When a University Needs More Money: Part One
In the system we built, all institutions get federal money from the same “per-student” funding formula, which is: more students = more money.
Systems are built by design. Our interstate system was strategically designed, as was our national power grid and internet. An important element of these robust networks is their core mechanisms, such as the satellites that make up Starlink or towers that connect cell phone networks. These are the elements used over and over again to create the functionality of the system. And the same is true of American higher education.
This broad system we’ve engineered is centered around tuition, with “per-student” funding and student loans performing an intricate dance with one another. By changing from a “lump-sum” to a “per-student” funding model, federal postwar higher education policies incentivized all colleges and universities to place a dollar sign above the head of every student. The practice is most acute at tuition-driven schools where, when enrollment goes down, cuts and reductions are necessary. In the words of one university administrator I interviewed for Capitalizing on College, the tuition-driven model is “very much a numbers game” that can be plainly understood as “numbers equal the money.”
But the per-student model also changed how the federal government financially supported students in going to college via financial aid and administering loans – giving money to colleges and universities on a per-student basis. This funding model has created a market-oriented approach for university leaders guided by this principle: If enrolling a student secures money, then enrolling more students secures more money.
This brief video trailer (above) mentions “the villain” & “the system we built” in a podcast about Capitalizing on College with Chris Glass, professor at Boston College & author of Distributed Progress.
A System Hardwired For Growth
Increasing enrollment to apply the “more students = more money” formula is the primary approach in addressing the financial needs of tuition-driven institutions that do not have the luxury of a robust endowment. One university executive framed matters bluntly, explaining how the incentive “to grow our way out of problems” has been “hardwired” into higher education.
But this wasn’t always the case. Prior to the 20th century, schools operated within a vastly different system in which paying for higher education via federal financial aid and student loans didn’t exist. From the founding of colonial colleges in the 1600s to the Second World War, students who enrolled in American colleges were predominantly those of financial means who could afford to pay full tuition or who worked in some capacity as a form of tuition payment.
The previous system that governed how tuition revenue was used by schools was also quite different than it is today. Tuition payments were received from enrolled students, but only covered a portion of the costs an institution incurred to provide an education. The remaining costs were subsidized. For private institutions, costs were paid by benefactors or religious denominations, whereas state and federal governments financed the remaining costs for public institutions through lump-sum payments that schools were entrusted to allocate in the most effective manner.
This earlier system changed following WWII with the signing of the G.I. Bill, which provided funds for servicemembers to build a new life. When federal lawmakers “rewarded” American military personnel with a financial grant to attend college, they fundamentally changed the way schools thought about tuition revenue. This federal foray into school funding served to create a new system that linked federal dollars specifically to an enrolled student. This per-student approach represented a stark philosophical shift in financing the college experience, fundamentally altering how institutions could pursue new financial resources. Schools now had a way to generate revenue that wasn’t dependent on the depth of their students’ and donors’ pockets. With the powerful federal government supplying new money, schools were incentivized to intentionally grow enrollments if they wanted to increase their revenue.
The development of this new system caused a boom in new college students. Between the late 1950s and early 1970s, the federal government enacted a series of consequential student loan policies expanding access to educational funding beyond returning servicemembers. Beginning with an effort to bolster the study of science and technology in the U.S. through the National Defense Education Act, this legislative stretch culminated in the federal government guaranteeing student loans and the creation of Sallie Mae, a bank specifically created to offer students financial aid. By the 1990s, the feds were issuing loans directly to student borrowers. Tuition dollars were now available to all eligible Americans.
By leveraging this shift, tuition-driven institutions could pursue monetary resources associated with any person able to obtain federal financial aid. The prospective student market had been opened up exponentially, and schools found themselves within a very different higher education landscape. A new system had been born.
Schools Created Engines for Growth
While the effects of the per-student funding and student loans clearly impacted the enrollment behavior of students, what has received less attention is the reciprocal behavior of schools. With federal dollars now tied to new students, schools dramatically restructured their strategies and budgets according to the “more students = more money” formula.
The concept of enrollment management took shape as enrollment (and the tuition dollars tied to it) took center stage in school strategy and structure. Streamlining admissions, recruitment, and student financial aid efforts were no longer peripheral concerns but front and center in higher education. Looking under the hood of tuition-driven colleges and universities today, one would be hard-pressed to find something other than an enrollment management engine driving their financial planning.
This new system created by federal policies fundamentally changed the behaviors of colleges and universities. While it provided students with additional financial tools to pursue a college education, it also increased the reliance of institutions on the enrollment engine. When finances are tight, enrollment increases provide the needed margin. And when building renovations or new facilities are needed, in the words of one senior leader I interviewed, “we crank up enrollment.” Another provost explained in no uncertain terms how the federal policies underpinning this strategy serve as the lifeblood for her school: “We are dependent upon them as an institution. We could not make it without [them].”
Competing for Pots of Gold
The system of higher education was fundamentally rebuilt during the second half of the 20th century. With a school’s survival now tied to enrollment engines, competition became unavoidable and schools turned their attention to identifying and developing new enrollment markets. This new funding system meant that to find a new enrollment market was to dig up a proverbial pot of gold—so long as you found it faster than your neighbor who was furiously shoveling next to you—and could hold onto it once unearthed. What appeared to be just a well-deserved benefit to returning soldiers wound up reengineering the American higher education system into a competitive market-driven industry.
The system that developed in response to the G.I. Bill and expanded through the introduction of federal student loans effectively assigned dollar signs to each student, incentivizing university leaders to prioritize student enrollment in market-oriented ways. Whether to fund new construction, fill budget gaps, or outpace competitor schools, enrollment management became the modus operandi for any school trying to function within the system policymakers had designed. For better or worse, more students now equaled more money. And after all—setting aside the corrosive effects of all-out competition for students and a “grow enrollment at all costs” mindset—who doesn’t want more money?
(Be on the lookout for Part Two, where I explain how the dollar signs above students’ heads are not all the same - some are much larger than others).
Extra Edge
1. Book signing! If you’re in Virginia or North Carolina, bring your copy of Capitalizing on College to Givens Books in Lynchburg, VA on Saturday May 10th from 12-2p for our second book signing. The store has 50 copies available for purchase!
2. YouTube Letters: I developed “YouTube Letters” as one approach in my courses to address the emotional well-being of students. I send a letter every other week that integrates personal narratives that speak about strategies for success coupled with a video clip that visually reinforces the letter’s theme. At the end of the course many students voluntarily write their own YouTube Letter to share with peers. I hope these encourage you as well.
3. Show & Tell. Show us your pictures of the book or your favorite lines on social media and tag with #CapitalizingOnCollege. Tell us about your opinions by leaving a review on Amazon, Barnes & Noble, Goodreads, or another outlet. If you’re feeling creative, make a short video for BookTok or Instagram – let us know what you think!
4. Additional Reading. Some resources that describe the systemic funding changes in this era include:
Loss, C. P. (2012). Between citizens and the state: The politics of American higher education in the 20th century. Princeton University Press.
Duffy, E. A., & Goldberg, I. (1998). Crafting a class: College admissions and financial aid, 1951–1994. Princeton University Press.
Kraatz, M. S., Ventresca, M. J., & Deng, L. (2010). Precarious values and mundane innovations: Enrollment management in American liberal arts colleges. Academy of Management Journal, 53(6), 1521–1545.