Branding and the business model of research universities

Our daughter only applied to two colleges, Washington University in St. Louis and Colorado State University in Ft. Collins. Tuition wasn’t an issue, since her mom was an employee of Wash U, and the university pays full tuition at Wash U or half of Wash U’s tuition at any other college or university for all its employees. Half of Wash U’s tuition would cover most or all out-of-state tuition at any state university. Some of our St. Louis friends asked me if I was going to make her attend Wash U, since it is a “better school.”

The prestigious reputation of Washington University and other elite universities owes itself in significant degree to their reputation for research. The average undergrad will do little or no research in college, and many of the top researchers spend little or no time teaching undergrads. So in what sense is a research university “better” for the average undergrad? In the event, our daughter went to Colorado State (which is also a research university), mostly to get out of St. Louis. She did fine. No regrets.

Being a “research university” is good branding, but on the spreadsheet, research is a cost center for universities. While extramural funding helps defray a substantial amount of that cost, except for some clinical trials, grant funding doesn’t cover the full cost of research. Where does the rest of that money come from? Tuition, licensing and philanthropy. If the university has a medical school with a profitable clinical practice, the margin on the practice could also be used. Some medical school practices are subject to a “dean’s tax” that pays for faculty recruiting and retention.

If you wonder why higher education has gotten so expensive, one of the reasons is cost-shifting. State universities shifting from taxpayer subsidies to tuition. Successful branding allows the university to charge higher tuition, since what parent wouldn’t send their child to a “better school.” While most private college tuition is discounted, foreign students often will pay the topline rates. Overall, undergraduate tuition doesn’t pay the entire cost of a college education. Branding also helps with philanthropy and the endowment, which helps subsidize the operation.

It is unclear to me how sustainable tuition-dependent universities are, particularly as AI takes over many jobs formerly performed by college and professional school grads. It is also unclear how so many colleges and universities can continue to sustain the “research” brand in the face of stagnant or shrinking extramural funding.

Modeling research universities