Fighting the Financial Woes of Higher Education

Students around a table studying

A growing number of industry leaders believe higher education is in financial crisis, according to a recent study from Inside Higher Ed and Gallup. When surveyed as part of the study to understand how industry leaders view higher education’s challenges, 71 percent of chief business officers (CBO) agreed the industry faces significant financial trouble—up from 63 percent in 2016 and 56 percent in 2015.

With these financial concerns top of mind, less than half of the surveyed CBOs agreed their institutions will be sustainable over the next 10 years. Institutions historically have turned to tuition discounts to help boost revenues, but almost half say their tuition discount rate plans are unsustainable. According to the survey, many institutions are considering and implementing a variety of other options in an attempt to address revenue shortfalls and improve their outlooks.

Mergers

Some institutions are considering various levels of mergers. One in eight CBOs say senior leaders have held discussions about merging with another college, but most don’t believe it’s likely to occur due to faculty opposition, geography and desire to maintain status quo. In fact, just 2 percent say it’s very likely to happen in the next three years. More colleges seem to be having serious discussions about consolidating academic offerings, programs and back-office administrative functions. While CBOs also don’t expect these types of mergers to happen in the next three years, a majority supported the idea and more than half believe it’s at least somewhat likely to happen.

Launch New Academic Programs

Seven in 10 CBOs agree their institution will look to increase enrollment and launch new revenue-generating academic programs. CBOs widely agreed colleges need to be more willing to experiment with new kinds of academic and nonacademic offerings to bring new revenue.

Improve Student Retention

Many schools have taken steps to improve student retention to help stabilize enrollment and strengthen their finances. Eighty-six percent of CBOs say they’ve implemented a variety of student retention programs in hopes of improving financial sustainability. When asked if these programs have helped, half said it was too early to tell, while 38 percent said they’ve seen a return on this investment.

Cutting Programs & Personnel Costs

Two-thirds of surveyed CBOs say they’ll have to close the growing financial gap by reallocating dollars instead of increasing revenue; however, 52 percent say they can’t make significant spending cuts without affecting academic quality.

Programs, academic offerings and personnel costs are all on the chopping block as more CBOs say they’ll reduce administrative positions, promote early retirement for faculty and administrators and reduce spending for intercollegiate athletic programs. Eighty-seven percent agree most colleges are too hesitant to shut down academic programs, but when making these cuts, only half say they have the needed information about program performance.

The referenced study includes responses from approximately 400 CBOs from private, public and for-profit colleges and universities throughout the United States. CBOs were surveyed in nine areas:

  • Financial Landscape of Higher Education
  • Transparency & the Budget Process
  • Changing the Budget Model
  • Mergers & Consolidations
  • Student Retention
  • Potential Impact of Policy Change in Washington
  • Strategies to Address Insufficient Revenue
  • Institutional Debt
  • Endowment Income

Evaluating Program Profitability (Margins)

As you consider the viability of your academic programs and seek data to help you make informed decisions, BKD’s higher education team can help. BKD’s Interactive Margin Analysis Tool provides a visual analysis of the financial contribution and margin at various levels of detail for your institution—school, department, major, class, faculty member, etc. Request a complimentary demo here or contact your BKD advisor.

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