Addressing the top 5 threats to financial sustainability

Higher education leaders are increasingly concerned about the sustainability of the current financial model for higher education. While recent headlines might suggest that students are abandoning traditional colleges and universities for disruptive new models such as massive open online courses (MOOCs) or competency-based education, these are not the real "disruptive" challenges. While no one can predict the policies the new administration will pursue, there are five enduring trends that will have significant consequences for higher education institutions over the next decade and beyond.

1. The decline of the 'traditional' student
The vast majority of colleges and universities are still structured around educating 18-22 year-old students who attend classes on campus full time for four to six years. From instruction to course scheduling to advising to financial aid, their systems are optimized for these students. These so-called "traditional" students, however, now make up a minority of students nationally and on most campuses. Increasing percentages of students now:

  • Work full time or part time
  • Are over the age of 24
  • Are financially independent
  • Arrive with 30+ college credits (from dual enrollment or transfer)

Demographic projections also indicate that the number of white high school graduates will continue to decline for the foreseeable future. Hispanics will be responsible for nearly all of the growth in high school graduates nationally.

2. The hollowing of the middle class
Although climbing since 2012, median family income has not recovered to the levels seen in the early 2000s. The Great Recession most significantly impacted income, household wealth, and employment for low- and middle-income families Unfortunately, this growing gap between family resources and the cost of attendance is making it more difficult for these families to complete a college degree in an environment where education has never been more critical for social mobility.

3. Public disinvestment in higher education
The Great Recession also impacted state budgets, and nearly every state cut funding for higher education in its wake. As growth slowly returns, some states are now increasing funding for higher education, but few expect that per student funding will return to pre-recession levels. Pressure from other funding priorities (particularly healthcare) and a growing belief that students and parents should bear more of the cost of their education has forced public universities to become more dependent on tuition revenue.

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4. Cross-sector competition
Public institutions’ increasing tuition dependence and demographic challenges are causing regional privates (and publics) to seek new student populations as a source of growth, including:

  • Wealthier out-of-state students
  • International students
  • Working adults
  • Highly qualified minority students

Competition has intensified as more institutions spend more time and money recruiting in other parts of the country and the world. While most college and universities used to compete against institutions in the same state or peer group, they are now competing against institutions with very different cost structures and value propositions. This competition has also led to a covert price war. While the public sees news stories about annual increases in sticker price, many universities are actually receiving less money per student than before the recession due to rising financial need and growing tuition discounts to highly qualified or higher income students.

5. The return on investment mindset
For many students and parents, the Great Recession shook their faith in the enduring value of a college degree. Even college graduates experienced rising unemployment and underemployment rates during the recession (though they still performed significantly better than those without a college degree).

While employment prospects for new graduates have improved since the recession, many students fear that if they pick the wrong institution or the wrong major they will be saddled with large debt and poor job prospects. Websites like PayScale, College Measures, and the federal College Scorecard now make it easy to compare institutions on the average salaries that graduates receive, and, on many campuses, business and STEM programs are growing rapidly while humanities programs face declining enrollment.

How to prepare for the decade ahead

None of these five trends are entirely new, but their relevance and intensity will only continue to increase. Different institutions will find different solutions based on their mission, history, location, and other characteristics, but we have identified four broad strategies that are emerging:

1. Help your existing students graduate
Nationally, only 60% of incoming freshmen complete a bachelor’s degree in six years. For many institutions, improving retention and graduation rates is the best way to grow enrollment, increase net tuition revenue, and reduce the cost of education and debt burden on students.

2. Increase affordability, accessibility, and inclusiveness
Reducing the barriers that students face in enrolling at your institution will require more than just increasing financial aid. Everything from recruiting strategies to the cost of textbooks to campus climate can be critical to creating a welcoming and supportive environment for students from diverse backgrounds.

3. Attract new students with a clear value proposition
Responding to students’ and parents’ concerns about return on investment does not mean pushing every student into a pre-professional program, but it does mean clarifying the potential career opportunities that students will find after completing their degrees. Academic leaders should be able to offer evidence of typical career outcomes and complement strong academic programs with experiential learning opportunities and comprehensive career services.

4. Align resources with institutional priorities
No college or university has all of the resources it needs to support all existing activities and to make new strategic investments. (Many are challenged simply to continue existing activities.) While reallocating resources across activities is painful, the alternative is almost always worse—a slow decline in quality. Engaging deans, chairs, and faculty members in making difficult tradeoffs among competing objectives must be a top priority.

Your students aren’t the only ones with homework. You need to make critical resource allocation decisions.

It can be difficult to balance the needs of making the most of your existing resources and creating sustainable, lasting change.

In our latest white paper, walk through the framework that can help your university make critical resource allocation decisions.

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