Financial Sustainability in Higher Education: Challenges and Solutions

The higher-ed industry was experiencing an era of uncertainty and change, even before the onset of the COVID-19 pandemic. Background complexities of a changing educational landscape, enrollment fluctuations, and shifting funding resources, now combined with substantial uncertainties about the shape of future operations, make long-term financial sustainability a marked concern. Here are some of the underlying challenges facing institutions – and ways to succeed.

Challenges

Tuition dependence

Tuition accounted for 70% or more of revenue at 63 of 75 small colleges evaluated in a Boston Globe report. At 48 of the schools, tuition covered fewer expenses in 2016 than five years before.¹

Dwindling state dollars

In the decade following the 2008 recession, state funding “for public two- and four-year colleges” fell $9 billion after inflation adjustment, with nearly 90% of states spending less per student in 2017 than in 2008.²

Falling birthrates

Although a greater percentage of Americans are attending college, declining birthrates override that increase. According to economist Nathan Grawe of Carleton College, “the four-year-college applicant pool is likely to shrink by almost 280,000 per class, over four years, starting in 2026.’”³

Reduced middle class

“In the U.S., income disparity is growing, and we have fewer and fewer Americans in the middle,” says former Hampshire president, Miriam Nelson.⁴ About 68% of private colleges believe their current tuition discount is unsustainable, up from 59% the year before.⁵

Other factors

Decreases in donor income, inefficient facilities, and programs misaligned with student demographics are also noted challenges. As is the “Law of More,” a phenomenon in which institutions add new programs without ending old ones.⁶

Solutions

Data-driven decision making

A statement from the Association for Institutional Research (AIR), EDUCAUSE, and the National Association of College and University Business Officers (NACUBO) recently urged:

“We strongly believe that using data to better understand our students and our own operations paves the way to developing new, innovative approaches for improved student recruiting, better student outcomes, greater institutional efficiency and cost-containment, and much more… Data are an institutional strategic asset and should be used as such.”⁷

Data analytics was instrumental in The University of Maryland Global Campus (UMGC) resolving recent enrollment volatility. Using data to complete analyses, they were able to understand trends and develop opportunities to improve retention, leading to a 20% increase in one year.⁸

During COVID, the massive realignment to remote learning has made a new wealth of data readily available. Metrics such as participation and performance, captured through learning management systems, can be analyzed and evaluated to immediately drive improvements.

Strategic planning with multiple stakeholders

To navigate challenges and become financially sustainable, institutions must be prepared to significantly shift their operating models, according to consultants at KPMG, which can only happen by “achieving engagement with all stakeholders.”⁹ Never has bringing all voices to the table been more important.

Macalester College represents a success case. To secure its long-term viability, in 2010 leadership deployed a task force of faculty, staff, the provost, and the vice president for finance. Its mission: to ensure “that the growth rate of the college’s available revenue must match the growth rate of required expenses over the next decade.”¹⁰

They leveraged a wide range of data to formulate their plan, and described stakeholder dialogue being “crucial as institutional responses… are proposed and carried out.”¹¹

Efficiency and cost-savings

Long-term sustainability necessitates cost controls on academic programs, administrative costs, and facilities. At Virginia Tech:

“The university’s senior leaders see the advantage of eliminating silos and boundaries… which will encourage creative thinking while building accountability into the final products,” says Deborah Petrine, former rector of the Virginia Tech Board of Visitors.

“Savings created by increasing efficiency, reinvested into high priority areas, add significant long-term value…”¹²

The higher-ed sector also exhibits deficiencies in facilities management, notes  sustainability specialist Robin Xu, including underutilization of classroom space, failure to bring physical infrastructure up to energy-efficient standards, and not investing endowments in green funds, which can experience returns that are three to six times higher than traditional funds.¹³

Navigating Change

To survive this period of change in higher ed will require bold thinking and leveraging digital transformation. “The incremental approach used so often in higher education won’t be enough,” say the authors of the AIR, EDUCAUSE, and NACUBO statement. Instead, “we believe higher education must re-energize its efforts and unleash the power of data and analytics across higher education to support students and institutions.”¹⁴

1. https://www.bostonglobe.com/metro/2018/08/11/new-england-smallest-colleges-are-struggling/v60cnP1oEhBX1MEOMb9oSP/story.html

2. https://www.cbpp.org/research/state-budget-and-tax/a-lost-decade-in-higher-education-funding

3. https://www.washingtonpost.com/magazine/2019/10/21/downfall-hampshire-college-broken-business-model-american-higher-education/?arc404=true

4. https://www.washingtonpost.com/magazine/2019/10/21/downfall-hampshire-college-broken-business-model-american-higher-education/?arc404=true

5. https://www.insidehighered.com/news/survey/2019-survey-college-and-university-presidents

6. https://www.nas.org/blogs/dicta/universities_neglect_financial_sustainability

7. https://changewithanalytics.com/statement/

8. https://www.heliocampus.com/umgccasestudy

9. https://home.kpmg/content/dam/kpmg/uk/pdf/2018/10/achieving-financial-sustainability-in-higher-education.pdf

10. https://www.tiaainstitute.org/sites/default/files/presentations/2018-04/TIAA%20Institute_Financial%20Management%20as%20Revenue%20Growth%20Slows_Wheaton_April%202018.pdf

11. https://www.tiaainstitute.org/sites/default/files/presentations/2018-04/TIAA%20Institute_Financial%20Management%20as%20Revenue%20Growth%20Slows_Wheaton_April%202018.pdf

12. https://www.roanoke.com/opinion/commentary/petrine-efficiency-and-affordability-go-hand-in-hand/article_68175545-69a3-5d09-9b4d-2d2fb4e5aa73.html

13. https://www.gordian.com/resources/making-business-case-campus-sustainability/

14. https://changewithanalytics.com/statement/

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