The Higher-Ed Cost Crisis As Research Cost Crisis

Why is college so unaffordable? Here’s one reason: Universities are funding sponsored scientific research with billions of dollars of institutional funds derived in part from undergraduate tuition payments.

by Reed Fawell III

On January 23, Jim Bacon raised the question, “Does Undergraduate Education Subsidize University R&D?” In the post he concluded:

Here’s the problem: We can’t hope to strike the proper balance if we don’t know who is subsidizing whom. Higher-ed accounting is a specialized discipline and opaque to outsiders. We are fumbling in the dark. We need more information. The higher-ed establishment has no interest in providing that information, which can only lead to unwelcome calls for change. Only the General Assembly can make Virginia colleges and universities cough up the data. But, sadly, most legislators don’t know what they don’t know, and none of the bills submitted to the General Assembly this year (that I’m aware of) are calling for more cost and accounting transparency.

Actually, the system is not as opaque as Jim imagines. In this post, based primarily on National Science Foundation data, I contend that tuition paid by undergraduate students subsidizes their universities’ research and development, the overwhelming bulk of which is in the fields of science and engineering. Further, I argue that undergraduate tuition often subsidizes the research sponsors, including the federal government, private businesses, and/or non-profit organizations such as health care organizations. Without undergraduate student tuition payments, many such research programs at public universities would not be financially viable.

Unsponsored research paid for by U.S. universities and undertaken by their faculties has increased 49.1% in the last four years, now amounting to a staggering $17. 975 billion. I suspect that even more unreimbursed research, particularly in the humanities, is likely off these charts, unrecorded as time and money spent under the accounting rubric of “instruction.”

Source: National Science Foundation

While internally funded university research in the humanities exploded in the 1970s and continues unabated, the dollar cost of this research was relatively small, and remains so, compared to cost of hard-science research, particularly the fields of engineering, life sciences, and natural sciences. Public research universities are absorbing not only direct costs incurred by their own staff and faculty for independent research done on their own account but unreimbursed indirect costs of sponsored research relating to marketing, proposal writing, regulatory compliance, resolution of conflict-of-interest issues, lab construction, and compensation of heavily recruited faculty. These expenses, which often enrich faculty, are far too frequently paid for with funds generated by undergraduate tuition, and drain resources that could be used to better educate undergraduate students.

Why are unreimbursed costs increasing so rapidly? The reasons are many.

States bear some responsibility. Legislatures have cut state support that covered some of these research costs.

But that’s hardly the full explanation. Driven by a desire to increase their national and international rankings, research universities have entered new fields in the hope of winning more sponsored research. As competition for a limited pool of research dollars has intensified, universities must spend more money and effort submitting proposals. Where once there might have been only one bidder, there might be five or six today. Universities often now conduct preliminary or collateral research at their own expense in the hope of qualifying for future work. Often, institutions share contracts with researchers at other institutions, spreading the costs and increasing the odds of winning. But sharing research contracts also reduces revenues. (It’s likely that these sharing arrangements are imposed by sponsors to avoid stovepipe issues, forcing researchers within various universities to share their knowledge rather than horde it for their own private advantage, thus decreasing costs for sponsors at the expense of universities.)

In sum, research universities find themselves in a buyer’s market for hard-science research that increasingly favors sponsors and funders. Not only can funders pick and choose among more bidders, they can cherry pick the tasks, off load the difficult, risky and costly work, and retain the best of research jobs for themselves.

In reply, many public research universities spend more of their own funds in an effort to compete, or give the appearance of competing, and keeping busy. Public universities typically have two main revenue sources to subsidize research: state appropriations and undergraduate tuition. In the past, state appropriations exceeded tuition. Now tuition revenues exceed state aid by substantial and growing margins. In other words, undergraduate tuition increases have covered the growing gap between dwindling state appropriations and growing unreimbursed research costs.

How long will the public tolerate chronic rising tuition when higher charges go not to students’ education but to administrators, research professors, and research sponsors?

Educators have tried a variety of solutions — mostly failed — to keep the machinery running. They have increased the number of undergraduate students admitted. They have appealed to wealthy undergraduate applicants by dangling deluxe student accommodations, food and entertainment. They have discounted tuition for some students, ramped up tuition for others, and recruited high-paying foreign students. They have peddled packages of loosely underwritten loans. They have catered to students with inflated grades, deflated study requirements,”junk courses,” safe spaces and a toleration of hookup cultures.

Today’s higher-ed system is unsustainable.  The public research university business model is broken and hemorrhaging losses. Tuitions are through the roof, even as average American households have lost wealth and suffered stagnant wages. Student debt, over $1.5 trillion to date, is plagued with rapidly rising student loan defaults. In the last two or three years, there are signs that demand for higher ed is shrinking. More students, parents, and taxpayers wonder if a college education is worth the cost. The public rightfully wonders if fixes to the spiraling costs serve only to turbo-charge higher-ed’s spendthrift ways.

Absent radically different solutions, universities’ R&D obsession will exacerbate the problems outlined above. Today, federal research contracts cost universities on average 25% more money than the government is willing to pay for the work.

For example, Arizona State University, a seemingly thriving public research university ranked #55 nationally, generated $405 million on research in FY 2013. The federal government covered only $201 million, forcing the university to self-fund $150 million in losses, or 37% of its total research costs. By 2015, Arizona State’s self-funded research losses totaled $205 million on $518 million gross research expenses.

In 2014, the University of Michigan at Ann Arbor, America’s #2 research institution in total research expenditures, spent $445 million of its own monies to support its $1.4 billion in total research costs. This 32% loss was up from 28% in 2011, despite a minor increase in gross revenues. And in 2016, Michigan’s self-funded losses were just under $504 million on $1.431 billion in gross research expenses.

The University of California system, the largest public research system in the world, garnered $3.5 billion in externally sponsored research grants (including $720 million worth of reimbursed indirect costs) several years ago, but had to spend $1.5 billion in indirect costs to set up, compete and win the work. Thus the California system lost 20.6 cents on each dollar spent on the cost of the research (that is direct and indirect research costs). Today, based on those averages, those losses would be around 25 cents per dollar of cost.

While losses on public university research have trended sharply upward for most universities, a few dominant players have kept their losses to a minimum. Johns Hopkins, the #1 research institution in the country, used only $88.3 million of its own funds to support gross expenses of $2.17 billion — only 4%. In the fiscal year 2016, Hopkins was out of pocket $96.5 million in unreimbursed costs on a total of $2.43 billion in research expenses.

The University of Washington in Seattle, #3 nationally in gross research costs, spent 6.5% of its own funds, up from 5% two years earlier. In 2016, the university was out of pocket $105.6 million on $1.227 billion in research expenses. The University of Chicago, another high performer, lost only $40.7 million on $420 million in research expenses during fiscal year 2016.

How did these players do so well? Perhaps their proximity to so many savvy, long-time private research corporations and venture funds played a role. Perhaps they had nurtured strong, deep, long-term relations with sponsors and partners. Perhaps they built cutting-edge infrastructure that they could keep busy constantly while tapping deep financial resources. Or perhaps they were lucky. Wild swings in losses among equally experienced players suggest that bidding for federal research is inherently risky.

During the last recession, America’s system of federally funded research threatened to come apart, particularly at the public university level. The 2009 American Recovery and Reinvestment Act (Obama’s massive stimulus bill) funded $100 billion in additional Pell Grants, along with a one-time $20 billion infusion of public monies into higher education’s academic health and science research to cover rising gaps in state funding programs. Soon thereafter the federal government accelerated its student loan guarantee program. Then, in 2012, the Obama administration announced plans to double its federal funding for STEM research. This stimulated university spending on research in anticipation of a flood of new “research business.” But the administration didn’t deliver the additional money.

The federal promises instead jump-started a merry-go-round of unabated spending despite alarming subsidies by many public research universities. Universities bid up compensation for senior research professors. Administrative costs surged as universities managed the business end of research. Meanwhile, states cut back on financial support to higher-ed, and student loans filled the spending gaps with more debt. The federal government, private enterprise, and non-profits who sponsored and benefited from the arrangement, made off like bandits, loading costs onto the shoulders of the public universities.

Citizens and students, along with departments and teachers that taught undergraduate students were the losers. Undergraduate Arts and Sciences, trade schools, and business schools typically are profitable in the sense that their tuition revenue exceeds costs. These institutions teach courses indispensable for maintaining an educated citizenry and a functioning republic. But they generate little in the way of outside research dollars, so colleges and universities plunder them to subsidize losses in the prestigious hard sciences that teach only a small percentage of America’s undergraduate students.

Suggested reading whose statistics and commentary underpin this article include the following:

Science and Engineering Indicators 2018, by National Science Board of National Science Foundation, as that Board judges the US Higher Education System regarding Science and Engineering Education.

Academic Research in the 21th Century: Maintaining Scientific Integrity in a Climate of Perverse Incentives and Hyper competition, Published in Environmental Engineering Science in 2016 written by Marc Edwards and Siddhartha Roy, of Virginia Tech.

Science Is Broken by Roy and Edwards of Virginia Tech published in Aeon Magazine, Nov, 2017

Reform the Funding Model for the University of California, Jan. 12, 2015, by Charles Schwartz.

Finances of Research Universities, June 2014, by Council of Governmental Relations (COGR).

National Science Foundations (NSF) annual Higher Education Surveys of Federally sponsored Research from 1956 to 2012).

National Science Foundation (NSF) 2012 Report Diminishing funding and Rising Expectations: Trends and Challenges for Public Research Universities.

The National Academies: Research Universities and the Future of America published in 2012.

Finances of Research Universities, June 2008 report, by Council of Governmental Relations (COGR).

Finances of Research Universities, June 2004 report, by Council of Governmental Relations (COGR).

Losing the Big Picture: The Fragmentation of the English Major since 1964, by the National Association of Scholars.

The Great Mistake by Christopher Newfield, published 2016, by Johns Hopkins University Press.


Bacon’s Rebellion post March 28, 2013 More Big Tuition Hikes Ahead for  UVa

Bacon’s Rebellion post April 5, 2013, Woo Wows Wahoo Alumni.

Bacon’s Rebellion post Feb 20, 2017, Faculty “Costs per Enrolled Student” Varies Greatly.

Bacon’s Rebellion post Feb 23, 2017, Do Virginia Universities Give Excessive Aid to Out of State Students?

Bacon’s Rebellion post May 19, 2017 Running in Neutral: a k-2 and Higher Ed Scandal

Bacon’s Rebellion post Sept 27, 2017, Making the Case for More Higher Ed Investment.

Bacon’s Rebellion post April 6, 2017, Virginia Tech OK’s Intelligent Infrastructure Initiative.

Bacon’s Rebellion post April 17, 2017, Business and Computer Science Majors are the Biggest Bargains in Higher Ed.

Bacon’s Rebellion post April 11, 2017 Author Files Suit to Spur Investigation on UVa Admissions

Bacon’s Rebellion post May 2, 2017, Online Education Marches On

Bacon’s Rebellion post May 17, 2017, Is it Time for a Son-of-Restructuring Act for Higher Ed?

Bacon’s Rebellion post June 9, 2017 No, Reduced State Subsidies Do Not Drive Tuition Increases.

Bacon’s Rebellion post Oct. 17, 2017 Plumbing the Mysteries of College Education Data.

Bacon’s Rebellion post Oct. 24, 2017, Faculty Unrest at Virginia Tech.

Bacon’s Rebellion post Nov. 9, 2017, The Research Crisis in Higher Education

Bacon’s Rebellion post Nov. 10, 2017, Toxic Brew: Relativism and Globalism

Bacon’s Rebellion post Nov 17, 2017, Gross Versus Net in College Tuitions.

Bacon’s Rebellion post January 4, 2018, Let’s Collect Higher-Ed Employee Productivity Data.

Bacon’s Rebellion post of January 23, 2018, Does Undergraduate Tuition Subsidize Debt

Bacon’s Rebellion post of January 15, 2018, The Reform Agenda of Virginia’s Higher Ed Critics.

Bacon’s Rebellion post Jan. 16, 2018, American Higher Ed: Innovative, Adaptable, Transformative.

Bacon’s Rebellion post Jan. 16, 2018,  Make College Trustees More Accountable to Students, Taxpayers

Bacon’s Rebellion post of January 17, 2018, The Only Thing Worse Than a Tuition Cap … is no Tuition Cap.

Bacon’s Rebellion post of Feb. 2018, Even Progressives Acknowledge the Failure of Indiscriminate Student Loans.

Bacon’s Rebellion post March 25, 2018, Deciphering Higher Ed Statistics.

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16 responses to “The Higher-Ed Cost Crisis As Research Cost Crisis

  1. Non-research colleges and universities should provide the competition that would keep tuition costs low — if the state governments would end the subsidies so the competition would be on a level playing field. I wonder if university research is worth any government funding. When I left my (tenured) university teaching-and-research job in engineering, I left in part because the research was so far inferior to what I had done while working in industry.

    • Yes, I have heard stories like yours’ many times, Fred.

      One constant refrain I’ve heard is that, typically the best people far too often leave the research university for greener and healthier pastures once they are successful, or show promise of success.

      Often these sorts of people leave the university behind with its very substantial sunk costs invested in that guy, costs that all too often are effectively abandoned, never to be recouped by the university. Many have said that it easily can take a university ten to twenty years to recoup the cost incurred to set a high priced new hire research professor up in business with lab and necessary support. And this is often a best case scenario where the guy stays that long and has some modicum of success, instead of leaving because he is hired away, or fails altogether to live up to expectations. And that, in the best case, such hires bring in contract work that losses money for the university generally in any and most all cases.

      I’ve often heard too that the real successes are often hired away by those who sponsors their work at the university initially, as these sponsor who are operating under far more efficient business models, can pay the successful university researcher far more money, give him far better support, and supply him with far better working conditions, and independence, without all the hassles inherent in university research work.

      In short the public research university far too often proves to be a very inefficient business model for all concerned but a few in power.

      • This is not meant to deprecate the many fine public university research professors who work efficiency and effectively in the fields of basic research, often undertaking the most difficult of tasks breaking new ground in science, doing work that too few others today will undertake because it often lacks any surety of monetary reward typically driven by private interest.

        Here, doing this basic research in the interests of finding breakthroughs in pure science, the public universities do valuable, often irreplaceable, work worthy of public support.

  2. Full professors in all fields teach less than 9 hours per week in the classroom and a part of their compensation is classified as “Research” to justify the low teaching load. They are replaced by graduate assistants or adjuncts who teach for nothing compared to the hourly wages of full professors and have no benefits or job security.
    When states, including Virginia, decided to shift cost of an undergraduate education to students who could pay for it through loans institutions demanded “deregulation” and with that everything changed. And, with their work load dropped to say 6 hours per week in the classroom professors were hesitant to challenge the new financial paradigm. Now more than half of undergraduates are taught by part-time teachers with no job security and no benefits etc while presidents compensation jumped ten times higher in a little over 10 years and professors time in the classroom dropped dramatically.
    Now we are coming to the cliff and the question is will the pied piper lead us off the cliff? This is not unlike the dot com bubble or the home buying bubble and who knows how it will end. None of the characters on central stage has and reason to change.

  3. The university invested only $20,000 in my research, so the sunk cost was little. I was not lured away but quit in disgust. I did like my new job, which paid only slightly more. I liked teaching and disliked insignificant research the value of which was judged by the number of publications. I could name a only few professors, all of whom I greatly esteemed, who did significant research. There is much to be said for community colleges, which do not do research. Their tuition is lower and the emphasis is on teaching.

  4. Please note this comment regarding posted article.

    “Unsponsored research paid for by U.S. universities and undertaken by their faculties has increased 49.1% in the last four years, and it now amounts to a staggering $17. 975 billion. I suspect that even more unreimbursed research, particularly in the humanities, is likely off these charts, unrecorded as time and money spent under the accounting rubric of “Instruction.” See above article.

    Here is a rough explanation:

    Between 1972 and 2016 Higher Education R&D (in constant 2009 dollars) rose from $11 Billion to $72 Billion, a 4.8% increase over 2015. This represents a total of 902 degree granting institutions that spent at least $150,000 in R&D the previous year. As regards the 640 institutions that reported more than $1 million in R&D in preceding year and who accounted for 99.8% of the total R&D in 2016, their work was funded as follows by:

    1. The Federal Government funded $38.8 Billion of R&D done by institutions of higher learning in 2016. (Since FY 2011, federally funded university research expenditures have dropped from 62.5% of total expenditures to 54% of Total R&D done by universities.)

    2. State and local Government funded $4.03 Billion in 2016.

    3. Universities self-funded (Institutional Funds) $18.01 Billion in 2016. This $18.01 Billion self funded research costs incurred by universities included:

    (a)$11.5 Billion of self funded voluntary research undertaken independently by research universities on their own account in 2016.

    (b) It also included $1.4 Billion in Cost Sharing wherein research universities self funded a share of the direct costs of research they did for outside sponsors in 2016.

    (c) It also includes $5.07 Billion that universities self funded for their Unrecovered Indirect Costs that they incurred while working on outside sponsored research for others in 2016.

    Please note that these numbers to not include much of the costs that universities incur for unreimbursed research, particularly in the humanities, that is off these charts, and unrecorded as time and money spent under the accounting rubric of “Instruction” said to comprise 50% of the typical professors time in the Humanities, along with another 25% devoted by these professors to what is referred to as “Administration” related to so called “Instruction”. The final 25% percent is said to be devoted to teaching. (Note that this latter 25% “teaching” number is highly suspect as concerns tenure and tenure track professors, especially those engaged in research.)

    4. Business funded $4.2 Billion of R&D done by institutions of higher learning in 2016.

    5. Non-profits funded $4.6 Billion of R&D done by institutions of higher learning in 2016.

    6. Other sources funded $2.2 Billion of R&D done by institutions of higher learning in 2016.

    Please note that substantial amounts of the indirect and direct costs of the work performed by public research universities for the Federal Government, Business, Non-profits, and “other” sponsors were paid for by the public research universities doing the work, hence included in $17. 975 billion total of Institutional Funds (adjusted upward to $18.1 Billion).

    Also please note that these R&D university expenses include the following fields of research in 2016:


    Computer and information sciences – $2,08 Billion
    Geosciences, atmospheric, and ocean sciences – $3.09 Billion
    Life sciences – $40.9 Billion
    Math and statistics – $687 million
    Physical sciences $4.9 Billion
    Psychology – $1.22 Billion
    Social Sciences – $2.37 Billion
    Sciences (nec) – $1.08 Billion

    ENGINEERING – $11. 39 Billion


    See generally NCSES InfoBrief November 2017 as to numbers cited.

  5. Reed, you’ve done a masterful job of describing a sorry situation in higher ed., but there’s something missing: causation. In addition to ‘what’ is happening, the loss leaders on research, the competition to perform it, I find myself asking ‘why?’. Why would any university set out to lose money on its research and development programs overall, even to the controlled extent of a Johns Hopkins or a U. of Washington? The only driving force that you mention is, “These [r&d] expenses . . . often enrich faculty.”

    My overall impression is that there must be something else going on. Are we looking at a situation that has arisen because once upon a time r&d WAS profitable, but is no longer so, and the universities are simply hoping to weather a temporary storm before r&d returns to profitability? Or rather, is all this activity — this hiring of faculty and construction of labs and announcements of new grants at a hidden cost to the institution — pursued by the institutions’ leadership because their personal performance and compensation is rewarded for all the “enhanced institutional name-building” that’s going on? Or another possibility, is the cost accepted as a way of sliding money under the table to important faculty members whose avarice must be tolerated in order to attract them and thus attract the students who pay for it all? Are the Boards of these institutions fully informed, or even aware, of the transfers of dollars from tuitions to faculty that are going on here?

    I can’t blame those who shop these research possibilities out there for taking advantage of a seller’s market and minimizing their funding grants. Many of them are private industry; it’s a competitive world out there. What doesn’t make sense is why it is SO attractive to these institutions to engage in “unsponsored research” and to incur losses even on the sponsored research, when, as Fred points out above, the really best quality research is going on in the private labs which do the most exciting stuff and steal away the best people after their reputations are made.

    It’s like a giant pyramid scheme. Who, or what, will call the bluff?

    • Acbar, all becomes comprehensible when you realize that universities are not profit-maximizing institutions but prestige-maximizing institutions. They play by a totally different set of rules that are incomprehensible to anyone outside the sector.

    • ACBAR:

      I agree with Jim, but I also suggest that there is more at play here. As Jim suggests, the private profit seeking business corporation thinks and plays by a whole set of different rules than a public research university.

      Thus Rector Dragas was completely flummoxed and frustrated by the way Teresa Sullivan ran UVa., as many other hard nosed successful business CEOs like Dragas would have been equally flummoxed, disgusted, and frustrated at the system and how it worked as she obviously was. I suspect frankly that most members of UVa’s Board of Visitors have little more than a clue as to how UVA and other public research universities work.

      Indeed I suspect that most, but surely not all, however, are simply kept in the dark and along for the ride. Indeed that is what Teresa Sullivan meant back in May of 2011 when in her memo she assured Rector Dragas that she would make being a member of her UVA board the “Best Job in Virginia.”

      Rector Dragas likely interpreted that lure as an insult, and rightfully so. But most would have taken Sullivan up on her promise. Such is human nature, don’t rock the boat when you got a plum like being on the Board of Visitors of UVa.

      In any case, profit and lost principles to not rule the Public Research Universities. But gross revenues do and gross expenditures do rule. These are the primarily tools to gain and keep national and global rankings. Such rankings are deemed essential to success for these institutions. The president of an elite research university that drops in its national and global rankings is going to lose his or her job. A president who drives those rankings higher is going to keep the job along with big pay raises. Hence ever increasing revenues and expenditures, not losses, are deemed keys to success.

      What are the keys to these rankings that require ever more revenues. Ever more research. Ever more research revenues which are defined as expenses, not profits. Ever more research clients, irrespective of profits, of which there are none, save for few limited exceptions. Ever more highly paid professors. Ever more professors highly “respected” by the polls of their peers. Ever more prestigious awards won by professors. Ever more student applicants with high test scores. Ever more rejections of student applicants with high test scores. Ever more expensive deluxe accommodations, and cuisine food. Ever lower student to professor ratios, ever more student support services, and retention rates.

      All of these things require ever more expenditures of money to keep ratings high, and too keep those who make those ratings happen happy campers.

      Thus as a result, public research universities that are cut off increasingly from state appropriations lose their bargaining positions with professors and sponsors, and fall victim to them too, as they spend ever higher sums for:

      1/ highly respected and sought after professors who can bring in the bacon by reputation alone, or by producing research sponsors who can attract “business” that uses and justifies use of highly expensive infrastructure that most often will be operated at a financial loss simply because that financial loss is built into the system for research universities, most particularly public research universities who feel they must compete with the private wealthy big boy universities and become their peers, despite their lack of deep financial pockets to play the game since they are being stripped of state backing. And the key is to keep paying senior people inside and out the university.

      Making matters worse, the federal government, private business, and big non-profits, including big philanthropy, know this weakness of public universities and take advantage of it, and indeed support this system for their own private advantage. Hate to say this, but I now suspect that private interests within the individual states too often manipulate the system to keep it alive so as to milk it for their own advantage, as does federal government.

      Hence we see the private loans sharks working with the public universities to load up ever more debt on the students paying ever more tuition to keep this Merry-Go-Round Going. But Acbar, remember that the elites within the public universities and those who work within the network around the public universities are making a lots of money off the system, whether they be senior faculty, senior administrators, funders of grants, venture capitalists who fund ventures spun out of research, patent holders, and a whole panoply of financial interests and collateral business interests who quite frankly take advantage of the bloated creature that is increasingly reliance on tuition to keep itself afloat, particularly in its current awkward position of being an quasi orphan – half public / half private institution, neither fish nor fowl.

      So here we get into the realm not of logic but of human nature. We are particularly into the world of human nature operating in group dynamics. We have discussed this at length earlier on this blog, particularly as regards the thinking of Reinhold Niebuhr. I will try to retrieve my earlier comment on Niebuhr’s writings on group dynamics, but for now the central idea is that as an organization matures it invariable drifts away from its original mission proclaimed by its founders and it twists that original mission into one that satisfies the most pressing self interests, desires, and obsessions of the most powerful factions within the organization and network around it.

      Hence public universities not longer serves students but serve the private interests of the most powerful factions within the university, and those outside with the most influence on the university – the powers within the state, the federal government, business interests, rating agencies, and those who generate revenue and status for those in power, irrespective of the universities profit and loss statement. The driving deep idea now is that no matter what the somehow, someway, the public will bail the public university out, so it can on being milked by those who control it.

      There are other forces here too, that I believe are at work. This has to do with a related part of human nature, call it the dynamics of group hysteria, group think, and group’s obsessive compulsive behavior where no one is in control, or no one feels in control, and no one feels they can afford to stop what they are doing, because the pain of stopping seems far worse and more hopeless, than the risk of going on. This is a version of everybody keeping their head in the sand, hoping for the best, afraid to confront or consider the worse, while others with nothing to lose keep the bonfires ablaze.

      Often we see this when real estate developers can’t stop building new spec. buildings, can’t stop borrowing money and lenders can’t or won’t stop lending it to them, because everyone fears getting of the merry go round, since then revenues with stop and the system will collapse of its own weight. This too we have discussed at length on this blog as these Merry-go-Rounds on average collapse nationally about once every ten years or so in this country.

      • To put this conundrum that the state public research universities now face into perspective for all concerned, consider this now obvious fact:

        A publicly traded private for profit corporation is ultimately responsible to its shareholders, those among the public who invested in the company.

        What does this mean?

        All profit and loss, and all appreciation of share value, go to the shareholders alone by way of profits converted into and disbursed as regular dividends, paid to those shareholders who can also cash out (sell) the full value of their share of the corporation they own at any time.

        The great problem is that our public research institutions now work in reverse, as a result of very recent corruptions that infect our universities.

        In particular:

        The people of the state wherein the public universities are located are the shareholders of those public institutions of higher education, including their public research universities.

        Here, however, unlike for profit publicly traded private corporations, the value of these public research universities are being looted by an array of private interests who strip the shareholders of the value of these institutions, while they also saddle many of those shareholders with crippling debt whose proceeds then are looted yet again by the very same private crony interests, while the children of the shareholder investors within the state receive bogus and corrupted educations at highly inflated prices along with a litany of bad habits and disinformation that throttle their futures, and society’s too.

  6. I think it’s simpler than thought. Who would stand to gain from this?

    You actually have to have people who want to do the “research”.

    Those folks aspire to do more than just “teach” and building more “credentials” could lead to higher paying jobs.

    I think you have to look at the people aspect to better understand motivations…

    I worked at a R&D activity – and some people aspire to do the work and others aspire to push the envelope in research. It’s partly prestige but it’s also part of being able to move up the ladder with some research “cred”…

    I knew one guy who became a world expert in Geodesy… and when he died unexpectantly – they found 3 years worth of uncashed checks in his desk drawer. Who knows what drove him but people lined up to see him on issues of “Geodesy”.

    Some things like this become a lifelong pursuit… for some folks.

    And Academia – likes them… wants to make a home for them…

  7. Perhaps you and Reed are looking at two sides of the same coin. You are looking at why someone would want to work in an R&D institution, and Reed is looking at what motivates the institution to engage in R&D at a net loss, year after year, and hide the losses. I have a young friend who runs a large lab doing cutting-edge stuff in a field she has largely explored on her own and she is absolutely motivated by the research itself, and the papers she has authored from it, and the people she has mentored through their lab work together that now form a wide-flung network, as well as the supporting environment of living at a large university, but she lives simply and seems nearly oblivious to compensation. She would be easy for a large university to take advantage of. But then there are the tenured professors who are hired to teach and to oversee such labs as a sideline, but with out-sized compensation packages designed to reward them for lending their names to the institution to attract students and research staff and grants and building investments. They seem to know exactly why they are doing this: they are executives running a subsidiary business within the University, and they expect to be treated that way.

    But Reed, Jim, you focus our attention on the fact that these businesses are so un-profitable they actually LOSE money, and are subsidized by student tuitions (mostly undergraduates). They exist neither to educate, nor to make money to subsidize education, but to feed the prestige machine at the top of the enterprise. That is astounding; that is hypocritical; that is grotesque.

    A followup question(s): RF, you say, “profit and lost principles do not rule the Public Research Universities. But gross revenues . . . and gross expenditures do rule. These are the primarily tools to gain and keep national and global rankings.” Are you referring here to the oft-cited WSJ and USN&WR academic rankings and their like? > They are prepared by people “outside the sector” and prepared at least in part with the business of education in mind; why don’t the rankings reflect such a basic consideration as whether these peripheral R&D enterprises are profitable? > Is the misguided focus of the rankings the real root of the evil here?

  8. Acbar, you raise a number of interesting points.

    For example, “I have a young friend who runs a large lab doing cutting-edge stuff in a field she has largely explored on her own and she is absolutely motivated by the research itself, and the papers she has authored from it, and the people she has mentored through their lab work together that now form a wide-flung network, as well as the supporting environment of living at a large university, but she lives simply and seems nearly oblivious to compensation.”

    I know what you are talking about, Acbar. I hold the same emotions.

    Your young friend reminds me of a guy I lived next door to for many years. He was 15 years older than I, a PHd physician who I admired greatly, a modest, shy, and unassuming man of enormous intellect and determination in his work, generous and caring, who devoted his entire adult life doing cutting edge cancer research in a lab at the National Institutes of Health, NIH, five minutes away from where we lived.

    And there is another guy, a 18 year old wonderkind climber kid, one of the world’s best, who lost both his legs after I’d heard his ice axe chopping up an ice gully right alongside mine for most of one of morning, a kid who 10 and then 20 years later again saved my life, not once but twice, after my own mountain climbing accident, the first time as a survivor on his way to MIT, after Harvard, and then the second time as the head of a world class research group at MIT designing and building revolutionary prosthetic devices that have changed many lives in profound ways, including my own.

    Then, of course there are all those lives these academics save as teachers, and all of their wonderful books based on long and hard research, the work, wisdom, and learning that those books give us stuff that keeps our civilization and our humanity alive. Without these books, my life and my world would surely be a far dimmer, ignorant, loutish and brutish place.

    So this is a vitally important subject. We are writing or trying to write about what is happening to their world, one that is not our own, yet really is too. And doing this work we (or at least I) are making a lot of mistakes and leaving a lot of wrong impressions, and doing unavoidable harm whatever our intentions. Passions and words are easily misunderstood, and misinterpreted, and too sloppily and thoughtlessly written. I suspect its unavoidable, but believe it is necessary. Despite its incredible riches and its enormous importance, what we are talking about here is largely an invisible threat to a largely invisible world to most of us. Often it likely is hard to see, to appreciate, to learn about and to understand or get exited about, much less write about the right way. That is where J. W. Gilley comes in. He is my North Star here.

    You asked:

    “profit and lost principles do not rule the Public Research Universities. But gross revenues . . . and gross expenditures do rule. These are the primarily tools to gain and keep national and global rankings. Are you referring here to the oft-cited WSJ and USN&WR academic rankings and their like? … why don’t the rankings reflect such a basic consideration as whether these peripheral R&D enterprises are profitable? Is the misguided focus of the rankings the real root of the evil here?.”

    Yes, they are what I am referring too. And the deeper I look the more I wonder about and am amazed at the deep power these bogus rankings hold over the entire industry of higher education.


    I suspect one could write a book on this subject. It seems as if these polls over time have been refined more and more effectively to reach deep into the primal psyche of human nature. Consider the impact that college football ratings have on college football as an industry, and on the entire country.

    For example, “The Crimson Tide owes $225 million over the next 28 years. In the Big Ten, also flush from a rich media deal, the University of Illinois owes more than $260 million. If that revenue stream fails to grow or starts to drop, as it already has for some programs in the top tier of college football, the results could be crippling.”


    Even worse, think about how college football driven by college rankings have completely distorted and twisted out of shape how the American people value their universities, including most prominently the alumni of those universities. We have been reduced to children.

    A lot more to write on this subject, Acbar, but dinner is on? Thanks for bringing all of this up.

  9. Acbar asks why a university would want to or agree to “lose” money on research, and that is a good question. Of course, they don’t want to. They would love to have all costs funded by sponsors like the government, but they can’t because the system does not currently work that way. (Some universities are in a better position than others to have sponsors pay a higher percentage of costs.)

    But I don’t think universities look at it from a loss standpoint. They are more interested in maximizing prestige, as Jim points out, but also revenue. They look at research as the opportunity to get 3 new dollars coming in if they can only come up with 1 dollar in institutional funds. That can be a win from a prestige and revenue standpoint. The rub, of course, is that the 1 dollar the university has to come up with has to come from somewhere, and (undergraduate) tuition is a likely source for a substantial part of it.

  10. Acbar write: “A followup question(s): RF, you say, “profit and lost principles do not rule the “Public Research Universities. But gross revenues . . . and gross expenditures do rule. These are the primarily tools to gain and keep national and global rankings.” Are you referring here to the oft-cited WSJ and USN&WR academic rankings and their like? > They are prepared by people “outside the sector” and prepared at least in part with the business of education in mind; why don’t the rankings reflect such a basic consideration as whether these peripheral R&D enterprises are profitable? > Is the misguided focus of the rankings the real root of the evil here?”

    A good point. If you look at some of these large research universities, the revenue per student cited in rankings like USNews would have you believe that they are lavishing attention on undergraduates. But my experience shows the opposite. Classes are large, focus on teaching is questionable, and counseling is poor. The reason, of course, is the mechanism we are discussing here. The actual use of the undergraduates tuition (and the research dollars) is not focused on the undergraduate.

    And with the way the accounting works, universities can more or less have their cake and eat it too. Virginia Tech, for instance, can use institutional funds to bolster research spending and research rankings. But a significant portion of institutional funds can be accounted for as instruction (per OMB and NACUBO guidelines).

    • I agree with all that you say above. And I will add here what I added into another post and add to it, namely that:

      “If you dig into footnotes and OMB guidelines, you can see tuition can be a source of “institutional” funds, but the amount is not given. If you dig further, into university finance, like I did for Virginia Tech, it then becomes clear that the only way universities could fund this huge level of institutional funding of research would be through tuition and unrestricted appropriations.”

      Yes, you are totally correct. There is simply no way that vast amounts of undergraduate Tuition is not going for graduate level professors research. It plainly is. And this immoral diversion of undergraduate student tuition away from their education is a national scandal that has been hidden for decades, and now is reaching crisis proportions, on many fronts.

      But I suspect this is in one sense the tip of the iceberg. That from an immoral and financial point of view, it is quite likely that there is a great deal of DOUBLE DIPPING going on here. This is when the tenured or tenure track professor gets paid twice for the same hour of work. And that this is why, I suspect that professors so often claim to be working 70 hours a week, namely 40 hours as professors (instruction, teaching, and instruction related research) PLUS an 30 additional hours a week as sponsored researchers and administrators.

      Have you ever tried to work 70 a week as a lawyer and administrator, Acbar. I have. It near impossible for all but a few people over a short period of time but all these tenured professors seem to do it with ease all the time.

      What I am saying here is that I suspect we are dealing with a massive cover-up and fraud. Whether that is true or not, we need to get to the bottom of it, and expose the truth of what is going on in the Academy to the light of day.”

      In addition, let me say that the rating agency Moody’s, far different from the magazine rating scam, has also looked into these matters of public university finance generally. Moody’s has raised a number of red flags as far back as 2013, and before. Best I can tell, the public research universities blew through those red flags to get to where they are today.

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