Colleges Must Learn How to Pay Their Bills

We have reached a tipping point in public opinion with forecasts by some that as many as one-third of America’s private colleges and universities may not survive the next ten years in their current form.

While this represents perhaps three percent of the total enrollment in American colleges and universities, the impact on breadth, access and choice would be catastrophic.

Additionally, the continued cut back in state funding to public institutions in most of the country that small student-to-endowment per capita ratios, declining student enrollment and general revenue projections only worsen further paints a bleak picture for American higher education.

What can higher education administrators do to offset the deepening crisis facing the financing of American higher education?

First, it is unlikely that the usual “go to” strategies – “duck and cover” to wait until better times, freeze or manipulate salary, benefit, and capital lines, open new on-line, graduate and continuing education programs, increase fundraising, or use bond capacity to appeal to competitive consumer whims — will work.

In fact, the best argument for these approaches is actually a disturbing one. Over the past couple of decades these stopgap strategies delayed any real educational reform.

Second, higher education can look to increase efficiencies and economies of scale. This is a partial solution, both to meet academic growth and administrative needs. It is a promising step that administrators can take immediately if they can face down the “but we’ve never done it that way” outcry on their own campuses. If done correctly, creating academic and administrative efficiencies can actually increase academic quality, and student opportunity.

And finally, colleges and universities can think much more insightfully and comprehensively about how they finance the business of higher education.

At many colleges, the practice is to “rob Peter to pay Paul,” that is, to use the cash and credit available across all budget lines to balance the college’s budget. Using this approach, academic departments, specific administrative costs, and new initiatives fold into a “bottom line” funding that never gets to where the problems lie.

For purposes of mission, quality, and breadth, it seems perfectly reasonable to assume that not every academic department will support itself through tuition fees, and grants. Some disciplines attract more students. Other programs, especially in the humanities, may well meet core curriculum objectives to strengthen undergraduate professional programs like nursing, engineering, and some of the STEM disciplines. Some disciplines also naturally attract larger grants.

But the larger question is more a statement about how academic programs within an undergraduate program pay the cost of graduating the students who fill their classes. Is it reasonable to assume that an undergraduate program should break even without relying on graduate and continuing education revenue to offset their deficit?

What combination of factors, including admissions recruitment, marketing and branding, teaching, undergraduate research, academic advising and mentorship, internships, externships and career placement, and alumni support does it take to make an undergraduate program self-supporting?

The problem is, of course, that many admissions, financial aid, academic administration, and finance officers fail to talk to one another to develop a coordinated effort to recruit, retain, graduate, and place their students. Each appropriately claims a role in some part of the process but few colleges and universities integrate their efforts to think comprehensively about how to pay for the students they admit.

And yet somehow the annual audit suggests that the numbers balance out. The cold facts are that they don’t. Most institutions draw from other sources of revenue – like fully depreciated dorms long since rechristened as cash cows – to make the books balance. Often little more sophisticated than traditionalist “Mom and Pop” shops, college and university finance offices fail to set a self-supporting undergraduate program as a financial goal, viewing it less as an opportunity than as a deadly “third rail” electrocution option with faculty, boards of trustees, and presidents.

In fact, the governance groups, especially faculty, are far smarter than the credit given to them. They want program breadth, a coherent academic experience, better students, and more productive outcomes. It is likely that some faculty and staff will resist imagining applicants and their students more holistically. Yet it is more likely that most faculty will support the effort, if only because the alternative is grim.

The effect will be to preserve the depth of the academic program, sharpen its focus, and preserve more knowledgeable and transparent faculty control over higher education.

If there are winners and losers, then the choices made must be done in common and led by faculty who understand that students do not come in over the transom. Further, if a good university strategic plan builds down to department and divisional plans that support implementation of the University-wide strategic plan, the effect may be to introduce a dynamic that makes the academic program – and therefore the college or university — more appealing to those considering it.

Whatever happens, it’s about the education of students. Applying incrementalist band aids borrowed from revenue earned from non-academic sources to meet the payroll only heightens the likelihood of weakening the academic program, going further into debt, and impinging upon resources needed elsewhere.

If a college or university wants to be around in ten years, it must first learn how to pay its bills.

3 thoughts on “Colleges Must Learn How to Pay Their Bills

  1. I don’t think that the closing of a third of private colleges over the next 10 years will ever happen, and I certainly don’t think it would be a “catastrophe.” To the contrary, I think it would be a reason to celebrate. First of all, we should all welcome seeing the corrupt and wasteful for-profit private colleges shut down. But even if some marginal traditional private colleges go out of business, that’s no reason to despair. Students will almost certainly be better off (and everyone will save a lot of money) in cheaper, more efficient public institutions.

  2. Do colleges lobby congress for pro-higher education policies? I don’t know myself. Probably ending the wars overseas would focus more attention and resources on domestic matters. I wouldn’t mind seeing part of the military budget used for education.

  3. Although I agree that the current financial models being followed at many institutions are not sustainable, I have grown wary and weary of predictions of imminent catastrophe. In many cases, these forecasts have been used to expedite the adoption of “innovations” that could have benefited from a lot more thought.

    Most notably, every institution in the nation started expanding its online offerings in response to the “threat” posed by the University of Phoenix and other rapidly expanding online for-profits–despite the fact that even a cursory analysis of the practices of those institutions should have suggested that they collectively represented a bubble that would fairly quickly burst. But, while that very predictable scenario has been playing out, we have invested tremendous resources to insure that we could be competitive with institutions that have never demonstrated any capacity for sustained competitiveness.

    So I agree with John that the closure of the for-profit institutions would be a cause for celebration, rather than for concern. But, unfortunately, many of the for-profit institutions that are most likely to close are not the large, primarily online for-profits but instead small technical colleges that have served under-served regions for decades–for instance, Lebanon College in Lebanon, New Hampshire, that announced that it would close just before classes were due to begin this fall.

    Still, if the 30% of private institutions most likely to close account for just 3% of the total enrollment nationally, then one has to wonder how significant the diversity that they represent really is.

    Lastly, if faculty are given a meaningful voice in these discussions, one of the things that they will surely recommend will be a dramatic reduction in administrative bloat, so that resources shifted away from instruction can be restored. I wonder what chance there is that many–or any–administrations will accept such a recommendation and make more than a superficial effort to implement it.

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