Posts Tagged “financial health”

What College Presidents Think of Future of Higher Education

Inside Higher Education just released its annual “Survey of College and University Presidents.” The results, which cover a wide variety of topics, are revealing if not surprising. There are too many individual findings to discuss in a single article; therefore, we’ll concentrate on the findings that deal most directly with the state of higher education as an industry and the health and sustainability of its institutions.

College Presidents Worried About Finances & Public Perception

Collectively, the survey findings suggest that college presidents are worried about higher education’s fiscal health, deteriorating public perceptions of American higher education, and enrollment stabilization and growth, especially at tuition-dependent institutions.

One of the most striking aspects is that the survey did not reveal wide swings in college and university perceptions on these issues compared to previous years. The levels of concern remain high, likely indicating that these issues continue to be deeply troubling to leaders, but no single issue rose to the top. That having been said, the survey responses forecast continued uncertainty about the future of higher education.

Presidents Expect Higher Education Mergers, Closings to Continue

Inside Higher Education (IHE) measured fiscal health in part by asking presidents about institutional mergers, closures, and acquisitions. They found, “About a third of the presidents agree that more than ten colleges or universities will close or merge in the next year, while another forty percent say at least five colleges will do so.”

A striking finding is that nearly 12 percent of college presidents “predict that their own institution could fold or combine in the next five years.”

Concern over mergers and closures relates directly to the financial health of the various sectors of higher education. On this issue, the results stabilized when compared to the wide swings of previous years. But there were differences across institutional sectors (e.g. public, private, community colleges, flagship, regional).

Private College Presidents More Confident of Their Own Sustainability

Private college presidents are the most confident in the viability of their institutions over the next decade. There was renewed hope, especially among private four-year college leaders, in the ability of their own institutions to be sufficiently nimble and adaptable to be sustainable going forward, an encouraging sign from previous pessimistic assessments.

One especially interesting finding questioned which sector was believed to have the most sustainable business model. The presidents identified wealthy elite private colleges and universities and public flagship universities as the best able to withstand uncertainty.

Interestingly, the numbers dropped off dramatically for the other sectors. As IHE noted, “Community colleges followed at 44 percent, with other public institutions (25 percent), private colleges (11 percent) and for-profit institutions (9 percent) lagging.”

Apparently, survey respondents did not share the confidence of private sector presidents, for instance, when judging the sustainability of small, private colleges as a sector.

Leaders Believe Public Perception of Higher Ed Based on Misunderstanding

In response to survey questions about the public perceptions of American higher education, “[p]residents overwhelmingly believe the public’s skepticism is based on misunderstandings about colleges’ wealth, how much they charge (and spend) and the overall purpose of higher education.”

The survey respondents believe that the public has been swayed by misperceptions about them. IHE noted: “Asked to assess which of several factors were the most responsible for declining public support, 98 percent of the presidents cited ‘concerns about college affordability and student debt’.” Other factors identified were the greater need for career preparation for students, perceptions of liberal political bias, and, to a much lesser extent, an under-representation of low-income students.

Higher Education has an Optics Problem But Leaders Hesitant to Speak Out

These responses imply fairly strongly that American higher education has an optics problem. It continues to play defense rather than move forward on several fronts with an aggressive response to perceived misconceptions. In part, it comes down to higher education leaders’ — such as the presidents surveyed — capacity and willingness to speak out.

IHE reported: “Asked whether they had responded to the turbulent political movement in 2017 by speaking out more on political issues, 55 percent said yes and 45 percent said no.” There was also little sense of introspection on whether there was much truth to negative public perceptions.

Meeting Enrollment Goals is Concern for College Presidents

Finally, there continues to be a high level of concern among college and university presidents about their ability to meet enrollment projections. IHE noted: “eighty-two percent of presidents described themselves as either ‘very’ (42 percent) or ‘somewhat concerned’ (40 percent) about meeting their institution’s ‘target number of undergraduates’.” These numbers were down from previous years.

In this year’s survey, presidents worried about retaining students and finding enough full-pay students to subsidize institutional financial aid.

Inside Higher Education’s survey remains a valuable annual “pulse check” for higher education. The results this year suggest that, while the concerns remain the same, college presidents often perceive that the clouds are more ominous over the other types of institutions and for higher education generally.

There is an open question about how contemplative and self-reflective higher education is about itself. And there is clearly concern about how politics and public perception affect higher education policy and overall sustainability. The cumulative effect of the survey results suggests that higher education is in a period of steady transition.

Will Mergers and Acquisitions Dominate the Future of Higher Education?

A hotly debated topic making the rounds in higher education now is whether American colleges and universities – public and private – face a round of mergers and acquisitions over the next several years.

There are a number of reasons that the discussion of this topic had gained momentum.

Tuition discount rates are creating revenue squeeze for colleges

First, many colleges, especially small private colleges, are seeing their tuition discounts — now at 50% on average for every tuition dollar received — rise while their net tuition revenue remains flat or continues to fall. In fact, there are some colleges where the tuition discount now approaches 70 percent.

Financial health of many schools is questionable

Second, federal composite credit scores, which reflect the overall relative financial health of institutions along a scale from -1 to 3, have shown a good number of institutions to be in questionable financial health. A score greater than or equal to 1.5 indicates the institution is considered financially responsible. Colleges with scores of less than 1.5 but greater than or equal to 1.0 are considered financially responsible, but require additional oversight. These schools are subject to cash monitoring and other participation requirements.

The Chronicle of Higher Education reports that 177 degree-granting private colleges failed the U.S. Education Department’s financial-responsibility test, which seeks to quantify the financial health of proprietary and nonprofit institutions, for the 2014-15 academic year. That’s 18 more than failed the year before.

Further, of the 177 failing institutions, 112 (63%) are nonprofit and the rest are for-profit. For the previous year, 58 percent of the 159 failing institutions were nonprofit.

Third, Moody’s has revised its outlook for U.S. four-year higher education to stable from negative, reflecting the expectation that the sector’s business environment will neither erode significantly nor improve materially in the next 12-18 months. Until this latest ratings change, higher education had received a negative rating since January 2013.

Moody’s rating suggests that higher education is at best treading water and not in a robust recovery from the impact of the Great Recession.

Fourth, there is growing anecdotal evidence of a struggle over financial health. Nearly four of ten private colleges reported that they still had available seats in their upcoming admissions class last year. On the public side, some states are considering closing or merging small and underperforming (often rural) campuses. The number of students entering community colleges is also dropping. Years of underfunding public sector institutions have produced problems like the collapsing infrastructure and structural deficit issues at respected institutions like UMass Boston.

In addition, much of the public discourse over projected closures like Sweet Briar College, failed merger attempts, and persistent rumors of financial distress continue to feed the higher education gossip circuit.

The cumulative effect is to pit trustees, staff, faculty, students, and alumni against one another as the blame game over failed efforts at transparency and worse indications of poor stewardship shake higher education’s foundations.

Free tuition at public schools could be detrimental to private institutions

The newest wrinkle addresses the likely impact that variations in the free public tuition proposals might have in the 35 states where such proposals have arisen. In New York, for example, a number of private college and university presidents with whom I have spoken recently wondered what will happen when the state uses the program to encourage New York State families to vote with their feet for four-year public colleges. The impact on the state’s private and community colleges could be detrimental, lasting and severe.

There’s little question that American higher education is now going through a period of chaos and uncertainty that is upsetting the otherwise glacial pace by which higher education has historically evolved.

But history also tells us that there have been at least two other periods characterized by the same level of disruption. In each case, higher education grew and adapted but did not suffer from an agonizing collapse. It is possible to imagine the possibility and to see the potential amidst the chaos, even if some of it is self-inflicted.

Disruption in higher education may spark creative, positive change

And perhaps this is ultimately the point. Higher education will need to change the way that it operates. Leadership at all levels must modernize and re-think financial models, operating principles, and governing structures. It is likely that American colleges and universities will not be able to rely on traditional state and federal partnerships in the way that they have in the past.

It is essential that institutions begin to imagine broad cooperative efforts that cut across rigid but now outmoded divisions as “public” and “private,” research and teaching, and two-, four-, and graduate-level institutions. Education must be a seamless, lifelong pathway.

The most important change will be to build an aggressive, unapologetic defense of what higher education represents, why what it does is important, and how its colleges and universities contribute in unique ways to American society.

Disruption makes anything possible. Now is the best time to think about how to manage this disruption rather than simply react to what’s coming.