UCLA Goes Private: The Start of the Higher Ed Bubble Popping?

UCLA is Going Private. Akin to the scene in "Robocop" where a character shouts excitedly, "We're taking this city private!" UCLA's Anderson School of Business wants to give up state funding and rely on private donors. This just might be the inflection point of the Higher Education Bubble popping.


Glenn Reynolds, Instapundit.com blogger and University of Tennessee Law prof, has predicted this bubble bursting. So has Michael Barone. The Seeking Alpha blog has predicted this as well (no, not the Roissy style Alpha, the Alpha indicating active return on an investment, usually associated with a benchmark index like the S&P 500 Index). The American Enterprise Institute Blog has also predicted this. The chart at the top of the story is courtesy the AEI Blog at the link.

It is worth noting, a year at the UCLA Anderson School of Business MBA program costs roughly the same as a year at Yale as an undergrad, around $50,000 a year. Yale is a little more. An MBA student graduating from Anderson, without any scholarships, can expect in excess of $100,000 in student loan debt. Most will never pay this off.

But it is worth noting what Top Tier schools like UCLA's Anderson School of Business is all about. Anderson is 15th in the US News & World Report ranking of business schools. UC Berkeley is seventh, and Harvard, Stanford, and MIT are the top three respectively. These schools are not selling unique learning. Accounting, Finance, and Marketing are the same at Harvard, as they are at say, UCI or Chapman University or any number of schools. What these schools are selling is exclusivity, for rich White people, and the exclusive social network (like a pricey Yacht Club or Golf Club) that allows for power-brokers to form backscratching arrangements. Prospective donors like the folks from Blackrock or Pimco, don't give charitable money for nothing. They expect things. Such as exclusive access to a social network comprised of only the most exclusive business school students (read: rich and connected) in the world.

First, the ugly details from the Financial Times:

A leading business school in the University of California system is preparing to forgo public funding amid increasing uncertainty about the state’s economic health and California’s ability to pay for higher education.

The UCLA Anderson School of Management plans to fill the funding gap with money from private donors, bolstering a roster that includes business figures such as Larry Fink, the founder of BlackRock, and Bill Gross, the founder of Pimco.

Its decision to opt out, which is awaiting the approval of Mark Yudof, president of the UC system, is a clear indication of the broad changes that lie ahead for the network, which was established in the 1960s with a public mandate to provide world-class education to deserving students regardless of their ability to pay [Emphasis Added].
…
California faces a budget deficit of more than $19bn while the UC system itself has a funding shortfall of $800m, forcing schools and colleges in the network to cut classes and raise tuition fees. This has prompted a wave of protests on campuses across the state.

Judy Olian, dean of UCLA Anderson, told the Financial Times that opting out of public funding was a “creative solution” that would allow the UC system to reallocate the money to UCLA’s underfunded undergraduate programmes.

“The UC system is arguably the greatest public university system in the world,” she said. “But we’re not going to keep it that way with the old model.”

About 18 per cent of UCLA Anderson’s $90m budget currently comes from state coffers, which includes the tuition students pay to the school. Tuition costs will rise as the school opts out of public funding but Ms Olian said the increase would be in line with previous years: tuition fees at UCLA Anderson have steadily risen as money contributions from the state has fallen, she said. “That train left the station a long time ago as state support declined.”

Tuition at UCLA Anderson costs $41,000 a year to California residents and $49,000 to non-residents but is likely to rise to a rate comparable with top-tier private business schools such as Wharton and Stanford when the school opts out of public funding. The move is set to come into effect by next summer.

Public funding for higher education in California has been squeezed in recent years. Thirty years ago, 10 per cent of California’s general budget was spent on the UC and California State systems and 3 per cent was allocated to prisons.

But in the past three decades spending on prisons has risen to 11 per cent of the state’s revenue, while higher education’s share has slipped to 7.5 per cent

Note by the way, the change from the mission of the original UC system, built by Pat Brown, and the old-style Liberal Democrats, to educate the mostly White middle and working class sons and daughters, regardless of ability to pay, to one of already, without the changes, skyrocketing fees. A full $41,000, and nearly $50,000 for out of State Residents (yes, Illegal Aliens pay in-state fees and benefit from Affirmative Action). The UC system, built for the White Middle Class, now aims to keep them out as much as possible.

Increasingly, an MBA from a "good school" i.e. one of the top twenty schools in the US News & World Report, or Businessweek rankings, is mandatory for management positions (those that are left) in marketing and corporate finance, accounting, and the rest. A few employers may tap regional schools that dominate their area (Notre Dame comes to mind, as does Emory, or University of Miami), but for the most part, it is Top 20 or bust, just as in Law Schools.

As Law has become something that is really, forbidden as a profession to make living wages for most of America's White Middle/Working class, so too is Business Management slipping away. Salaries at Ole Miss range from $66,000 to $47,000, with the lower end being more likely (it is the government vs. private sector salary, considering most graduates take the Mississippi Bar Exam and government is the only major employer in the state, well the lower salary is the most likely one).

The LA Times has a similar story:

Anderson, which offers master's degrees and doctorates, hopes to wean itself off state funds by 2015 and to replace that $5.6 million a year with additional private donations and tuition levels closer to that of private business schools. Under the plan's projections, annual tuition for California residents in a full-time master's program at Anderson would rise gradually from $41,000 now to about $53,000, including a $5,000 discount for in-state students.
…
Some critics say that Olian's plan, coming after several rounds of UC-wide fee increases, is another step toward privatizing the prestigious public university system. Olian and her supporters deny that, saying that Anderson would remain under UCLA's academic governance and policies, including its tenure and pension rules.
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Business schools at two other public universities, the University of Michigan and the University of Virginia, have successfully implemented similar plans, and others are considering it, experts say.

Those schools "want to control their own destiny," according to Jerry E. Trapnell, executive vice president of the Assn. to Advance Collegiate Schools of Business, the schools' main accrediting agency. In addition to seeking more stable funding, they hope to respond more nimbly to market demands for new programs, Trapnell said. A major challenge would be to ensure enough financial aid to maintain the income and ethnic diversity [Emphasis Added] of public institutions, he said.

Anderson is not the only UC graduate school to consider doing without most public funding.

UC Berkeley's Boalt Hall School of Law explored a similar plan several years ago and could be a candidate for such changes in the future, along with other UC business and law schools. But officials said relatively few departments or schools in the UC system could forgo state support because of limits on what students in many programs are willing to pay and the difficulties of tapping alumni donations in many less-lucrative fields.

Anderson enrolls about 720 students in its full-time master's programs, which receive state support, and about 1,100 others in several part-time and executive MBA programs, which do not. There is also a small doctoral program in management. The school recently placed 15th in U.S. News & World Report's national rankings of graduate business schools, which put Harvard, Stanford and MIT in the top three spots. UC Berkeley's business school tied with Dartmouth's for seventh place, and USC's Marshall School placed 20th.

At Anderson, about a third of the tenure-track faculty are paid salaries higher than $200,000 a year, campus officials said. If the new plan is approved, the business school would be free to raise salaries even higher, without seeking approval from the university's central administration.

Officials say the plan is feasible because the school, which now has an annual budget of about $96 million, would keep all fees and tuition revenue it generates while forgoing other state funds that have been shrinking. The business school would continue to pay UCLA for facilities and other shared costs, and UC would still compensate Anderson for teaching undergraduate courses in accounting.

The plan assumes that donors would be more willing to support a self-sufficient school and that private gifts and endowment income would grow from about $10 million to $14.5 million annually. Olian also hopes to eventually triple the school's current $102-million endowment, which is much smaller than most of its public and private competitors.

Note three interesting things. Other public universities, including University of Virginia and University of Michigan, both elite Business (and Law) schools, have implemented similar plans. UC Berkeley may yet implement a similar plan. Next, the plan also allows payment of faculty at really, alarmingly high salaries, with no public input or check. Are a third of professors on tenure track really worth more than $200,000 a year? Certainly not for teaching, MBA professors being notorious for the most part for being relatively poor teachers (Grad Assistants do most of the teaching and exam preparation and grading). For research, perhaps, but who would gain access (preferential at that) to the research, and where would the research be directed? For the benefit of the State of California? The students in the program? Or large donors?

Lastly, note that "A major challenge would be to ensure enough financial aid to maintain the income and ethnic diversity." Or code words for "no working or middle class Whites need apply." Only rich White folk, and non-Whites (mostly Black and Hispanic) as non-threatening blocking pieces and nascent Barack Obama's to use as political favor banks.

This I think, is the inflection point. Where there are not enough students to make Graduate Schools profitable, not even with massive credit (student loans are not forgivable, nor can they be discharged in bankruptcy like mortgages). Unless massive fund-raising efforts concentrated on a few, fabulously wealthy donors, provide and indeed, produce a privileged social network, basically a country club with a research arm and a place to make deals.

This is not the end of the Education Bubble. But it certainly marks an inflection point. And a major challenge, politically, culturally, and socially.

Are voters (mostly White, middle and working class, even in California, where Mexicans just don't vote, mostly because many are illegal aliens) going to support a UC that excludes their sons and daughters? That has become, a country club for Rich Whites and privileged non-Whites, with a research arm attached? Can the state or indeed the nation afford the end of the California and larger American Dream? What kind of changes will the sudden, massive dashing of upward mobility for most White men and women in America, and the massive display of privilege by both rich White folks and selected non-Whites (smarter Blacks and Hispanics) do to the simple cohesion of America and California?

Are voters going to be OK with Professors at schools where their sons and daughters can never go, making over a quarter of a million dollars a year? For essentially, part-time work? Will citizen gadflys and Glenn Reynolds "Army of Davids" expose the inevitable sweetheart deals that UCLA Anderson and other schools do with major supporters like Blackrock and Pimco? Will this be another Bernie Ebbers, or Tyco CEO Dennis Kozlowski related scandal (appropriating resources, in this case public ones instead of shareholder resources for private gain?)

Neither Meg Whitman or Carly Fiorina (being part of the wealthy, corporate elite that believes keeping the great White unwashed, as opposed to selected non-White unwashed) are likely to make this an issue. This is the price of RINO-ism. But yes, inevitably even in California, someone will make this an issue. The betrayal of the California Dream. The death of middle and working class White aspiration. The closing off of the professional managerial ranks to non-connected, non-wealthy, White boys and girls. The rise of the new, connected Black and Hispanic elite. A nation of Barack Obamas, or Tony Villaraigosas, and a few Kennedy types, or children of corporate masters, and a nation of suddenly poor, angry, and resentful folks denied upward movement? Because they are White, and middle to working class? This bodes ill.

This is not a Jacksonian moment. It is likely to be far more severe, and far-reaching, in the inevitable White middle-working class reaction.

If the elites wanted to create their own White middle-working class revolution, they could not do more to provoke it than killing the UC system for White middle-working class people.