University Diploma Wars

Universities in the US (and elsewhere) are a business. I know some would prefer to believe that an institution of higher learning is some kind of altruistic enterprise of higher learning, above the fray of profit motive, but let us be very clear about it, it is a business. And as such, like any other business, the practice of self promotion, reputation and advertising is important. So are corporate profits or income. Ergo all of these universities want the bragging rights to say their alumni are the next Bill Gates, President, Finance Minister, Nobel Prize winner and or any other notable figure. In addition, they also want to get paid, or at least either get top dollar for their product or focus on those customers that can pay more. And that paradigm has gone global in terms of cross border marketing, to also now include a large number of foreign students attending US universities along with their domestic counterparts. In other words, while US manufacturing has relocated abroad to benefit from lower wage labor, the one business or area whereby foreigners are still buying higher cost made in America products (or services) can be found in the realm of US higher education.

This is not necessarily a problem in and of itself in terms of criticizing foreign students that want to study in the US, and of course foreign students in the US make up only 5 percent of the student body on average (NYU is an exception with about 20 percent of it's students coming from some other country). However, it is quite interesting and noteworthy that the costs for a US higher learning institutions are among the highest in the world. In fact, some statistics claim that US college and university costs have gone up 1,000 percent since the 1970's. In the least, a number of news articles over the years highlight that US higher education costs have gone up at rates far exceeding domestics US inflation rates. And, while many US middle class families struggle to find a way to pay for a university education, anywhere from 65 to 80 percent of foreign students pay cash from personal or family funds (depending upon which statistics you want to use). How did the US get to the point whereby only foreigners are able to pay cash for a US college education, whereas many middle class American families cannot?

According to a recent report by the Institute of International Education (November 2015), almost 1 Million foreign students were attending US universities in the 2014-2015 school year, and this number represents a 10 percent increase over the previous year. The president of the Institute of International Education, Mr. Allan Goodman is quoted as saying (November 18, 2015 article from The Atlantic Magazine): India and China have trouble finding seats for all their qualified students. American colleges can absorb this overflow. In addition, the booming economies in countries like China and India have created a new middle class that can afford American schools and, according to Goodman, may value education more than the average American.

But do not think this trend of seeking the highest bidder, in terms of students able to pay, only applies to foreigners, or better said, non US students. A new trend among public State University systems has been to increase enrollment slots for out of state students, who by the way pay more than in state resident students. In fact, out of state students often pay double or triple the tuition of in state students. Just to be clear, we are talking about US$20,000 to US$30,000 for a public state university per year for such out of state students (and not a private ivy league school). According to an article dated October 15, 2015 from the Atlantic Magazine, Ms. Laura McKeena writes: At the University of Wisconsin-Madison next September, nearly half of all freshmen are expected to hail from other states. The university system’s Board of Regents recently lifted the 27.5 cap on out of state undergraduates at its flagship campus—a decision that’s emblematic of a nationwide trend at public colleges to both raise revenue and boost selectivity. Lots of public colleges have started to increase their percentages of out-of-state students in recent years, often through active recruitment efforts. According to the Columbus Telegram, the University of Nebraska – Lincoln last year increased its percentage of out of state students by 5.2 percent, to 30 percent. Meanwhile, the University of California has increased its percentage of out-of-state students from 11.5 percent of freshmen in 2009 to 23 percent in 2012. Out-of-state enrollment at the University of South Carolina has more than doubled since 2000 and is now at 45 percent. Out-of-state students outnumber their in-state classmates at the University of Alabama, the University of Michigan, and the University of Iowa. So, what can we glean from all this in summary? Not only has University and college tuition costs gone up across the board and in excess of wage increases for the overall general population in the US, these institutions are now changing their enrollment policies to focus on an increasing number of non local students who are paying more (in comparison to local students).

What then is the problem? What is the angst or the criticism coming from middle class American families as it pertains to this entire issue? Two main things really. On the domestic front, while it is true that public or state universities have seen their revenue coming from taxpayer supported government budgets cut drastically in come cases, it is still also true that the average percentage of public university funding still amounts to about 53 percent of the school's budget (this varies state by state, but the average is 53 percent). So, on the one hand, while some states have cut taxpayer funding by anywhere from 20 to 40 percent and both tuition costs and out of state allocations have increased, we still have the argument that it is local taxpayers in state that are funding these institutions, to one degree or another. As such, we then have the question: Are qualified local in state students being shut out in favor of higher tuition paying out of state students? And all the while the taxes being paid by the parents of said same students going to support the public or state universities their children might be conceivably be denied access to because their allotment slot has gone elsewhere. On the issue of non domestic students, a surprising number of foreign students come from families that can pay cash for their US education (65 to 80 percent of foreign students are paying cash) and a very large percentage of such students are coming from China. In contrast, you will be hard pressed to find American families that actually have the financial resources to pay cash for their children's education.

Secondly, we have this issue surrounding the H1B visa program allowing foreigners to legally work inside the US, and more often than not, this applies to highly educated people in fields such as computer programming and engineering. Now, do not misunderstand what I am saying. Having the opportunity to fill job slots with qualified people no matter where they hail from is a positive thing. BUT, what we now have are complaints from some non US persons that there is some unfairness about the current lottery system applied to the H1B visa program. Which is to say, there are many foreign students studying in US Universities that would like to stay and work inside the US after they graduate, but may not be able to if they have the unfortunate luck of not having their number come up in this lottery system. However and on the other hand, one must understand that the US economy and the unemployment numbers are not as positive as some US politicians would like you to believe (I would suggest you visit: http://www.shadowstats.com/alternate_data/unemployment-charts, produced by Mr. John Williams, showing the current combined U-3 and U-6 unemployment rate at 22 percent for November 2015 as opposed to the roughly 5 percent numbers the talking heads in government are espousing). In addition, let us also understand that there certainly are a number of such foreign students that have graduated from a US University debt free (in contrast to many domestic US students graduating with US$50,000 or US$100,000 of education debt hanging over their heads) and are essentially competing with those very same US graduates for jobs inside the US (via the H1B visa program).

To offer some illustration, let us look at the Wharton Business School MBA program in terms of costs. The tuition is US$70,870 (for one year mind you) and US$20,626 is the number for room and board. In terms of the undergraduate program at the Wharton School (University of Pennsylvania) we are informed that as of 2014, the annual undergraduate tuition is US$40,594. Add it up and we get about US$230,000 to become a proud MBA graduate from Wharton (including undergrad costs before the MBA program) and not including room and board expenses.

From Wharton's own website information: Approximately 30% of first-year Wharton students receive merit-based fellowships including international students. Joseph Wharton Fellowships ranges from $10,000-$20,000. The European Fellowship of $15,000 is awarded yearly to applicants who are citizens of Europe. Emerging Economy Fellowships are offered to support students from emerging economies throughout the world. All admitted students are considered for Wharton Fellowship support. There is no formal fellowship application, and notification of fellowship support is included with the admission decision. Their broad range of fellowships target students of all backgrounds and can cover tuition fees in the amount of $20,000 up to full tuition plus living expenses. In terms of Wharton, the school claims from it's own statistics that the MBA class of 2017 is comprised of 32 percent foreign students representing 73 different foreign countries. We do not know what the statistics are in terms of how many foreign students making up that 32 percent are attending with some kind of fellowship, scholarship or other tuition aid package from the University (30 percent of all students receive a fellowship award, but how is that divided between domestic and foreign students?). And regardless of that number, to be fair, it is also true that many universities in the US have increased funds available for various kinds of tuition aid or assistance for domestic US students as well. However, we think it would be interesting to find out if there is any skewing or favoring in terms of these aid packages. On the one hand it is an excellent marketing tool for a university to tout financial awards or aids for the best and brightest applicants. Yet the other side of that coin is the deep data or statistics regarding the correlation of awards to true financial need and domestic versus foreign student applicants seems to be missing (and if there is any favoritism going on, it is understandable an admissions office would want to keep those details buried).

In summary, while perhaps more information is needed to make a precise judgment about some of these issues, one trend at both public and private US universities is blatantly clear: There is an increase of student slots being allocated or reserved for non local students across the board. And if the decision to do so is based upon marketing to higher paying non local students, then what is the long term outcome for the average domestic middle class American student that wants to attend a university? After all, regardless of academic prowess or financial capacity of the student applying, any educational facility is physically limited in terms of capacity. More allocated spaces for a certain cohort (foreign or out of state students) means less for others.

Interestingly enough some foreign universities (meaning those located outside of the US) also want to increase their own perceived prestige and that includes enticing foreign students (Americans, Europeans, etc.) to attend their school. China especially has been noteworthy in this regard as some Chinese Universities have been actively courting native English speaking professors to jump ship, as they say, to come teach at the Chinese University. Likewise, foreign students have been courted as well with one major complaint of local Chinese students that the universities are favoring foreigners by giving them better student housing accommodations than what is allocated for locals (sound familiar?).

Of course one main concern of university bound students is the value or reputation of the school and the perceived value of the diploma they might obtain, cost issues aside. And it is in this area that we think many American students (and their parents) are grossly misinformed about the quality of higher learning institutions abroad. Granted, just as with anything else, not everything in the market place is equal in terms of value or even perceived value. But, with that said, there are many, many excellent universities to choose from in other countries and the costs are a fraction of what they are in the US as well.

Taking the Dominican Republic as just one example, the tuition at some of the best (meaning private universities with the best reputations and value of the diploma in the job market) will average the equivalent of about US$1,000 per semester (some schools have 3 semesters during the school year and others 4 semesters) for engineering, law, business and perhaps some of the humanities. Medicine of course is more expensive and students will pay on average about US$2,000 to US$2,500 per semester for this area of study. And keep in mind these are the average tuition amounts for local citizens and legal foreign residents (which is an argument for why foreign students may want to apply for residency status which also puts them on a path for citizenship as well, should they choose as of course application for citizenship is voluntary). Just as the case with students coming from another state applying at a state university in the US, tuition at the Dominican Universities is about double the rate for citizens and legal residents. However, as some of our own clients have already surmised, even so such amounts are very reasonable in comparison to tuition schedules at many state and private US universities.

In summary, we live in a more globally connected and competitive world. This includes an even greater interchange of how many more people now have access and knowledge about goods and services from other countries, which certainly includes education options. And just as with other kinds of goods and services, there are other less costly options often enough simply because local labor costs or cost of living is much less in another jurisdiction as well. And this does not necessarily mean sacrificing quality. On the contrary, you may certainly be getting more for your money, better service and equal if not better quality elsewhere as well. The fairly recent phenomena of medical tourism, or people seeking medical services in other countries to take advantage of lower costs and equal or better quality in health care, is just one example of this. So why not turn the tables on the very high costs of domestic US education as well?