Pomona and the winning model of elite liberal arts colleges

Pomona College is a winner in the world of private liberal arts education. The school, which was recently ranked first out of all undergraduate colleges and universities in the United States by Forbes, delivers a first-rate undergraduate education to about 1600 students each year. For consumers of a Pomona education – mostly high achieving, academically motivated students – the primary value propositions of the school include:

• A highly personalized, high-touch academic experience: Class sizes average just 15 students, and the faculty-student ratio is just 8 to 1. Every class is taught by a professor – never TAs.  Every student is paired with a faculty advisor who helps shepherd his or her academic experience throughout their four years. Undergraduates can also get college-sponsored summer research grants, which provide funding for about 200 students each year to work with faculty and build up their research credentials.
• A vibrant residential life: 98 percent of students live on campus in 16 residence halls, fostering a community where students live and work together. Students almost exclusively eat at the campus dining halls. The school’s dorms and dining halls are very nice and almost always ranked in the top 20 nationally by the Princeton review.
• Student support: Services range from residential life support, career development, academic advising and student health support. These services help contribute to Pomona College’s 90%+ four-year graduation rates, which are close to the best in the country.
• Extracurriculars including with 21 Division III varsity teams and ~50 student clubs

Delivering on the “customer promise” outlined above is clearly resource-intensive. From the capital costs (building and maintaining state of the art academic facilities, athletic facilities, and dorms), to the costs of employing faculty and administrative staff, Pomona’s operating expenses totaled almost $94,000 per student in 2014 (based on total operating expenses of $151M).

Pomona is able to support this business model because it has financial resources that, relative to the size of the student body, are almost unmatched by other undergraduate colleges.  Its $2 billion endowment contributed $72 million to the operating budget in 2015 – almost half of the school’s total operating costs.

This level of financial resources has several important implications for Pomona’s operating model:

• The school can afford to invest in state of the art capabilities – whether it’s an advanced science lab or hiring an all-star professor – that keep it at the forefront of college rankings. Though the merits of rankings have been debated, being at the top unquestionably helps Pomona attract the most talented students, best professors, and drive alumni giving (a crucial feedback mechanism for the school).
• Pomona is able to charge a “sticker price” of $62,770 annually– on par with other elite privates – while providing financial aid for over half its students. The school can also afford to be need-blind in admissions and guarantee financial support for every admitted student. 67% of students receive some form of financial aid.

Other elements of Pomona’s operating model support its business model. For the school, like other elite colleges and universities, demand planning is straightforward. With far more applicants than it can take, the school can determine exactly how many students it needs to fill a freshman class, admit a certain number based on historical yields, and get the number “just right” by managing the waitlist.  By contrast, several less selective liberal arts colleges have been forced to close over the past few years due to declining enrollments and resulting lost tuition revenue.

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Strong demand also allows the school to manage complexity.  By taking students who are well-positioned to succeed in the environment – high GPAs, test scores, superior writing ability, and a solid record of extracurricular achievement- the number of students who require significantly more support than average is quite small. The vast majority of students graduate within four years.

Finally, another differentiating aspect of Pomona’s operating model is its partnership with other institutions in the Claremont Colleges Consortium. Joining with the six other institutions in the Consortium gives students access to the academic resources at other schools, while Pomona saves money and improves its offerings by having a central library and student health center at a scale befitting a much larger university.

Pomona’s operating model has helped it rise steadily in the rankings over the last 25 years. Looking to the future, the model will be challenged by technological innovation and new entrants in the higher ed space. One notable example is the Minerva Project.  Minerva claims to provide a world-class liberal arts education through a web-based “Active Learning” classroom, which facilitates continuous face-to-face interaction between a student and professors and classmates. Minerva argues that they can provide a superior academic experience at roughly half the cost of elite private schools. It will be fascinating to see how Pomona and other “traditional” colleges adapt their business and operating models to compete with technology-enabled, lower-cost entrants.

Sources:

http://www.forbes.com/top-colleges/list/

http://www.pomona.edu/sites/default/files/college-financial-statements-2014.pdf

http://www.pomona.edu/administration/finance-office/tuition-and-costs-2015-2016

http://www.cuc.claremont.edu/aboutcuc/ceowelcome.asp

https://www.minerva.kgi.edu/academics/