Minerva Project Business Plan

Tuesday, September 9th, 2014

The Minerva Project has an unusual business plan:

To seed this first class with talent, Minerva gave every admitted student a full-tuition scholarship of $10,000 a year for four years, plus free housing in San Francisco for the first year. Next year’s class is expected to have 200 to 300 students, and Minerva hopes future classes will double in size roughly every year for a few years after that.

Those future students will pay about $28,000 a year, including room and board, a $30,000 savings over the sticker price of many of the schools — the Ivies, plus other hyperselective colleges like Pomona and Williams — with which Minerva hopes to compete. (Most American students at these colleges do not pay full price, of course; Minerva will offer financial aid and target middle-class students whose bills at the other schools would still be tens of thousands of dollars more per year.) If Minerva grows to 2,500 students a class, that would mean an annual revenue of up to $280 million. A partnership with the Keck Graduate Institute in Claremont, California, allowed Minerva to fast-track its accreditation, and its advisory board has included Larry Summers, the former U.S. Treasury secretary and Harvard president, and Bob Kerrey, the former Democratic senator from Nebraska, who also served as the president of the New School, in New York City.

Nelson’s long-term goal for Minerva is to radically remake one of the most sclerotic sectors of the U.S. economy, one so shielded from the need for improvement that its biggest innovation in the past 30 years has been to double its costs and hire more administrators at higher salaries.

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Minerva is built to make money, but Nelson insists that its motives will align with student interests. As evidence, Nelson points to the fact that the school will eschew all federal funding, to which he attributes much of the runaway cost of universities. The compliance cost of taking federal financial aid is about $1,000 per student—a tenth of Minerva’s tuition—and the aid wouldn’t be of any use to the majority of Minerva’s students, who will likely come from overseas.

Subsidies, Nelson says, encourage universities to enroll even students who aren’t likely to thrive, and to raise tuition, since federal money is pegged to costs. These effects pervade higher education, he says, but they have nothing to do with teaching students. He believes Minerva would end up hungering after federal money, too, if it ever allowed itself to be tempted. Instead, like Ulysses, it will tie itself to the mast and work with private-sector funding only. “If you put a drug”—federal funds—“into a system, the system changes itself to fit the drug. If [Minerva] took money from the government, in 20 years we’d be majority American, with substantially higher tuition. And as much as you try to create barriers, if you don’t structure it to be mission-oriented, that’s the way it will evolve.”

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