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Higher Ed. Racket: How Kids Are Paying a Fortune for Rip-off 'Prestige' Educations

How some colleges realized they could offer Timex educations at Rolex prices.
 
 
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In the summer of 1961, a twenty-two-year-old college graduate from rural Nevada packed up his young family and moved to Washington, D.C. He took a job working nights as a U.S. Capitol policeman while by day he studied for a law degree in Foggy Bottom, at a local commuter school by the name of George Washington University.

Foggy Bottom in those days was an unfashionable neighborhood of State Department office buildings, apartment blocks, decrepit townhouses, bodegas, and parking lots. GW’s campus was an unlovely spread of mostly concrete structures frequented by students who sat for classes and then returned to their lives and apartments off-campus. They came because the school offered an education that was convenient, affordable, and thoroughly adequate to the needs of, say, a Department of Agriculture employee looking to secure a pay raise with a new degree, or a Maryland housewife going back to college once her kids were out of the house.

Because Washington has always been a city full of busy people anxious to advance but tied to their jobs, the school saw a number of up-and-coming D.C. notables pass quietly through its doors. Colin Powell got his MBA there while serving as a White House fellow; J. Edgar Hoover studied law while working at the Library of Congress; and Jacqueline Bouvier (later Mrs. John F. Kennedy) finished her bachelor’s in French literature there, four miles away from her mother’s house in McLean, while taking photographs for the Washington Times-Herald.

The school, in other words, was no Georgetown -- GW’s highbrow neighbor up the Potomac -- but it filled a valuable niche and helped advance the careers of some prominent public servants. That young Nevadan police officer’s time at GW, for instance, paid off pretty well in the long run. Just four years after he finished his degree and returned home to serve as a city attorney, he was elected to the Nevada state assembly. Eighteen years later Nevada elected him to the U.S. Senate; twenty years after that, he became the body’s majority leader. His name is Harry Reid.

If Reid were starting his career today, however, he probably couldn’t afford a GW law degree on a policeman’s salary. Today George Washington, like many “up-and-coming” second-tier schools -- American University, New York University -- is ruinously expensive. After decades of offering a low-cost education, GW took a sharp turn upmarket in the late 1980s under the presidency of Stephen Joel Trachtenberg. The university went on a high-class building spree, financed by a dizzying series of tuition increases. When Trachtenberg took office, undergraduate tuition was $14,000 -- below average for a private, four-year college. By the time he left in 2007, it had mushroomed to $39,000 a year (or, including fees and room and board, a whopping $50,000) -- making GW the most expensive school in the United States.

What Trachtenberg understood was that perception is reality in higher education -- and perception can be bought. “You can get a Timex or a Casio for $65 or you can get a Rolex or a Patek Philippe for $10,000. It’s the same thing,” Trachtenberg says. The former president gambled that students who couldn’t quite get into the nation’s most exclusive colleges -- and who would otherwise overlook a workmanlike school like the old GW -- would flock to a university that at least had a price tag and a swank campus like those of the Ivy Leagues. “It serves as a trophy, a symbol,” he says. “It’s a sort of token of who they think they are.”

What’s amazing is that this strategy worked. During Trachtenberg’s tenure, applications for undergraduate admission increased from 6,000 to 20,000 a year, GW students’ average SAT scores increased by 200 points, the endowment increased to almost $1 billion -- still quite low for GW’s size, but higher than the $200 million nest egg Trachtenberg inherited -- and the university created five new schools.

Welcome to today’s increasingly elite higher education system, where lavish campuses, high tuition, and huge undergraduate debt loads have become the norm. In dogged competition for affluent, high-scoring students, today’s second-tier colleges aim to achieve higher prestige by aping the superficial characteristics of America’s traditionally elite schools. Indeed, there are few alternatives for ambitious administrators. “If you want to rise, you try to do the things that make you look like Harvard,” says David Labaree, a professor of education at Stanford University. “It’s hard to take a different path.”

To be sure, there was more to GW’s transformation than just a tuition hike and a campus makeover. The administration also engaged in an aggressive marketing campaign, smartly selling GW’s location in the heart of the nation’s capital as a precious asset. (A full-page advertisement in Foreign Affairs features a map of downtown Washington with GW highlighted. Also lit up are the IMF, the World Bank, the White House, the Treasury Department, the Federal Reserve Bank, the State Department, and the Kennedy Center. “Welcome to the neighborhood,” it says.)

GW also capitalized heavily on its roster of famous alumni. The school’s Web site is studded with black-and-white and color photos of the great and the good who have passed through GW’s doors. The university named a dormitory after Jacqueline Bouvier Kennedy Onassis, a public service award after Colin Powell, and even a science scholarship after J. Edgar Hoover. One wonders whether a Harry Reid Library might one day be in the works. But there’s an irony in borrowing the prestige of these Washington luminaries: they didn’t attend GW because the school was prestigious; they went because it was accessible. When it came time to pursue a degree, Harry Reid, Colin Powell, and even Jacqueline Bouvier bought a Timex, not a Rolex. But GW doesn’t sell Timexes anymore. Is the public better off?

George Washington didn’t found George Washington University. Initially called Columbian College, the school was founded in 1821 for “the education of Gospel Ministers.” But such a modest mission didn’t suit the grand designs of the school’s eighth president, Charles Needham. As part of an early bid to reinvent the school as a national powerhouse, Needham struck a deal with the George Washington Memorial Association: the association would erect a palatial $500,000 campus building in honor of the first U.S. president, and the aggressively expanding university would rename itself after the great man in return. But things went quickly awry. Neither the university nor the association were able to raise enough money for the proposed growth; building costs spiraled out of control; and the university was forced to sell off real estate. The vaunted memorial building never saw the light of day, and the university retrenched to a single building in Foggy Bottom, where it rededicated itself to operating within its means. The new name stuck, however -- an artifact of the school’s early failure, and a reminder that institutional grand ambitions don’t always pay off.

In the 1960s, under the presidency of Lloyd Elliott, GW began slowly expanding again, recruiting higher-quality faculty and students, buying up more of Foggy Bottom, and focusing heavily on undergraduate education -- the most lucrative component of any university. But Elliott was no Needham. The campus structures he built were utilitarian and cheap. And, more importantly, he “believed in a low-tuition model,” says Anthony Yezer, a professor of economics at GW since 1972.

Not so his successor. When Trachtenberg took the helm in 1988, he had a target in mind when he began raising the cost of attending GW: he wanted to match Georgetown’s price tag. “I saw the gap as an opportunity,” he says. The move was a rebranding effort and a development strategy wrapped into one. “If you equalize for program costs, all schools cost virtually the same amount to run,” he says. “I would use that new tuition money to fund expansion.”

With this new cash infusion, Trachtenberg bought virtually everything in Foggy Bottom, gradually transforming GW into the second-largest landowner and the largest private employer in the District of Columbia. GW either razed or made over Foggy Bottom’s poured concrete buildings, the family-owned convenience stores, the parking lots, and other staples of drab urban life. Today the neighborhood shines with contemporary architectural showpieces, each flying the banner -- blue with yellow stripes -- of George Washington University.

“You want to build a city on a hill,” says Trachtenberg, who retired from the presidency in 2007 and now serves as GW’s University Professor of Public Service. “Buying housing and building dorms -- that creates a community and builds relationships between students and their university.”

For an institution like GW, erecting fancy new buildings also serves a more narrowly strategic purpose: it instantly signals prestige to prospective students and buys the school traction in the U.S. News & World Report college rankings.Lavish buildings don’t actually improve education, of course, but elite schools have them; ergo, lavish buildings are an essential ingredient for academic high status. Cornell University’s student union, for instance, is a gothic-style fortress built in 1924 at a cost of $1.6 million (about $20 million in 2009 money). It has working fireplaces, two restaurants, a coffee shop, a bank, slate floors, and its own library, movie theater, and art gallery.

Cornell’s student union didn’t cost the school a dime -- the whole building was donated by the widow of a 1902 graduate -- but GW spent $24 million of its own money on renovations to create the new Marvin Student Center in the early 2000s. The university didn’t need a new student union, arguably, but Trachtenberg thought it was important enough for the school to spend a lot of money to build it. Why? According to the conventional wisdom in student recruitment, statistics about job placement and department quality often seem impossibly remote to high school seniors. Instead they respond to soaring student unions, fitness centers worthy of the Olympics, and dormitories with a kitchen in every suite. GW aimed to oblige: the American Institute of Architects gave the Marvin Center its highest award, the Excellence in Architecture prize, in 2003. (The strategy behind the new center may have been even more pointed: at the time, schools were desperate for ways to increase the percentage of admitted students who enrolled, because that’s something U.S. News measured. The magazine stopped doing so in 2003, though there is talk of reintroducing that metric.)

Buildings are not the only strategic things GW spends money on. For similarly shrewd reasons, in 2002 GW decided that it needed a varsity squash team. The only other colleges in the country with varsity squash programs for both men and women are Brown, Cornell, Dartmouth, Harvard, Penn, Princeton, and Yale. A GW athletic director explained to the Washington Post that the whole point of the GW squash program was to attract students who wanted to attend an Ivy League college and couldn’t get in.

To an extent, those gambits to snag elite students and higher rankings have paid off. Today GW, once a nonentity in national rankings, is rated the fifty-third-best university in America by U.S. News -- sitting just outside the magazine’s “tier one,” the exclusive club of great American schools.

That rise in status came at a price, however -- one clearly reflected in the school’s tuition rate. As a result, GW attracts a very different kind of student now. Gone, for the most part, are the moonlighting police officers and legislative assistants studying business administration by night. They have been replaced by well-heeled nineteen-year-olds from New Jersey, Massachusetts, and Long Island: traditional college students, kids from out of state with good SAT scores and vague dreams of some sort of job in public life, maybe on Capitol Hill. “Gucci sunglasses, UGG boots and other designer labels are no strangers in many students’ closets,” said one article from the school newspaper in 2006.

Trachtenberg insists that GW’s fiscal strategy uses rich kids to subsidize the education of poor kids -- an argument that is common among the leaders of private universities that charge high tuition (NYU’s president, John Sexton, says much the same thing). “Some 40 percent of students pay list price,” Trachtenberg says. “These are people from wealthy families; I have no compunction about charging them list price. They can afford it.” But the school’s financial aid numbers make it clear that the picture is a little more complicated.

Many GW students come from families that can’t afford high tuition. As a result, students borrow -- a lot. The average borrower leaves Foggy Bottom with $31,299 worth of debt, among the highest levels in the country. That’s thousands more than the average at nearby Georgetown. Some students, like Greg Godfrey, graduate owing $100,000 or more. The son of a Cleveland single mother, Godfrey spent years living hand to mouth after graduating with a business degree in 2006, and still owes more than $75,000. “You just don’t know what you’re doing when you sign up for this stuff,” Godfrey says.

Nor is it clear that Godfrey and his fellow students got a great long-term investment in return. According to People Capital, an organization that tracks earning potential, a typical GW student (political science major, with average GW SAT scores and a 3.0 college GPA) would have almost exactly the same career earning potential if he attended significantly lower-debt schools like the University of Virginia or the University of Maryland.

If GW puts many of its students in a financially precarious situation, it’s worth noting that the school itself shares much the same plight. Like a recent graduate with a crushing loan, GW operates on the fiscal equivalent of paycheck to paycheck, covering nearly 80 percent of annual expenses from tuition revenue -- much higher than the 40 percent average among private national research universities. The university generates little revenue from its endowment, and prospects of improving the situation are bleak: only 11 percent of alumni donate, compared to the average among similar universities in the 50 percent range.

Godfrey, for one, doesn’t plan to donate to his alma mater anytime soon. While he’s now making a decent salary -- he recently obtained a job at World Wrestling Entertainment working on digital media products -- he still pays some $700 a month to service the loans he accumulated studying at GW. “I mean, maybe if I made like $3 million a year I’d give something to GW,” Godfrey jokes.

Meanwhile, despite the high tuition, GW’s assault on the upper reaches of higher education status has stalled: the university made it all the way to fifty-first place on the U.S. News list in 2004, just short of tier one, but has fallen back a few spots since. GW seems to have found the upper limits of arriviste institution building in higher education. Other striving campuses, including Boston University, Drexel, and Northeastern, have ended up in similar circumstances. The wrappings have become fancier than ever, but the product inside tastes pretty much the same.

The GW institutional model -- embracing high tuition, excessive construction projects, and massive undergraduate debt -- has become the dominant one in higher education, and every university president seems to want to be Stephen Joel Trachtenberg. American University, for instance, another second-tier school just four and a half miles from GW, does exactly the same things GW does, only more so. The average borrower leaves American about $41,000 in debt. Some 84 percent of American’s operating budget is funded by undergraduate tuition. A whole host of second-tier national universities operate in the same manner: they spend on the things that U.S. News measures, and they pay for them with practices that U.S. News doesn’t care about, like student loans.

It would be one thing if GW and schools like it were trying to break the Ivy League’s monopoly on prestige by offering demonstrably better educations. But there’s very little evidence that the quality of GW’s academic program has risen in step with its tuition rates. When I asked GW if I could see the results of its Collegiate Learning Assessment, a study of institutional academic progress that the Council for Aid to Education, a nonprofit, has carried out at hundreds of schools, the university did not respond. This isn’t unusual; most institutions keep their CLA results closely concealed and actively resist efforts to allow consumer comparisons on that basis. But that leaves precious few markers of academic quality by which to measure such schools. GW likes to boast of its impressive network of plugged-in D.C. professionals who serve as adjunct professors. But adjuncts come cheap; they certainly don’t justify the university’s exorbitant cost. The school’s graduation rate is 81 percent -- not bad, but not especially good, either, putting it in the same league as much cheaper schools like Virginia Tech and the University of Maryland.

In fact, in a couple of very basic ways, GW may even have gone downhill in the years since it went upmarket. Yezer, the economics professor, says that fewer and fewer courses are taught by tenured professors, and that class sizes have gotten larger over the years. When GW was a cheap school, introductory economics classes had 160 students, he says. Now, despite the new higher tuition costs, they run to 270.

And what of the local constituency of students that GW once served so well? Those students haven’t gone away, of course. But they go elsewhere. The Capitol policeman of today doesn’t look to the high-toned GW for his degree in public administration or criminal justice. Instead he might look to the for-profit Strayer University, which has five campuses in the D.C. area -- all happy to nickel-and-dime him by the course. Indeed, the prodigious rise of the for-profit education sector is arguably just a canny response to higher education’s abandonment of Timex students for the Rolex crowd.

None of this is to say that George Washington is a bad school. In all sorts of ways, GW is a fine university, with well-respected law and business schools, an up-and-coming school of international affairs, excellent access to internships and jobs on Capitol Hill, and one of the best student-run newspapers in the country. It also does well in measures prized by the Washington Monthly, such as high rates of participation in the Peace Corps.

Moreover, it’s possible that GW could one day become a truly top-shelf school. In future years, alumni who are both wealthier and more devoted to their alma mater than past graduates may have the capacity and inclination to give generously, reducing the school’s need to rely so overwhelmingly on tuition. But it seems just as likely that GW could turn out to be one more overleveraged artifact of our gilded age. New, more streamlined institutional models could steal into Washington, capitalize on the same geographic advantages, and undercut GW on cost. Or a school with a more established brand name could establish a satellite campus, partner with a major policy organization, and beat GW in prestige. (For a model of how this might work, check out Kevin Carey’s “The Mayo Clinic of Higher Ed,” page 27.)

But above all, GW seems vulnerable to a potential change in the way we think about higher education. What if we actually started measuring how much students learn at their colleges and universities? How would that change the competition among institutions? Would the schools with the blue-chip price tags and high average debt loads fall from the top ranks? Would it spell an end to the era in which a forbidding set of entrance standards and a few stone facades are enough to tell us that a school is doing a great job? Let’s hope so. It would be great if more universities competed to be excellent. What we have now is schools that spend a lot of money -- students’ money, taxpayers’ money -- merely to look that way.

Daniel Luzer is the web editor of the Washington Monthly.
 
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