Annual Address to Faculty

The Value of College Education
February 2015
by C. L. Max Nikias

It is an extraordinary privilege for me to offer my annual address as president of USC. Faculty and students determine the quality of an institution. And USC stands among the most academically elite universities of the nation and the Pacific Rim. Your accomplishments define us, and they will continue to distinguish us.

But we should begin by considering an irony: In the past five years, we have advanced academically at precisely the moment that higher education has come under greater criticism than ever before. As you well know, there has been an alarming increase in those who question the value of educators, the value of higher education, and its cost. Politicians, the press, and the public are all demanding greater accountability, and that universities prove their worth. These demands should—and are—taken seriously on our campuses.

Allow me, however, to place the issues in a new context. I’d like to offer some perspective on the myths and realities behind the rising cost of college. My goal is to be as complete and objective as possible. But, being fully objective about this, I must admit, is like trying to be unbiased when discussing my own children!

Seriously, mentioning the names of America’s top universities today, you hear that:

  • college has become too expensive;
  • tuition has risen faster than inflation;
  • the next bubble to burst is the one trillion dollars in student debt;
  • a college degree doesn’t help young Americans in the job market; and,
  • that America’s top research universities have become “bastions of privilege and hypocrisy.”

And some critics even say:

  • that colleges do not manage resources well;
  • that faculty should focus more on teaching than research;
  • that they don’t need academic tenure; and,
  • that state-of-the-art laboratories and facilities are too expensive.

All these are serious charges. Many of them are true. We owe it to ourselves and to our nation to examine ourselves honestly. However, we should also ask: Are we focusing too much on the cost, rather than on the value that a college delivers?

Allow me to describe the lay of the land and how we got here. Today, there are some 4,000 colleges and universities across the nation. These include two-year colleges, four-year colleges and universities, and an increasing number of for-profit and online schools. Of these 4,000 schools, about 50 operate as America’s premier research universities.

These 50 top research universities are the envy of the world. They inspire even more admiration overseas than they do at home! About half are private universities such as USC and Stanford and the rest are publics such as Berkeley, Michigan, and UCLA. While most colleges simply teach existing knowledge, our great research universities also create new knowledge that drives innovation, and possess excellent academic medical centers for patient care.

I’m proud that USC is not only one of these leading top schools, but that our university is growing faster than ever. We are gaining unprecedented attention, as a pace-setter on many of this century’s most promising new frontiers.

Yet, in recent years, America’s top 50 research universities have been placed under scrutiny. People call for more accountability. In other words, the ongoing popular discussion and public debate focuses on the “top one percent” of universities, and therefore overlooks the “other 99 percent” of colleges.

There are indeed concerns to be addressed. But let’s examine the real problems. About 3 million students graduate each year from our nation’s high schools. Of these, my fellow colleagues, only 250,000 have the credentials—such as SATs and GPAs and well-rounded skills—to compete for a spot in our top 50 research universities. Only eight percent of the nation’s graduating high school population. The other 92 percent compete for a spot at the other 3,950 schools, or go straight into the workforce.

So, let’s set aside the top 50 universities for a moment. What is happening at these other colleges, which educate the vast majority of the American workforce? Are these schools delivering value?

On the one hand, professor David Autor says yes. The MIT economist argues that the true cost of a college degree — from any decent college — is a great investment over the long run. He asserts that the return on that investment, in terms of earnings, is significantly higher for those who go to college than for those who do not.

On the other hand, former Education Secretary William Bennett released a detailed study a few years ago, in which he concluded that only 150 of our 4,000 colleges are worth the investment. Less than three percent of our colleges—just America’s Top 50, joined by some other colleges—deliver value that’s worth the cost, Bennett says.

This raises two issues about the 1.1 trillion-dollar burden in student loans:

  • Where did this debt come from?
  • And to whom does it truly belong?

Factoring in inflation, tuition at private universities has doubled since 1984, to around $48,000 today. But while USC’s own tuition doubled over three decades, our student aid budget has quadrupled to $300 million per year— the largest in the nation. At our top private universities, including USC, at least two-thirds of students get a tuition discount through financial aid. When they graduate, their debt is an average of less than $23,000.

At USC today, 22 percent of our freshman class come from underrepresented minority groups, a surprising 1 in 7 freshmen are the first in their family to attend college, and about 23 percent of our students receive Pell Grants. In fact, we rank third in the nation in Pell Grant distribution among private universities — after only Amherst College and Emory University.

This reflects a great contract between America’s top schools and the philanthropic sector to make the best education available for the best students from all corners of America. Even the “full-tuition-paying family” has a portion of its educational costs offset by outside philanthropy. At USC, this offset is 12 percent of the total cost.

The former president of Harvard, Derek Bok, once said, “If you think education is expensive, try ignorance.” The fact is that tuition has been rising. But what explains the rise?

First, cutting-edge information technology and digital media are very expensive commodities. And no enterprise is more technology-dependent than a top research university. Students and faculty expect the latest and greatest technology to be integrated into the classroom, laboratories, administrative services, residential halls, everywhere on campus. Thirty years ago, the IT infrastructure was almost zero. Today, that overhead runs to hundreds of millions of dollars annually! And cybersecurity threats are putting even more financial pressures on our IT infrastructure.

A second big-ticket item is financial aid, which has risen far faster than tuition. This involves assistance not only for poor students, but also for members of America’s middle class, who risk falling through the cracks. These are the families that are truly squeezed by the cost of college. USC provides significant support in the form of merit-based aid. Without this aid, many middle class families would have to carry much of the total cost of the “expected family contribution.”

There is a third big-ticket item: the escalating arms race for talent world-wide; for the world’s best faculty. The competition today is truly global, extending far beyond our nation’s borders. And the goal is not just to recruit the best faculty, but also to retain them. Our top research universities are now home to a huge portion of the world’s Nobel laureates, National Academy members, award-winning scholars, professional society fellows, and renowned artists. And the gravitas of these faculty members brings everything else into America’s orbit.

A fourth big-ticket item is the physical infrastructure of our campuses. A great campus today is like an independent city-state… complete with on-campus health services, student services, transportation services, residential life, police, culture, dining, club sports, entertainment, and recreation. This is driven purely by the market: to our surprise, students and parents demand more, not less, in services and infrastructure. They expect a stellar academic and residential life experience.

And fifth, it is essential for a private university to keep a low ratio of students to faculty in the classroom. For USC, on average, that’s 11-to-one. Increasing efficiency here would reduce teaching quality.

But consider a puzzle: Tuition at most of our small liberal arts colleges is as high as at the top 50 research powerhouses, even though those schools perform far fewer functions.

Let me share a surprising truth with you: The market could bear much higher tuition prices at our top 50 schools because the demand for a seat is intense, and it increases every year.

Last year, USC rejected 44,000 applications. More than 6,000 of the rejected applicants had straight As and scored in the 99th percentile on their SATs. This year, we had 52,000 applications. And that’s despite the outcry regarding college costs.

In reality, the effective tuition rate of private research universities is significantly less than the price tag. So, if USC eliminated all financial aid tomorrow, we could reduce the sticker price by a third. But this would squeeze out America’s middle class.

The philosopher Bertrand Russell said, “Democracy is the process by which wise men decide who will get the blame.” So let’s decide who is to blame for student debt. Federal lending to college students began in 1958 as a way to invest in America’s young talent. Yet today, many experts point to the trillion-dollar student debt as a sign of approaching disaster. Of course, rising tuition is not the only factor, or even the main one, in the creation of this trillion-dollar debt!

The biggest factor is a change in our culture: that college should be universal—and that any American who wants a college education is entitled to one. Thus, college enrollment more than doubled in the past 30 years, from 10 million to 22 million students today. These new students required high levels of financial assistance. And while the number of Americans attending college increased, so did the amount of time they spent in school, by obtaining more education, especially graduate degrees.

Recent graduates suffered not just one recession, but two historic ones—the tech bubble of 2002 and the Great Recession of 2009. Millions of young Americans either stayed in school or went back to school during these recessions. So, when graduates cannot find jobs, or they find jobs with lower salaries than they deserve, whose fault is it? The colleges? Or these brutal economic realities? Or both?

Student loan debt has also been aggravated by the economics at America’s public universities.

Benjamin Franklin once said: only death and taxes are certain. But, by paying taxes, you could be certain 30 years ago that your child could attend a U.C. school for just $1,000 in annual tuition. Today the cost is closer to $13,000. With the proposed five percent increase per year over the next five years, in-state tuition will be closer to $16,000 by 2020. And since the 2008 economic meltdown, the tuition at public universities has increased by 300 percent!

If a student comes to the U.C. system from another state, she now pays nearly $36,000 for one year’s tuition. So, it is no surprise that public universities have been going after out-of-state and international students for their undergraduate programs aggressively. Sadly, America’s public colleges have been pushed away from their principle mission—to make college affordable for a broad section of society in their own states.

When the global economy crashed in 2008, the private student loan market crashed too. Washington stepped in and assumed responsibility.

But let’s bear in mind: This federal intervention protected us from the so-called bubble burst. The one trillion-dollar student debt represents a small fraction of total household debt for Americans, which is about $12 trillion dollars today.

And most Americans have a reasonable debt load: 70 percent of those with student loans owe less than $23,000. This is manageable because the college premium has never, never been higher.

However, this college value does not extend to the for-profit colleges. Students at the for-profit schools have far higher dropout rates, far higher loan burdens, and far lower salaries than those from traditional colleges.

And here we go: 50 percent of student loan defaults today come from the for-profits. Meanwhile the default rate is less than 1.6 percent at USC and its peer schools.

At the for-profit schools, only a small percent of students graduate. The graduation rate at public universities is higher, at 59 percent. But at USC and the other top private universities, that rate of graduation is 91 percent or higher! So, when we go beyond the sticker price, we cannot help but see tremendous variations in value!

But what is next, given the talk of a need for a revolution? Across the nation, we see the dramatic expansion of many business startups and partnerships with universities, offering online education programs. In fact, all these developments suggest that all the conditions may be in place for an academic earthquake. One thing for sure: there will be more choices, and more competition. All this will be healthy!

If William Bennett is right, and only about 150 of our 4,000 colleges are worth the cost, then we should not be surprised if a plethora of second-rate and third-rate colleges go out of business. It may not be so bad to see the closing of schools that are expensive but do not deliver academic value.

However, the Department of Education recently announced a proposal to create a “ratings system” for American colleges and universities. Each institution would be rated on three areas: access, affordability, and outcomes. None of these metrics reflect academic value or academic excellence. “It’s like rating a blender”, a Department of Education official said a year ago.

USC wins on outcomes and access, and we use a tremendous amount of resources to fund merit-based and need-based aid scholarships, to make USC education affordable. The department of education has yet to finalize its proposed ratings system, but it has raised alarms.

It may incentivize the wrong things. And it may shut out many qualified students from the best schools. If we were to regulate economic expectations for America’s colleges, we may inevitably ignore the very academic quality that produces real value.

We are not against accountability. But we are very concerned about over-regulation. Can we really trust a three-category ratings system, with no academic excellence metrics whatsoever, to regulate 4,000 colleges? Are we going to rate colleges in three categories like movies? PG, PG-13, R?

I am not suggesting, my fellow colleagues, that USC and its peers are perfect.
Far from it! I believe we should always strive for greater efficiency. Yes, we can do better in finding ways to reduce administrative costs. We must never be complacent.

Our universities should do more to help America’s K-12 school systems.
These schools provide the precious raw material for our colleges and our nation.
All universities should be adopting local schools, and partnering with them, to fix the scandal of K-12 education.

USC’s Neighborhood Academic Initiative is providing opportunity, access, and a chance for some of our most under-served students to earn a first-rate education. And, with a visionary gift from USC Trustee Joan Payden, we will expand our NAI program to schools around the Health Sciences Campus in East Los Angeles.

But what about students who aren’t in the program? Our top private universities could make themselves more affordable by allowing students to take their first two years at inexpensive but credible colleges before transferring.

Among the top 25 private research universities, we are the only institution that truly believes in the value and potential success of these students. We enroll 800 highly qualified community college graduates every year.

About half of these students come from economically disadvantaged backgrounds, and they achieve exactly the same graduation rates as their peers. Integrating students from all walks of life makes the campus experience more like the real world. And it promotes upward mobility.

The top private research universities are raising most of the resources they need through philanthropy. Our ambitions to improve the academic quality of our faculty and student body, and the overall residential experience, have indeed enabled us to flourish, even in the midst of a recession.

Three years ago, we announced an audacious $6 billion dollars fundraising campaign. At the time, it was the biggest in American higher education. It is no secret that other universities quickly and quietly adjusted their fundraising efforts.

Experts were in disbelief. The Chronicle of Philanthropy doubted our efforts, saying: “No private organization has ever tried to collect that much from a single drive.”

A significant milestone in our journey, one that only five private universities have ever achieved is this: USC has surpassed the $4 billion dollars mark. However, we did it in 4.5 years! Through our campaign, we are reaffirming our commitment to provide our students, our faculty, and our academic community with unparalleled USC experience.

From the $4 billion dollars raised to date, $2.1 billion has gone for academic priorities in faculty research and creative programs, students scholarships, teaching programs, school-based programs, and the medical enterprise, including pediatrics; 77 new faculty chairs have been created; nearly $500 million has gone toward the construction of buildings; and $1.4 billion has gone to our university endowment.

What is truly remarkable though is that 25 percent of the money raised came from trustees of the university; 60 percent of the money raised came from non-alumni; and, USC Athletics raised $280 million, thereby achieving its most successful fundraising ever—all against the backdrop of NCAA sanctions.

With $2 billion left to raise, now is not the time to become complacent. We must push harder, work faster, and aim higher. This historic campaign is advancing academic excellence and access, and cementing USC’s position as one of the world’s top research universities.

People want to be part of our institution and our scholarly and creative successes. Success in student quality will only continue to come by ensuring that our curricula are timely, and yet also reflect a timeless wisdom—timeless in the sense of the Greco-Roman classics, and the lessons of the Renaissance and the Enlightenment.

And timely in terms of reconnecting to the town square and the marketplace, and in terms of understanding the impact of innovations in society.

Yes, we are moving in the right direction with the new General Education program. And I commend our faculty for working on it so diligently. With an emphasis on critical thinking and writing, our General Education program has been praised by accreditation bodies.

But we need to do more! Much more… The true value of USC education must always be rooted in our ability to provide the foundation for lifelong learning, and to create complete human beings.

I believe that USC’s rise as an academic powerhouse is not a minor anomaly within a larger higher education system. USC’s rise has occurred because our faculty, our staff and our community have been championing those timeless academic values that make education one of society’s most crucial enterprises.

These core values protect the freedom of inquiry, freedom of expression and debate, the relentless pursuit of truth, gender equality, the fostering of collaboration, and ethical discernment.

These are the values that gave form to the Enlightenment. They are what Immanuel Kant said offered a “way out,” an escape from blind obedience to forces, ideologies, or institutions.

Enlightenment was not a doctrine, nor a prescription for being human. It was a mode of discovering oneself and one’s world, this mode lies at the heart of the university experience. These values—and these opportunities—exist at a great university like nowhere else. In our curricula today, we endow students with the skills, knowledge, and techniques germane to the world of our times.

But we ought to make sure we also infuse their spirits with our most timeless values of enlightenment, so that they can expand their own limits, and those of the world around them.

Unfortunately, none of these fundamental principles of Enlightenment are reflected in the metrics proposed by the Department of Education.

Allow me to conclude by imploring you to always remember Plato’s brilliant and enduring Allegory of the Cave—the few well-known pages in Book 7 of The Republic. This allegory raises some of the most basic questions: What is real? What is Truth? What is Good? Its scope, as you know, is tremendous, but it can also be an illustration of what it means to be a great academic community for our own age.

Socrates describes a group of people who have lived their entire lives chained in a cave, with their heads fixed facing a wall. There’s a fire behind these prisoners, and as things pass in front of the fire, shadows appear on the wall and echoes of unseen objects are heard.

These images and sounds are all the reality they see. As Socrates explains, they don’t understand that what they’re seeing is only a small portion of what truly exists.

What would happen if these prisoners were freed? What if they saw that the shadows were nothing more than projections of other things? What if they were taken out of the cave, and allowed to see the sunlight?

It will be nothing they could have ever imagined!

We learn from this allegory that education isn’t just knowledge and facts poured into a person’s brain.

It isn’t the mere transmission of data and information. It is far more than the memorization of words and images and sounds.

Traditional classroom teaching, in many ways, is no different than shadows projected on a wall in the cave. We can add more value today to our curricula—whatever the course we are teaching—and to USC education:

  • By motivating students with critical thinking to turn their attention in the right direction;
  • By encouraging one another to explore a world beyond the shadows projected by other forms; and,
  • By inspiring one another not to be afraid to seek truth… not to be afraid of the discomfort of exploring a new subject.

So what, then, is a university? Is it simply a trade school or a training facility? Is it a financial transaction between a business and a customer? Is it a series of short-term concepts that drive most sectors of human enterprise?

A university should be nothing short of the great crucible in which our freedom to think—and therefore our ability to change the world—is forged. It should be nothing less than a life-giving and light-giving form of community for our students.

This is our mission. This is our purpose. This is the University of Southern California!

Thank you, and Fight On!