The financial dumpster fire at the University of Arizona rages on, and the University administration has seemingly adopted a position regarding which expenses it should cut. The university community vehemently disagrees and is asking the administration and the Board of Trustees to look elsewhere for spending reductions.
University President Robert Robbins clearly favors cuts to the school’s athletic program. In what appears to be a different – or at least fuller explanation – of the “loan” the University made to the athletic department, Robbins now says that the University made the $55M advance relying on the assumption that it would receive more media revenues because of the school’s decision to join the Big 12 athletic conference next year. According to the Big 12, UA will receive a slight increase over what it currently makes in the Pac-12 conference, but the school should not expect a windfall. (Which it clearly expected.)
Ironically, UA decided to leave the Pac-12 because that conference decided against inviting the University of Texas and the University of Oklahoma to join the conference. Many of the schools who subsequently left the Pac-12 believed they would get a larger share of media revenues if those schools had agreed to join the conference.
Robbins has focused his attention on the cost of athletics and has indicated that he believes the University should make cuts there. According to Robbins, schools in the Big 12 have an average of 17 athletic teams, while UA currently has 23. Since only the school’s football and men’s basketball teams turn a profit, he favors reducing those sports that operate at losses. (He should talk to EMU about cutting sports programs; it’s apparently harder than it looks.)
U of A community wants Board to hold Administration accountable for mistakes
Additionally, Robbins has somehow determined that the faculty cost too much and there are otherwise too many people on the U of A payroll. The university community has reacted poorly to this and is demanding that the Board hold the university administration accountable for its quarter-billion-dollar spending mistakes. Robbins has until December 15 to present a plan to the Board to fix the budget imbalance.
There are a few things about the University of Arizona situation that I find telling – and that should serve as a warning to other institutions that are considering the same path.
Online education is more expensive than it appears.
Although Robbins is mostly focused on losses in the athletic programs, there is a much larger leak in operating the school’s online education arm, University of Arizona Global Campus. The UAGC racked up operating expenses of $265M in its first year against revenues of $40M. For every $1 the UAGC made, it lost $6.60. The losses in the athletic department pale in comparison to this. Additionally, the UAGC also has an additional potential liability of $72M that the Department of Education is not going to walk away from if it doesn’t have to. When U of A bought Ashford University, it may have also bought Ashford University’s problems. Ashford’s previous owner – Zovio – ceased operations a year ago, shortly after UAGC terminated its operations contract with the company. It wasn’t as though Ashford wasn’t “successful.” It had 80,000 students before it crashed.
Even with 80,000 students – 100,000 at its peak – Ashford University with its exorbitant, private-for-profit tuition, couldn’t make the online education model work.
Offering discount tuition to non-residents is a drag on revenue.
I’m sure the argument in favor of offering deeply discounted online tuition to non-residents goes something like this: “Selling a seat at a discount makes more money than an empty one does.” Unfortunately, that assumes that online education returns a profit. Ashford University – followed by the University of Arizona – attempted to scale up the online education operation, assuming that the profits in online education occurred at scale. UAGC’s experience (and Ashford’s for that matter) show that’s not the case. The larger the scale, the larger the loss. In its first year of operation, UAGC spent $6.60 to bring in $1. No amount of scaling is going to reverse that kind of loss.
Last year, WCC spent $57.17M on pure instruction to deliver 223,842 credits of instruction. That’s a delivery cost of $255 per credit hour. WCC charged $105 per credit hour to in-district residents (including fees) and $118 per credit hour to students from anywhere who enrolled in online classes. Washtenaw County taxpayers subsidize the in-district residents through property taxes, and the State of Michigan also provides revenues. So, while WCC could educate in-district students at a profit, it couldn’t make money (or break even) on out-of-district/out-of-state students. It could only lose $137 per credit hour on enrolling these students – unless the State of Michigan and Washtenaw County residents involuntarily subsidize them, too.
If you can’t charge at least what your product costs you to produce, you’re losing money. And when it comes to non-residents, you have to charge them enough to cover your production costs without taxpayer subsidies. (Out-of-district students offer no potential benefit to local taxpayers, or even to the State of Michigan.)
All of these should give the WCC Board reasons to re-examine the validity of the Administration’s strategies.
Photo Credit: Quinn Dombrowski, via Flickr