Higher Education: Like a Fire Bell in the Night

The decision by Moody’s Investors Service to upgrade its outlook for higher education from “negative” to “stable” was good news for higher education. This is Moody’s first outlook upgrade in more than two years.

Eva Bogaty, who authored the Moody’s report, noted that “our outlook revision to stable reflects our view that aggregate operating revenue growth for four-year colleges and universities will stabilize at a post-recession level of just above three percent over the next 12–18 months, providing some predictability in operating budgets for the first time since FY 2009.”

Moody’s argued that regional public universities and small private colleges would be the most likely to feel the greatest financial “stress.” Its decision reflected increases in state funding and federal research funding much of which most benefited public colleges and research universities.

American higher education collectively breathed a sigh of relief with news of the improved outlook ratings. Since the onset of the Great Recession, it has felt at times a little like watching the icebergs float by on the Titanic. Realistically, however, the Moody’s rating masked the inescapable conclusion that while the ship is not sinking yet, it continues to leak badly.

The Inside Higher Education and Gallup of the 2015 Survey of College and University Business Officers demonstrated the extent of these leaks. More instructive than the Presidents Survey also recently released, the Business Officers response offered more in-depth commentary on the financial health of American colleges and universities.

The IHE/Gallup survey looked at 403 public and private colleges and universities, whose business officers responded from among the nearly 3000 individuals surveyed.

“Follow the money” seems to be good shorthand for the state of higher education, reflecting what can be done at the margins. The principal questions answered by the survey are: Where is the stress greatest? And, what are colleges and universities – whether public or private – doing to reduce this stress?

Like their president counterparts, many business officers believe that their financial model is sustainable over the short-term. They are far less confident over a ten-year time frame, with only forty-two percent agreeing that they can continue what they doing.

The answers on how they are reducing financial stress are more disappointing, with most relying on short-term fixes. Many institutions are moving toward shared services to centralize administrative spending across an institution’s departments eliminating redundancies where possible.

Even more troubling is that most additional measures place emphasis on short-term fixes like increasing enrollment and growing net tuition revenue. They do not address longer-term systemic problems such as rising health care and retirement benefit costs, the cost of athletic programs, the return on endowment investments, and the third-rail debate on increasing the faculty teaching load.

These responses were a series of “thumbs in the dike” measures that put the tough questions aside.

Yet nearly 20 percent responded that their institutions are likely to shut down in the coming decade. Even more shocking, perhaps, is that almost 38 percent of the private four-year college business officers believe that their institutions might have to close in the future.

At what point do the numbers become a fire bell in the night?

The real danger is that the crisis unfolds in a series of surprise closings with predictable results, much like the current battle to resurrect Sweet Briar. In response to a Huffington Post column two weeks ago to encourage the school’s supporters to understand and address the College’s issues, for example, a number of alumnae supporters showed little grasp of what they face in the aftermath of a successful early fundraising effort, angrily blaming the former president and board for Sweet Briar’s predicament.

As one alumnae suggested, “We’ve got this covered.”

If Sweet Briar could not make a go with a financial model supporting eight hundred students, how is it possible that draining available cash flow, the unlikely capacity to maintain sustainable levels of fundraising, decimated faculty and staff ranks, and gutted programs of good quality now often without the faculty that built them can attract new students under old financial assumptions? Is the climate for private higher education robust enough to create a pathway to success without radically re-imagining Sweet Briar’s role as a long-standing women’s college whatever the final decision?

The Moody’s Investors upgrade and the IHE/Gallup survey offer at least three lessons for higher education.

First, some things do improve – at least temporarily – like state revenue increases to public higher education. Second, the clock is ticking with little understanding and no incentive for imaginative repurposing within higher education. Third, anything beyond short-term fixes is being met with a “kick the can down the road” mindset across higher education.

It may be that the crisis must worsen with additional shocks to the system before conditions improve for higher education. The smart money –supported by fairly consistent data recently – is arguing that change must come soon. Are the board, faculty, and senior administrators prepared to lead?

2 thoughts on “Higher Education: Like a Fire Bell in the Night

  1. “They do not address longer-term systemic problems such as rising health care and retirement benefit costs, the cost of athletic programs, the return on endowment investments, and the third-rail debate on increasing the faculty teaching load.”

    I understand that as a consultant, you don’t give away wisdom for free. But I still wonder what your solutions to the many problems articulated here are. I see lots of problems, and lots of critiquing others for failing to be transformative. But other than a broad hint that increasing faculty teaching load will help — could you walk us through how that actually would help, in your view? — there’s not a lot here. And as a long term education leader, I’m sure you’d agree it’s not like there aren’t a lot of alarm bells ringing, or indeed a long history of “education in crisis” papers.

    To put my money where my mouth is, here’s what I think. First, university administrations need to actually care about academics again: basic knowledge, basic education, basic search for truth. That way, they can be convincing advocates to the public for education. This may mean that more of them have to come from academic ranks, since many of our managerial-class presidents don’t have the skill set of talking about education like it matters. They have core competencies in things universities increasingly don’t need, like how to build buildings that need to be maintained for 50 years in order to get the grant that lasts 10.

    Second, university officials need to make the athletic programs pull their full weight. No more hiding behind general assertions that they somehow get alumni or the state to open their wallets. Sports inclined alumni give to the teams, states like Wisconsin engage in Badger mania while defunding U of W. And athletic teams, despite claims they pay their way as private entities, tend (like big science) to rely on all kinds of cross subsidies. So spin them off and make them actually independent: respectfully, sure, not antagonistically, leaving space for students to play sports for their health in an intramural kind of way. But the NCAA becomes a league of its own. This will then allow schools to get back to being schools.

    I’m actually more optimistic on health care and retirement costs. Because that crisis is coming, it’s for the nation at large, and the nation at large can deal with it through progressive taxation. We need universal health care (a big cost savings) and to re-think social security. Universities can’t do that alone: but I don’t think they’ll have to. So maybe we’re not the only ones hearing that alarm bell, and we just need to join the volunteer fire department.

  2. The institutions that have the lowest teaching loads tend to be those with the greatest resources and the fewest fiscal constraints.

    The faculty at the “regional” public universities already have fairly high teaching loads, on average, and the compensation and benefits for all instructional faculty, from tenured professors to part-time instructors, seldom account for more than 20%-25% of institutional budgets.

    So I cannot help but notice that there is little mention, here, of reducing administrative bloat–both the number and cost of executive positions and the proliferation of staff supporting those positions–that at most institutions consumes 40%-50% of the institutional budgets.

    Much more is required than simply eliminating obvious redundancies, though those redundancies are clearly exacerbating the situation.

    Likewise, at most “regional” public universities that field Division 1 football teams, instructional revenues are subsidizing those programs to the tune of $10-$25 million per year. That revenue could support a large number of new, full-time faculty lines.

    So, there are institutional constraints, and there are misplaced institutional priorities, and although the two are all too often conflated, they do not reflect the same realities.

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