Pomona and the winning model of elite liberal arts colleges

A high-touch, high-cost model of higher ed.. but is it sustainable?

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 College - Carnegie HallPomona 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.

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.college-photo_8857._445x280-zmm

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.









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Student comments on Pomona and the winning model of elite liberal arts colleges

  1. Great writeup! I actually think the Consortium aspect of the Claremont Colleges is really interesting and would love to know more about it. For example, how much of the per-student costs that Pomona is incurring are actually being assigned to the shared services among all the Claremont colleges? Allowing each college to specialize in the value proposition they’re actually providing to students while still relying on a centralized cost base for things that can be common (such as food, general resources, etc) is a great idea and one that ideally would be utilized more in higher ed to reduce duplicative costs.

  2. Awesome post! I really enjoyed the clarity and concision of your writing and am impressed with the sustainable competitive advantages present in this business/operating model combination. It definitely feels like Pomona has carved out a defensible niche for itself at the high-end of the market, although the durability of long-run pricing power is a fair question.

    A few questions:
    (1) How much of a discount in price do you think you’d have to receive to send your own children to an online version of Pomona with the same professors, curriculum, and exams but without the social, extracurricular, and other in-person intangible experiences? I’d imagine this amount would be a function of your financial situation, but the deeply-rooted desire to provide the best possible opportunities for your children + the existence of government, private, and school-funded subsidies would also limit elasticity.

    (2) How differentiated and difficult to replicate do you think the Pomona experience was/is? Top-tier education has been and still is an inflationary good because true substitutes are so hard to create. Top-tier professors are scarce – do you think Pomona’s stand out in terms of quality? While other top-tier institutions might be able to pull them away, how likely do you think it is that they would go to an online or lower-tier competitor?

    (3) How much of your personal success and character would you attribute to your alma mater? A key supporting factor to pricing power is the willingness of alumni to donate and subsidize tuition for current students. Pomona’s large per-student endowment size is a sign of its historical success in this regard. Do you think this is slipping, or are they continuing to execute at a high level?

    Thanks!! 🙂

  3. Really appreciate your insight into the operations of higher education, especially give your expertise in the industry! Reading your post, I became curious about what it means to be in steady state for an institution like Pomona. You mentioned that several other liberal arts colleges have had to close their doors because enrollment declined. Pomona has been able to avoid a similar fate through the rising quality (and the perception of this high quality) of its offerings, but it seems that a decline in enrollment actually wouldn’t be quite so fatal. Pomona’s steady state seems to depend instead on its endowment. Based on the numbers you cite, tuition revenues are less than break-even, and more than half of all students don’t even bring in that amount. So to maintain steady state, Pomona needs to maintain its endowment. Presumably, endowment growth is helped greatly by perceptions of prestige, which are fueled by educational quality, which is of course what contributes to high admission yield. Has Pomona found the secret sauce of steady state?

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