In this session from Techonomy 2011 in Tuscon, Ariz., Ángel Cabrera, President of the Thunderbird School of Global Management, describes why the current model of higher education, with its misleading rankings and inflated tuition, is unsustainable.
Cabrera: I think the traditional system of higher education is subject to a number of very strong perverse incentives that in fact encourage us to pursue goals that are not necessarily aligned with the needs of society and the reasons why we were created in the first place. And that goes from—I mean, take rankings for example, which, we all say we don’t care about rankings, and we all lie. I mean basically it is a strong force that drives us. And rankings—look at what they measure. They measure, for example, selectivity ratio. Sounds like it makes sense. You’re more selective, you must be better. But if you deconstruct selectivity ratio, basically it means how many willing customer your institution chooses not to serve. So you’re basically encouraged to figure out ways to have a smaller impact, to change fewer lives, because that makes you better off. Or even measures of how much, how big your endowment is per head.
I just did some numbers earlier this morning, and if you promise not to tell my finance professor, because I think I’m not supposed to do the numbers like this, but let’s say Harvard has an endowment of about $32 billion and it educates every year about 22,000 students. Just divide that, basically it means that you have mobilized a million and a half bucks to educate one person. Think about it. You’ve mobilized a million and a half dollars to educate one person.
Move to your side of the industry—take University of Phoenix, 380,000 students currently studying there. If you just take their market cap, $6 million bucks. It takes them $16,000 of capital to educate one student. Even if you’re not supposed to compare endowment to market cap, look at total assets—whatever number you use, basically we’re talking about a whole order of magnitude. I mean it is fine, it works for Harvard. Harvard plays a very key role in our society. It helps us select future presidents of the United States, and do other kinds of things, but the problem is, if you create this sort of “Harvard envy” where the only goal that everybody aspires to do is to replicate that model, it’s absolutely nuts. I mean it is absolutely impossible that we can meet the educational needs of this country by pursuing the model that is just absolutely not viable.