m continuing to make the bet: The decisions we make now about embracing complexity to solve this and investing in the people who work within our institutions will have the largest impact on higher education over the next two decades.

Over half of the 1,600 NSF grants abruptly terminated this year targeted STEM education—yanking $773 million from America's talent pipeline overnight. With NSF awards now at their slowest rate since 1990, we're idling our innovation engine just as global competitors hit the gas. One stroke of a pen erased 1,000 Graduate Research Fellowships—a generation of scientists lost. Critical programs like undergraduate research internship programs have been slashed by ~75%, closing doors to future STEM careers. Yet STEM fields drive nearly 40%+ of U.S. GDP, powering our highest-paying jobs and strongest growth. Economists warn these cuts could damage our economy on the scale of a major recession. Worse, we're undermining our national security in crucial fields like AI and quantum computing precisely when we must accelerate. This isn't penny-pinching; it's unilateral technological disarmament. Countries like China are building the world's largest scientific workforce. Indeed, competitors abroad aren’t pausing; they're sprinting toward technological leadership. Talent is everywhere in America, but opportunity isn't. America must either invest boldly in STEM for all Americans everywhere or cede global leadership. Let's reverse these NSF EDU cuts now and recommit to innovation, economic prosperity, and our nation’s future.

Another paper on patterns that predict financial decline in higher ed. This one focuses on “cross-sector risk dynamics”, and even I will admit it’s a little nerdy. Seven of these dynamics show up in publics and privates, and together provide early warning signs of financial decline. Each dynamic is described: why it matters, how you know it's happening, and measures to watch out for. I’ve also included levers to manage associated risks. However, these are intended to be indicative rather than exhaustive. Naturally, the right lever(s) will align with an institution’s distinctive needs and its culture, context, capabilities, approach to shared governance, etc. Because risks tend to “stack” (one adding to another) or “cascade” (one causing another), the paper introduces “red‑flag combinations” (two or more signals that, together, materially increase overall risk) and “amplifiers” (structural conditions like high fixed costs) that make downturns steeper or faster once they start. Some measures of academic programs (think degrees and majors within degrees) may be new to you. I analyze programs by degree and six-digit CIP by - productivity (annual credentials per program), - efficiency (expenditure per credential and expenditure per program), and - concentration It’s the concentration stuff that may be new, and shout out to Laurie Bernotsky, DPhil, MPhil, M.A. and Chris Fiorentino for exceptionally strong work on this topic and for introducing me to its significance I look at the percent of credentials produced in the top 5 programs at each institution, and create a concentration sprawl index – CSI – which is basically a measure of entropy that determines how evenly or not credentialing productivity is spread across a program array. By combining CSI with Top 5 share, and comparing an institution’s data with its peer group, you can get a sense of whether a program is - sprawling and thus costly to maintain (here the majority of credentials are produced by a small number of programs, leaving the rest very thinly populated) or - monocultural – focusing intensively on a small number of programs and thus rigidly unresponsive to changes in market demand. As you'll see here and in the forthcoming paper on “risk archetypes”, the configuration of the program array is powerfully predictive of an institution's overall financial risk. And trust me, I understand full well that the levers available to manage risks are super hard to pull. Still, the data suggest the alternative – not pulling those levers – is far worse. Finally, I want to thank those of you who have offered feedback on the work since its inception. Along the way, I have had inquiries from board members asking for materials they can use as guidance to the kinds of issues and data they should be paying attention to, and the questions they should be asking. I hope this paper, along with the others that follow in this series, goes some way in addressing their needs. As ever, enjoy.

🚨 Africa’s Biggest Development Gap Isn’t What You Think 🚨 We talk about foreign investments, infrastructure, industrialization—but no country in history has developed without one critical element: a massive, well-structured education system that actually prepares its people for the future. And no, I’m not talking about just basic education. I’m talking about an education system that drives innovation, fosters critical thinking, and equips people with real-world skills that match market demands. Look at the data—countries with highly educated populations are also the most developed economies. It’s not a coincidence. Education fuels political stability, economic growth, and innovation. Yet, most African nations have failed to build a system that truly prepares people for the modern world. Instead, we’re: ❌ Teaching outdated curricula that don’t match job market needs. ❌ Producing graduates who struggle to find employment in industries that don’t exist. ❌ Failing to develop critical thinking, which is essential for a healthy political system and governance. Meanwhile, the world is racing ahead in AI, robotics, digital infrastructure, and deep tech, and Africa is still talking about basic literacy and relying on foreign expertise for everything. How can we build world-class economies when our education system isn’t even preparing people to compete? 💡 It’s time we stop treating education as an afterthought and start seeing it as THE foundation for Africa’s development. If we don’t fix this now, we will always be consumers of other people’s innovations instead of creators of our own future. 💬 What do you think? Can Africa develop without a serious revolution in education? Let’s talk.👇🏾 #Education #AfricaDevelopment #Innovation #CriticalThinking #FutureOfWork #EconomicGrowth 🌍🚀

We’re facing a critical threat to American innovation. With visa appointments suspended and thousands of students' statuses already revoked and lives upended, we're witnessing a self-inflicted wound to American competitiveness. As the Executive Director of the American Statistical Association, I view this policy shift with serious concern. Statistics drives innovation across every sector of the economy, particularly in healthcare, AI, and high tech. When we block exceptional talent from outside the U.S., we don't protect American interests - we undermine them. In the field of statistics, where breakthroughs in AI and medical research depend on culturally diverse perspectives, restricting this pipeline is counterproductive. International students comprise a significant portion of statistics programs, earning 60% of master’s degrees and 70% of doctoral degrees awarded in statistics in recent years (NCSES). Overall, 56% of international students are pursuing STEM fields, with 25% working on degrees in mathematics, statistics, and computer science (Open Doors Report). Graduate statistics programs rarely see domestic and international students competing for the same spots. These spots would often go unfilled without international talent. At the undergraduate level, international students don’t crowd out U.S. students – the higher tuition they pay enables universities to expand offerings (National Foundation for American Policy). Further, their global perspectives strengthen classrooms and research. As the Economist notes “Though America has more foreign students than any other country, it would seem to have room for more: they make up only about 6% of those in higher education, compared with over 25% in each of its main competitors—Britain, Australia and Canada.” International students contributed $43.8 billion to the U.S. economy in 2023-2024, supporting over 378,000 American jobs. Every three international students create or sustain one U.S. job across the broader economy (NAFSA: Association of International Educators). In STEM fields like statistics, this economic multiplier effect is particularly significant given these students' higher likelihood of remaining in the U.S. workforce post-graduation. Increasingly, our world relies on data and statistical thinking to drive discovery and inform decisions. While there is certainly a need to bolster homegrown talent, doing so will require time and significant investment. So, let’s invest, but let’s also bring in the best in the world to the U.S. Why risk the future of data-driven progress? Why reduce our nation’s competitiveness? America's strength in statistics comes from attracting global, diverse talent, not from isolating ourselves from it. Personal note: My life has been enriched by colleagues from around the world. As a cancer survivor, I'm alive today in part because of research and care from people born abroad. We must ensure this expertise remains available for future generations.