There’s No Pot of Gold in Higher Education’s Financial Future
By: Brian C. Mitchell
Tags: Change Management, Higher Education, Financial Stability, Partnerships

According to Inside Higher Education’s recent survey of college business officers, only 44 percent of those at private baccalaureate institutions believed that their institutions would be financially stable over the next decade. That means the leaders of these institutions — most of which lack a sizable endowment — will need to rethink their tuition model to survive the chaos and disruption sweeping across American higher education.

Few Colleges Have Much Fat to Trim from Budgets

There are a number of options open to them. College leaders could argue for more efficiency from within the existing operating budget — “trimming the fat” as some would say.

However, there is not much padding in most institutions’ budgets. Deeper budget redeployments — the ones that affect how faculty and staff live and work — will likely produce a political outcry across American campuses.

Partnerships Can Be Promising Option for Colleges, Universities

Higher education institutions could seek new partnerships with neighboring, peer, and aspirant institutions to deepen and expand programs and create economies of scale. This approach has great merit, especially for institutions that want to share costs while creating new programs. But collaboration can change the nature of a college campus where programming sometimes emerges from behind the closed gates of isolated “cities upon a hill.”

Cooperative programs across college campuses often run into debilitating process concerns as college communities react with “we’ve never done it this way,” for instance, when hiring a shared appointment with other institutions.

Private-Public Partnerships Can Be Beneficial

A third option is for a college to look to public/private partnerships or third-party providers. This often takes the form of a revenue-sharing model and can be extremely beneficial to program and facilities expansion. Purdue University’s deal with Kaplan that established a global presence for Purdue overnight is one example.

Facilities deals can reshape neighborhoods, create residential communities, and demonstrate the important role of colleges as economic engines. They also often produce new revenue while using “other people’s money” to strengthen their programs and facilities.

Expanding Existing Programs Often Carries Hidden Costs

The expansion of graduate, professional, online and continuing education programming is the one option most currently in favor. Its attractiveness is that it is the most organic option that builds upon existing programs and is therefore subject to greater control by faculty. As such, it offers tremendous opportunity to create new revenue, strengthen department program offerings, and open doors for collaboration across the campus.

The downside to expanding academic programs is that the reality of taking a good idea and turning it into a revenue producer must match the proposed program with a realistic budget that moves the new programming quickly to sustainability.

That’s why so many new programs either fail or have a short shelf life. The planning fails to budget the costs of rolling out the new program realistically.

Most colleges take a very conservative approach to new programs. The impetus for the program is often the failure to improve stagnant or declining net tuition revenue. College leaders assume that opening up new programs targeted to continuing education, adult, and distance learning markets makes sense and will support their current academic offerings.

They agree to incremental program expansion, supported by existing resources and through the hiring of new staff, typically adjunct faculty. There is often little connection between the new program and the strategic direction set out in their planning.

This makes it very difficult to maintain quality and control. It further introduces new tensions as an adjunct faculty provides a different level of student support. Adjunct faculty also have a very different relationship with the institution than tenured faculty.

It’s difficult for leadership to imagine a “loss lead” time that permits a program developed in good faith to survive the birthing process.

Set against a backdrop of declining net tuition revenue, the tensions grow deeper as new programs operating at a loss become liabilities and run into the deep constraints already placed upon a college’s operating budget. In the end, budgets are rationing tools.

There’s also a question on whether college leadership understands the competitive market. While this may be less of a concern in local and regional expansion efforts, national and global markets may require a sophisticated analysis that many colleges fail to ensure before the program opens.

Can a small residential college successfully compete, for example, with a large research university whose leadership may have resources that exceed what the small college might have available? What may work in a niche program expansion may not extend to broader programming efforts.

Solution to Long-term Financial Stability Requires Systemic Change

We remain confident that most colleges and universities are adaptable and will find their path to long-term sustainability. But this path requires a different solution on each campus.

Change must begin with an aggressive strategy to attack the problem of stagnant or declining net tuition revenue through better enrollment, retention, and graduation solutions. It requires that colleges reorder their operating models. And it mandates that higher education institutions look less to a “pot of gold” solution like expanded programs and more to systemic efforts to modernize their operations.