Policy-Induced Death Spirals - The PASSHE Story - Part 2

Last week’s blog post contained this assertion: “The financial death spirals that have already claimed six¹ PASSHE universities, and will eventually claim all² fourteen, is caused by a defective business model that, in turn, is caused by years of well-meaning but destructive policy decisions at the System level that drive PASSHE’s flawed business model.”  This week’s blog post will address two key elements in this assertion.

A Defective Business Model

Neither a university nor a system of fourteen universities is a “business” but, like all educational institutions, they must pay their bills and otherwise conform to the laws of economics to achieve the purpose for which they were created.  The Middle States’ Association which accredits the PASSHE Universities affirms this inescapable reality³ in Standard 3: Institutional Resources:

“The human, financial, technical, facilities and other resources necessary to achieve an institution’s mission and goals are available and accessible.”

 
To gain and retain accreditation, Middle States requires the availability of financial and other resources, not because the colleges and universities it accredits are businesses, but rather because institutional purpose, mission and goals in higher education cannot be achieved without the requisite resources.
 
More specifically, Characteristics of Excellence, a key Middle States guiding document, states³ that to gain and hold accreditation, an institution must meet important criteria, including the following:
1)      that it has established conditions and procedures under which its mission and goals can be realized;
2)      that it is accomplishing its mission and goals substantially;
3)      that it is organized, staffed, and supported so that it can be expected to continue to accomplish its mission and goals.
 
According to Act 188, the enabling legislation that created the PASSHE system of 14 universities, “Its purpose shall be to provide high quality education at the lowest possible cost to the students.” From the Merriam-Webster dictionary, when used in law the word ‘shall’ expresses what is mandatory.
 
As many previous blog posts have shown, compelling evidence exists which documents the fact⁴ that the Act 188 statutory purpose of the PASSHE Universities: “High quality education at the lowest possible cost to the students” hasn’t been delivered by the PASSHE Board of Governors to the PASSHE students since 2002.  This means that PASSHE has failed to meet the first two Middle States’ criteria above.
 
The fact that PASSHE’s January 2014 strategic⁵ plan, its first strategic plan in five years, never explicitly mentions its Act 188 statutory purpose: “High quality education at the lowest possible cost to the students,” suggests that PASSHE is not committed to meeting the third Middle States’ criterion either.
 

The Bottom Line

1) PASSHE has not established conditions and procedures under which its mandated statutory purpose can be realized; 2) PASSHE has not been accomplishing its Act 188 statutory purpose since 2002; and 3) by failing via its new Strategic Plan to commit publicly to its statutory purpose, PASSHE is clearly not committed to achieving its statutory purpose anytime soon.

Years of Well-Meaning but Destructive Policy Decisions

College students and parents shopping for the best higher education bargain quickly learn that there is a big difference between tuition, i.e., “sticker price,” and “bottom line,” i.e., the actual cost of attendance to a particular student.  What they may not realize is that the difference between those two figures is actually made up by a combination of “scholarships” and/or “tuition discounts.”

 
True scholarships are funded by private donors, while tuition discounts are facilitated by the institutions themselves by means of a “High Tuition/High Aid” financial aid policy.  
 
Under such policies, the sticker price is set higher than the cost of educating one student.  In this way, families of students who can afford to pay the full sticker price do so, while families of good students who can’t afford to pay it are offered “institutional scholarships,” which are really tuition discounts—awarded to provide educational opportunity to students from families of lesser financial means.
 
“Institutional scholarships” are usually funded by a combination of endowments and tuition discounting.  
 
Endowments are typically pools of private donations that, properly invested, spin off scholarships each year in perpetuity.  Harvard University’s Endowment, which was $30 billion in 2012, is America’s  largest and, with a typical 4% spending rule, spins off $120 million in scholarships each and every year.   
 
For universities without endowments, however, the only other sources of funding for financially needy students would either be: 1) true scholarships, funded by private donors or; 2) tuition discounts, funded by the difference between sticker price and the average cost to educate one student, paid by families whose cost of attendance falls somewhere between the actual cost of attendance and full sticker price.
 

Act 188 Mandates the Lowest Possible Cost to PASSHE Students—Not the Lowest Tuition

The two ends of PASSHE’s statutory purpose, “high quality education,” and the “lowest possible cost to the students” constitute a significant promise that the Commonwealth of Pennsylvania made to PASSHE students when Act 188 became law.  The language in that law could easily have stated “at the lowest possible tuition” had that been the intent of the two houses of the PA Legislature when drafted, or of Governor Thornburgh when he signed the bill.  The plain language of the law makes it clear the intent of the law from the beginning was to provide high quality education at the lowest possible cost to the students, i.e., at the lowest possible “bottom line,” not at the lowest possible tuition, or “sticker price.”
 
The most destructive policy decision by the PASSHE Board of Governors has been its insistence since 2002 on maintaining the lowest tuition, i.e., sticker price, rather than the lowest possible “bottom line.” This perverse decision is contrary to law and, together with the rapid defunding of PASSHE universities by the State, has created the death spirals for six PASSHE universities, with eight more soon to follow. That same decision singlehandedly and simultaneously defeats both ends of Act 188’s promise, by denying funds needed for both “high quality education” and “the lowest possible cost to the students.”    
 
¹ Between August of 2013 and July of 2014, the six PASSHE universities that have publicly declared financial distress include: Clarion, Edinboro, Mansfield, East Stroudsburg, Slippery Rock and Cheyney.
² The remaining eight of the 14 PASSHE universities that have not yet declared financial distress include Bloomsburg, California, Indiana, Kutztown, Lock Haven,  Millersville, Shippensburg, and West Chester.
³ http://www.msche.org/publications/CHX06_Aug08REVMarch09.pdf.
⁴ http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=angelo%20armenti.
⁵http://www.passhe.edu/inside/bog/Documents/Strategic%20Plan%202020%20Rising%20to%20the%20Challenge_dh.pdf.