In America, we take a lot of pride in the idea that every person deserves an equal shot at making the most of their talents. Over the years, I’ve learned that equal opportunity relies on equal access to all kinds of things—including the chance to complete some kind of degree after high school.

The United States is actually pretty good at getting students into higher-ed programs. But our completion rates are shockingly low. The United States has the highest dropout rate of any developed country for kids who start a higher-ed program. And that has a huge impact on their ability to build a career and earn a good living.

Fortunately, there are things we can do to turn the situation around. I recently had a chance to speak about the problem and the opportunities to solve it at a meeting of business officers from colleges and universities around the country. I talked with them about what I hope they will do to ensure that students complete a college degree that they can build a career with. Here is the speech I gave.

Remarks as delivered

National Association of College and University Business Officers Annual Meeting

July 21, 2014

BILL GATES:

Well, good morning. I’m excited to be here. I appreciate this chance to talk with you about the future of one of America’s greatest assets. Our higher education system. A lot of people don’t know that our Foundation invests in higher education. They may know more about our work in global health and development. Or, may even more about our work in the K-12 system in the United States. But, in fact, we have a significant program in this area because of its incredible importance.

And, our motivation for all of our work, to eradicate disease, to alleviate poverty, the health of education here in our country, all stems from a single core principle, which is that all lives have equal value.

The United States really stands for the proposition of equal opportunity. And, we’re striving in our work to have the US maintain and strengthen that, where access to great education is the key element. And, when we ask about the strength of our country in the decades to come, renewing this strength, helping it stay on top, I’d say, is one of the most important things that we need to do.

Looking at the individual level of opportunity, do people have equal opportunity? The data we see shows that, unless you’re given the preparation and access to higher education, and unless you have a successful completion of that higher education, your economic opportunity is greatly, greatly reduced. There’s a lot of data recently talking about the premium in salaries for people with four-year college degrees. In 2013, people with four-year college degrees earned 98 percent more per hour, on average, than people without degrees. That differential has gone up a lot. A generation ago, it was only 64 percent.

If you look at the numbers more closely, you will also see that unemployment, partial employment, is primarily in people without four-year degrees. Our economy already is near full employment for people with full year degrees. And, so, the uncertainty, the difficulty, the challenges, faced, if you haven’t been able to get a higher education degree, are very difficult already today. And, with changes coming in the economy, with more automation, more globalization, that divide will become even more stark in the years ahead.

So, if we’re really serious about all lives having equal value, we need to make sure that the higher education system, both access, completion, and excellence, are getting the attention they need.

It is unfortunate that, although the US does quite well in the percentage of kids going into higher education, we’ve actually dropped, quite dramatically, in the percentage who complete higher education. We have, amongst developed countries, the highest dropout rate of kids who start. And, understanding why that happens is very, very important. For many of those kids, that experience is not only financially debilitating, being left with loans that are hard to pay off, but, also, psychologically, very debilitating, that they expected to complete, they tried to complete. And, whether it was math or getting the right courses, or the scheduling, somehow, they weren’t able to do that, which is a huge setback.

So, we had to deliver value. We’ve got to measure that value. And, really, adjusting the resources, so that we’re doing that well, is a mission for you, the business officers of the colleges and universities. You’re the ones charged with fiscal management. And, that has huge impact on every aspect of the student’s experience. The quality of instruction, the ability of financial aid, the physical plant, the support systems, all of that are tradeoffs that the financial model drives.

And, what my key message is today is that that model will be under challenge. And, so, instead of tuning it to find 3% here or 4% there, which has been the story in the past, there would be dramatic changes, in terms of deciding what scale you can operate, and what kinds of students you’re going to go after, and do you price differentiate, do you change your cost structure. And, so, the role of the business officer won’t be just finding that last little tuning or getting the reports done, it will be to get in the center of the strategy, working with the education leaders and the effectiveness measures, and figuring out how those goals and the financial numbers come together.

Everything that counts requires resources. Scholarships for low-income students, student supports, and I’ll talk about how critical that is, libraries, labs, things that attract good professors. And, balancing those things to deliver value, and, measuring that value will be more challenging.

And, we think about revenue sources for higher education, we can see that a number of them are challenged. A number of them will not grow as costs go up. At the state level, total state funding is not going up substantially. And, a higher portion of state budgets, over time, are going to health and retiree type areas. Health costs hit the states in many different ways. Current employees, retired employees, their Medicare programs. And, those costs go up substantially faster than the rate of inflation or the rate of state revenues. And, so, the second biggest pot of money, which is the education pot, both K-12 and higher ed, gets raided. And, so, on a per student basis, that money has gone down, and there’s no likely prospect that it will go back up. Some people have thought of it as cyclical, but, in fact, if you look at the last several cycles, it goes down in the cycle and then, during the good years, it stays at that level, and then, as the next cycle is hit, it’s gone down again.

Federal funding, you know, the Pell grant program, other federal loan programs, expanded dramatically over the last decade. And, now, there’s not, actually, enough funding to have those increased. Particularly, the Pell grant, where they’re actually behind and they’ve got to make up, just to stay at the current level, even ignoring educational cost inflation.

Tiering of students, where you make sure that the ones who can afford high tuitions are paying those, so that you can subsidize more, that’s been pushed, which is a fantastic thing. But, the amount that that can be done is now probably reaching a limit, where, even middle class, middle upper class, has a hard time with that top tuition rate. And, so revenues are going to be tough. It’s not as though we can raise student loan levels dramatically up from the level they are today.

And, those sources of revenue, as they look at outcomes, are probably going to be more demanding. They will be talking about measurements. And, although, in a certain sense, measurements can be a very, very good thing, this is a challenge that we have to get out in front of, because inappropriate measures can be worse than no measures at all. They can incent exactly the wrong behavior.

Now, in this fiscal environment, we also have innovation. Innovation in, of course, delivery, and innovation in how support systems can work. For course delivery, of course, we talk about massively online courses. And, how we can take the lecture component of an education and deliver that in a more flexible, higher quality form, over the Internet. And, the MOOC work really is just at the beginning. Those courses, there are thousands of them today. Some are pretty good. Most are mediocre. But, the competition for excellence between the MOOC’s is heating up very dramatically. So, you will see emerge, over the next five years, some fantastic courses for remedial math, remedial writing, statistics, all the entry level courses. Slowly, but surely, three or four will get more budgeting, more feedback, and more improvement. And, all the elements, the lecture element, the quiz element, the online collaboration elements of those, will improve very substantially. And, the net result of that will be that the lecture piece will no longer be competitive. And, so, the real question won’t be about lectures. It will be about how you take those online content pieces and combine it with study groups, labs, discussion sessions, to deal with the kind of motivation, the supports, that students need.

The MOOC, by itself, doesn’t really change things, except for the very most motivated student. It’s just an element to be mixed in to get all the steps to get through an entire degree program. And, so, most of these systems will be hybrid systems. After all, a student who could deal with just the MOOC by itself, without any face-to-face contact and counseling, they’re the type of student who, when we had text books, were also capable of getting by and learning the material. The MOOC is not based on new educational knowledge. It’s simply presented in an easier to understand, more interactive way that can be fantastic. So, that’s an opportunity.

Now, by taking that lecture piece and changing it and making it not a professor from the institution itself, but, rather, somebody like who is more like the text book, where they competed in a broad market to be the very best, it’s going to raise questions about what is the role of the professor. How do they fit into this new world?

Many institutions will use this capacity, some moving too fast, certainly. But, they will use it to increase their scale. And, so, at the same time as you all have constrained revenues, you will have people doing a good job or not doing a good job, who are offering to enroll a larger number of students. And, so, in a sense, there will be more competition. The affordability question, the innovation question, all of those lead to saying that, instead of supply and demand being in this balance, there will become an imbalance. And, some institutions will make progress into this new world and some will not.

We have seen some great reforms, some leaders taking best practices. We work with the National Center for Academic Transformation. And, there, course by course, in terms of particular areas like remedial math, the redesigns have been very dramatic, in terms of raising completion rates, reducing class time. And, that’s very exciting.

I’d say another piece that gets less attention but I’m equally excited about is student advising. By creating a digital system that knows everything about a student, including all their discussions with adults about scheduling and financing and goals, the challenges they face, and a system that tracks when have they been online, when have they been attending courses, and is analyzing when they might need some support intervention, and identifies what kind of intervention is best, somebody who can help with their financial package, or help with their motivation or scheduling, and having support resources that, by going to that digital record, have the entire context and can help them in the most efficient, least costly way.

So, those support systems will have to be very connected to administrative systems that will require investments, that will require thoughts about privacy, and, again, the job categories for the support people, specialization, abilities, these technical tools, will be extremely important.

Ironically, as we raise completion rates and we get more students into their third and fourth year, the cost structures of delivering courses in the third or fourth year is much higher. And, so, this idea of really understanding your cost by year, your cost by student type, that’s very important.

It is interesting to look at the for-profit sector. And, one can have a very simplistic view of the for profit sector. One can say, you know, maybe they’ve overmarketed in some cases. Maybe they’ve over-promised in some cases. You know, people are now looking at Corinthian, which is going out of business, having to sell off its campuses. Saying, okay, that sector had some bad practices and, so, maybe this is just.

But, in fact, if you look into the particulars of what data they were asked to provide, that’s a standard that they weren’t able to live up to. Their money was cut off. And, in fact, that same type of data, I believe, will be demanded of all institutions. And, the state really needs to think about is that realistic, how do they contribute? What are these longitudinal databases that look at student success from an economic point of view or achieving the goals that they had in mind?

I do think, as we look at the for-profit sector, there are a lot of best practices there. The support systems they’ve had, the student tracking. The way they use capital assets. The way they take a much tougher cohort of students, on average, than most institutions. And, so, while there are certain practices that are not good to adopt there, seeing the challenges they face and seeing the things the way they have done well, bringing that into all of education, will be important. I don’t believe that a measurement system should simply apply to them and not apply to the broader universe. And, getting those things right is very, very difficult.

So, it’s time for the higher ed community to develop and adhere to reporting standards that you shape that really get at these cost and performance issues. And, the sooner you drive this, it’s better than having it brought down from on high in a way that’s really not appropriate. I see no world in which these metrics are not coming along and are not more significant in shaping all the policies.

It is legitimate, for the state funders to the federal funders, to try and make sure that best practices are identified. We can look at similar institutions in this space and say, why are their cost structures different? Where is the money going? Is it that the one that’s spending less is missing value opportunity, or is it that the one that’s spending more is missing some efficiency opportunity? The time where questions could be put off has certainly come to an end. And, so, I think that’s an opportunity for all of you to rise to the occasion.

We need to make sure that we’re really talking about the goals and the outcomes. And, yes, it’s oversimplistic to say it’s just getting a job with a certain salary. There are things about citizenship, broad knowledge, and deep understanding of the world, that we should have in mind. And, those are very difficult to measure. But, simply saying that we won’t measure the other things, the job attainment, the completion rates, the salaries that people get. And, the satisfaction. What were their expectations coming in, and what happened to them, and why did they think they fell short or the institution fell short? That should be well understood.

There’s a certain irony that academic institutions are good at studying other parts of society, you know, bringing numbers and understanding to the work that they do. Looking at the health care system, looking at for-profit business. That’s a phenomenal role that the world of academics plays. But, I’d say, in terms of turning that lens on yourself and saying are certain degree programs subsidizing others, is that appropriate? Are there certain degree areas that some universities should get out of and specialize more, go for scale and things that you’re particularly strong in, those questions simply haven’t been asked, and this new environment will force them to be done.

Department by department, year by year, one thing we will have to be careful of in all of this is that we don’t want to get into cherry picking. That is, there could be a tendency, for example, if just looking at completion, to tell institutions to not take the more difficult students. Whereas, in fact, if we can appropriately measure that, we should reward colleges that take students that are tough and help them out.

Many of the measures today, for example, these ranking systems, work the opposite way. The basic idea is that, if you can admit geniuses that are fine the day they get in, that’s okay. Then, high SAT scores, high spending, that’s really good. So, it’s purely an input measure and not an output measure.

But, I do see this really as an opportunity. We can identify the best ways to deliver a postsecondary education, and we can share that. There are so many different decisions where there must be thousands of best practices that we can learn from. There will be a digital infrastructure. Not just for the courses, but for the analytics. All the things that are going on. And, so you, it’s going to be a challenge for you and an opportunity.

I know that university presidents and academic deans have often been reluctant to bring CFO’s and business officers into the strategic discussion. But, that reluctance reflects the fact that the number of moving pieces, the number of things that had to be reconsidered in the past, was very different than what they’ll face. And, so, it’s an environment where there will no longer be a perception of unlimited resources. And, your advice to presidents and deans will be critical.

So, I think this is very exciting. The role of education is more critical than ever. The role for equality, the role for our country, the role to lead the way, create the jobs of the future, using technology. It can all be done in an amazing way. It will be a period of turmoil and challenge, and I think you will rise to the occasion. We certainly need you to do so. Thank you.