Progress: Finally, a Mega-Donor Concerned with Reining in Higher Ed Costs

photo:  Nagel Photography/shutterstock

photo:  Nagel Photography/shutterstock

Recent higher ed coverage at IP has looked at why mega-donors—their support for scholarships notwithstanding—don't seem particularly concerned about addressing the drivers of escalating tuition, and with it, the metastasizing student loan crisis. It's especially puzzling, since so many top campus donors have made their fortunes as business leaders who've built efficient companies that control costs. Why don't these masters of the universe ask harder questions as they shovel money into a sector that's famous for its bloat, with students as the primary casualties?

I'm pleased to report that news out of Illinois earlier this month points to an encouraging development in the form of a $150 million gift from Larry Gies, the chief executive of the Chicago private equity firm, Madison Industries, and his wife, Beth, to the University of Illinois. 

The gift, the largest in the school's history, will focus on expanding the business school's programming and scholarships rather than constructing new campus buildings, according to Urbana-Champaign Chancellor Robert J. Jones.

That alone is good news, but here comes the money quote:

The donation from the Gies family will be used to create graduate programs and use "technology to democratize education," according to school officials. One example is the business school’s iMBA program, a master’s program started in January 2016 that is conducted entirely online and costs about a third of what equivalent degrees cost, school officials said. The university sees it as a way to reduce barriers to geography, cost and access, officials said.

I (almost) spat out my Frappuccino onto my computer screen upon reading that excerpt. There, in black and white, a donor gift has been earmarked to cut costs while simultaneously funding scholarships. How is this possible?

The Johnson Principle

Samuel Johnson once said, "When a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully."

In other words, when a university system stares into a financial abyss caused by a devastating budget impasse, its administrators have little choice but to get creative and trim the fat. And that's precisely what's happening in Illinois.

A September 2017 piece by Dawn Rhodes in the Chicago Tribune found that enrollment at many of the state's public universities dropped this year, particularly among new freshmen wrestling with where to commit for their college educations. University leaders cited budget battles as a critical factor in both the declines and the fact that the University of Illinois at Urbana-Champaign dropped from 44 to 52 in U.S. News & World Report's highly influential university rankings. 

Facing the figurative gallows, university officials had no choice but to cut costs and boost accessibility. And fortunately, it found an ally in Gies, whose gift does more than plug a hole in the budget.

"Innovative Solutions" and "Outstanding Customer Value"

We like drawing connections at IP, however unscientific, between a donor's line of work and his giving behavior.

For example, there's the theory that mega-donors who hail from the finance world should be naturally predisposed to see that universities cut costs and boost efficiency in exchange for their millions. Recent news, like Kenneth Griffin's $125 million gift to the University of Chicago Business to support free market economics, doesn't lend much credence to this theory.

Gies, however, is a different story. He graduated from the University of Illinois in 1988 with a degree in accountancy, while Beth, whom he met at the school and later married, graduated with a degree in agriculture. He went on to earn an MBA from Northwestern University’s Kellogg School of Management in 1992.

Gies serves as the President of the Gies Foundation, which focuses on youth, education and health, and was instrumental in establishing the Gies Campus of Chicago Jesuit Academy, a full scholarship school for boys on Chicago's West Side.

He founded what became Madison Industries in 1994, which is now regarded as one of the largest and most successful privately held companies in the world. And as to why Gies may be particularly inclined to squeeze out maximal efficiencies from his gift, consider the copy on Madison Industries' website:

The firm "builds entrepreneurially driven, branded market leaders that are dedicated to making the world safer, healthier and more productive by creating innovative solutions that deliver outstanding customer value."

I can think of at least one "innovative solution" that delivers "outstanding customer value," and it's called an "online masters program" that "reduces barriers to geography, cost and access."

In other words, donors like Gies—those who made their millions driving innovation and cost efficiencies—may be higher ed's best hope in an environment where declining public funding is the new normal.

The Writing's on the Wall

At this point, some additional context is called for.

There's nothing inherently revolutionary about an online masters program, and no one is claiming that the University of Illinois' iMBA program will be the panacea for the system's financial struggles. It's but a small component of a larger gift that, among other things, doubles financial aid and, to quote Chancellor Jones, elevates the business school "to the next level of excellence." Nor, for that matter, did Gies' boilerplate comments on the gift call attention to runaway tuition or student loan debt.

But his support is nonetheless important, and here's why.

At the most fundamental level, it's an example of a gift that rethinks how students get degrees—looking beyond the usual path of spending years on campus. That's a welcome development among the mega-donor class, especially when you look a bit further down the road.

The higher education system, as currently constructed, is not sustainable. Outstanding student loans now total over $1.2 trillion and tuition keeps climbing. Meanwhile, government funding of all kinds for higher ed is stagnating or declining, including state appropriations for public universities, research grant money, and the purchasing power of Pell Grants. 

Will philanthropy become increasingly important in the higher ed space, particularly in the public sphere, in the next 20 years? Of course. Chancellor Jones acknowledges as much, noting, "More and more, you're going to see philanthropy as a greater part of the financial model for public universities, as it's always been a part of the financial model for private universities."

But will college as we know it look profoundly different, regardless of donor support? Absolutely.

Market forces and demographic trends will demand a more affordable, accessible, and cloud-based college experience. Donors who continue to double down on the residential college experience may be whistling past the graveyard while others, like Gies, see the economic writing on the wall. 

Looking ahead, donors may demand universities freeze tuition, embrace online education, and offer a more affordable "product" out of genuine concern for debt-ridden students. Others, meanwhile, may do so simply because they're the only things standing between a university and full-blown bankruptcy.