To address higher education challenges we must meet them head on. Here are actions you can take to improve your financial and institutional health.
Higher education is at a crossroads. As the sector continues to evolve, several issues are expected to play a big role in shaping colleges and universities in the coming years.
Read the other articles in our three-part series about trends in higher education. Part two Part three
Among them are student demographic trends, which should help provide a roadmap for what school administrators can expect on the admissions front. Other issues include tuition discounting, negative media coverage, and the impending transfer of wealth.
In this environment of change, administrators are challenged with managing what’s currently on their plates, while also looking further out to improve long-term financial and institutional health.
Enrollment and demographics
We have all experienced enrollment challenges in the past five years due to a drop in the number of traditional high school graduates. The consequences of declining enrollments are vast, including the proliferation of tuition discounting (which is addressed below).
There is reason for optimism, though. A number of sources tell us that the demographic swing is at a trough and is about to start an upward trend again. But before you get too giddy, consider whether your institution is positioned to gain from higher enrollment.
If the demographic prognosticators are to be believed, the coming influx of high school graduates will be more racially and culturally diverse than before. Is your institution designed to welcome students from varying backgrounds? I strongly urge you to discover whether your institution is positioned to entice and accept these students, and to engage them for the full four to five years they are in school.
Tuition discounting
Tuition discounting has gone the way of the old used car lot: What will it take to get you (the student) through our doors? We have seen many variations, from targeting students with high entrance test results, to increasing levels of discounting as you approach a quota, and the Saturn automobile model where one price fits all. Some schools make it up as they go, depending on what it takes to land a particular student or group of prospects.
Many of these strategies have worked in the short term or the long term, but discounts have been rising at an alarming rate. That means revenues are falling. The best advice is to become strategic in your tuition-cutting programs to get the “desired student portfolio” rather than building an environment of distrust by employing the used car method of negotiating discounts. When your strategic philosophy includes how you are building your discounts, parents and students hearing the stories will have greater trust in the discounts they are offered.
Many institutions are increasing overall revenue through non-tuition fees, which are often not discounted or waived. Again, it might be a good strategy but, remember, transparency builds trust and a vested interest in the institution.
Negative media coverage
There is nothing more destructive than bad publicity. The closing of a campus, financial fraud, misreporting of nonfinancial data, poor academic rankings, hacking incidents, and sexual misconduct by personnel can quickly unravel a well-established reputation.
The higher education industry has seen so much negative publicity that it is changing many people’s view point on the value of a college degree. I am constantly barraged by friends and family about our “broken” higher education system. In fact, I recently had a conversation with a couple that I would consider to be upper middle class. They were asking if it is really worth it to send their kids to college.
Educators and administrators need to go on the offensive and put a positive spin on the worth of securing a degree. Industry associations and individual institutions need to show the public the changes that have been made or are going to be made to help education pay for itself. It is up to our industry leaders to change the conversation from negativity to the positive, life-changing impact of higher education.
A boom in philanthropy
It’s not all bad news. There are some great opportunities ahead that could change the educational landscape in significant ways. One is the approaching “transfer of wealth era.” As Baby Boomers plan for retirement and after, approximately $11 trillion is expected to be transferred from one generation to the next. Some of the largest donations to institutions from individuals or their personal foundations have been made in the last few years. The trend is expected to grow as wealth is handed out through estates and bequests.
Many of these gains can be traced back to the institutions where the philanthropist received his or her education. It makes perfect sense for schools to add more resources to take advantage of this migration of money. The best philanthropic colleges and universities are also entering into increasingly complex planned giving agreements.
University development departments should be working overtime to identify potential donors and place a compelling value proposition before them. Becoming more entrepreneurial and resourceful will help ease some of the financial challenges mentioned above.
Business modeling to meet economic challenges
We can probably all agree that meeting financial goals has been a struggle in recent years for much of the higher education industry. One major opportunity that administrators have not taken full advantage of is building business models for classes and programs. This will assist in influencing economic decisions that must be made for the sake of the institution’s mission. While some institutions are using modeling in a limited way, and are making the right financial choices in building for tomorrow, many others are still burdened by decisions made for political or emotional reasons.
If your institution is hampered financially and you want to begin utilizing proper business models, keep it simple. Base your models on a contribution margin after direct revenues and direct expenses. The major failure in business modeling in higher education is the confusion built on the indirect costs. If you use a simple approach based on the contribution margin, the clouds will part and you will be enlightened.
How we can help
Administrators and educators need solid data, a strong vision, and guidance to position schools for long-term success. CLA professionals are always available to discuss your institution’s goals and the issues of the day, and with your assistance, can develop business models and offer solutions rooted in industry best practices.