Eric Risberg/AP Photo
Mills College students celebrate after the Oakland college’s trustees announced that they had reversed their decision to admit undergraduate men to the school, May 19, 1990.
Higher education in the U.S. is struggling. Many of its problems are beyond its control, including a global pandemic, changing demographics, increasingly hostile state legislatures, and increasing competition from higher-education sectors abroad.
But there is one problem firmly under its power: administrative incompetence. Put simply, all too many administrators fail to understand what it takes to create and sustain a high-quality school. Mills College in Oakland, California—a 170-year-old institution facing financial difficulties—is a perfect example.
Some background: I am an economist, and I have studied education finance and policy for over a decade. Until 2019, my work was primarily focused on questions specific to K-12 education and Head Start programs. I shifted my focus to higher education that year when administrators at my institution, the University of Tulsa, proposed massive cuts to academic programs and terminated faculty retirement contributions. Given what we know about school quality, this change seemed ill-advised, particularly when I found that my school was allocating a relatively large and increasing share of its budget to administrative functions.
Since at least the late 1960s, education researchers have known that the most important factor influencing student outcomes is teacher quality. Outside of increasing teacher quality, no other policy interventions seem to matter. Increasing administrative or other non-instructional spending, improving building quality, and even reducing class size does not have a significant impact on student achievement, at least not in comparison to even modest improvements in teacher quality.
Since at least the late 1960s, education researchers have known that the most important factor influencing student outcomes is teacher quality.
The implication of this research is clear: To improve student outcomes, colleges and universities need to promote policies that will allow them to attract, hire, and retain the best teachers. Administrators need to pay their teachers more than the competition, offer better working conditions, and promote high teacher morale in their schools. School budgets should maximize instructional spending and minimize other non-instructional spending. It is simple labor economics. A high-quality school maximizes student learning given its resource constraints.
Yet higher education is full of administrators who ignore this and instead do the exact opposite. Using rich data provided by the Integrated Postsecondary Education Data System (IPEDS), college and university audited financial statements, and Form 990 tax statements, I found that the disturbing spending allocations at my school were quite widespread. Many administrators are pushing policies that grow administrative spending, while cutting budgets for faculty and instruction. These policies often severely damage their colleges and universities, leaving them with bloated administrative budgets and a demoralized and inexperienced faculty. In this environment, student learning, enrollment, and retention inevitably suffer.
One particularly disturbing case is Mills College in Oakland, California, a historically significant liberal arts school I have analyzed in depth. My findings should serve as a wake-up call for struggling colleges and universities nationwide. Many problems in higher education today are self-inflicted and can be solved with competent leadership.
What Happened at Mills College?
Mills’s current administration has managed to nearly destroy a 170-year-old college over the course of just six years. In 2015, Mills altered its student applications and suffered staff turnover in the admissions office. These events likely caused Mills to lose half of its student applications for the fall of 2015, a loss that has persisted every year since. All else constant, a permanent 50 percent loss of applications would cause Mills’s enrollment to decrease about 10 percent per year for five consecutive years, for a cumulative enrollment loss of 50 percent by 2020. Mills’s actual enrollment loss over the next five years (from 2014–2015 to 2019–2020) was softened to 34 percent only by a reduction in admissions selectivity and an increase in the percentage of admitted students who decided to enroll.
Source: National Center for Education Statistics
Mills’s administration then botched the ensuing—and largely self-inflicted—financial crisis. In the usual pattern, they slashed instructional spending and fired faculty, while simultaneously increasing spending on administrative functions. Since 2015, Mills’s operating revenue has declined by 15 percent ($10 million). In response, it has cut instructional spending by roughly 33 percent ($8.2 million). While Mills has imposed severe cuts to instruction, the function expense most closely aligned with its mission, it has significantly increased its administrative spending. Administrative spending includes two functional expense accounting categories: institutional support and academic support. Since 2015, Mills has increased its administrative spending by 29 percent ($5.3 million).
By 2019, Mills was spending more on administration than it was on instruction, a phenomenon that is rare and disturbing. This spending profile would be illegal in many states’ K-12 education systems. Regrettably, there are no such rules in higher education.
Largely because of their own mismanagement, Mills’s current administration is now trying to force the sale of the college. But Mills can and should be saved. It wouldn’t even require new sources of funding. If Mills simply cut administrative spending to the average of its peer colleges, it would free up enough cash to balance its budget, create a financial cushion, and invest more in its faculty, instruction, and student services.
For comparison, consider Holy Names University—a private university of similar size in Oakland, California. In 2020, Mills spent about $8.5 million more on administration than Holy Names, and it spends around $1.8 million more on its food service contract. Combined, this is over $10 million per year in excess spending just on administrative and auxiliary functions.
That said, a 15 percent operating revenue loss is not an institution-ending event. Many colleges and universities suffered similar or worse losses between 2015 and 2020, including some of Mills’s closest peer institutions—Whittier College (-17.5 percent), Pacific Union College (-23.4 percent), Salem College (-23.5 percent)—and they are all doing fine.
Even with the revenue loss, Mills should have more than enough money to survive. Its operating revenue ($56 million in 2021, $63 million in 2020, and $54 million in 2019) ranks well above the 2020 median ($50.7 million) of all 963 private B.A., M.A., and Ph.D.-granting colleges and universities in the U.S. Among the 138 such institutions with enrollment between 800 and 1,200 students, Mills’s revenue ranks eighth-highest. Even if Mills’s revenue were $45 million, that would still rank in the top 15 schools. Mills’s biggest problem is that of excessive spending on non-instructional functions, not revenue. Through administrative cost cuts alone, Mills can more than fix its financial problems.
Why Oppose the Mills-Northeastern Merger?
Given these missteps by Mills’s administrators, it is tempting to support its proposed merger with Northeastern University. Northeastern would hopefully cut Mills’s excessive administrative and auxiliary enterprise costs. Northeastern is also highly ranked in U.S. News: 49th among national universities.
So why oppose the merger? Here are a few reasons.
The first, and most important, reason is that Mills College could continue as an independent women’s college. Motivated alumnae, indebted to the college for the education they have received, have given Mills a lot of money to pursue its important mission as a women’s college. It has a responsibility to its donors to honor the mission that has guided it for almost two centuries. Only when all options have been exhausted should it be allowed to cease to exist as an independent women’s college. Clearly that standard has not been met here.
A second reason is that Mills College serves our nation’s most at-risk, low-income students. Its students are relatively low-income (52 percent Pell Grant–eligible), and they are mostly students of color (65 percent). Mills serves this unique student body quite effectively. Because of its large endowment and donor support, the college generates about $14,000 per student in unrestricted revenue from its endowment and donations every year, allowing it to provide low-income students with a high-quality education for a low tuition price. The average student pays just $19,000 and receives $27,000 in instruction and student services.
Northeastern, by contrast, does not have the same experience serving this type of student. Given its small endowment (for its size), low donor support, and reliance on extremely high tuition revenue to sustain its operations, it likely can’t.
Northeastern charges $45,000 in net tuition and fees per student (on average)—more than double that of Mills College. Northeastern’s net tuition and fee revenue per student is sixth-highest in the country among private B.A., M.A., and Ph.D.-granting institutions. Using this metric, it is the most expensive private school on the U.S. News rankings list of best national universities.
The average student at Northeastern pays $45,000 in tuition and fees for $28,000 in instruction and student services—or double what the average student at Mills pays—while receiving about the same investment in their instruction and student services. My fear with this merger is that we will lose the high-value, low-cost school that is Mills College today.
The third reason to oppose this merger is simple: Northeastern has its own financial vulnerabilities. It generates high net tuition revenue primarily by enrolling a lot of international students. These students account for 32 percent of Northeastern’s enrollment but pay most of its tuition and fee revenue. This would not be much of a concern at most schools, because most schools are not highly reliant on tuition revenue to support their operations.
But that is not the case here.
Northeastern is highly reliant on tuition and fee revenue to sustain its operations. These funding sources account for 73 percent of its unrestricted revenue, while at the median four-year private nonprofit B.A., M.A., and Ph.D.-granting school they account for just 58 percent of revenue. Only 31 percent of Mills’s unrestricted revenue comes from tuition and fees.
All of this means Northeastern is uniquely exposed to risks related to changes in international student enrollment, which has been declining nationally since 2016 and has accelerated recently because of the global pandemic. At a minimum, Mills’s administrators should pause the planned merger and wait to see how Northeastern fares in this environment.
Mills College should serve as a wake-up call for higher education. Right now, there are dozens of colleges and universities like Mills staggering under the load of bloated administrative budgets. Instead of cutting the bloat, some schools are choosing to close or merge. Others are pursuing aggressive cuts to instructional spending. The consequence of cuts to instructional spending is predictable given the research on school quality: Student outcomes will suffer, the school’s revenue will fall, and further spending cuts will be needed.
Competent administration can break this cycle and revive dozens of struggling colleges and universities across the country. If that does not happen, we can expect more of the same: Schools will continue to fail, tuition prices will continue to rise, and student outcomes will decline.
