Posts Tagged “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.
Thirty years ago, we all understood what the term “culture wars” meant. It was about Mapplethorpe vs. Helms and teaching old, dead, white men vs. revisionist and black history. There were lines. Whichever side you were on, you knew where you stood.
The battle lines changed and have morphed into something quite different today. As the first efforts by the Trump Administration to enact an immigration ban sputtered in chaos, confusion and a “must see TV” legal battle, the implications of the fight over how to provide national security have become clear. So, too, did the historical precedents that informed this newest battle.
It turns out that the new culture wars are also social, economic, and political in nature.
The new battle lines are between visions of American society that are industrial vs. post-industrial in outlook, design, and practice.
Historical Perspectives on Economic Battle Lines
What’s most interesting is that these new lines mirror the pitched battles over industrialization in the early 19th century, especially in England, as machinery replaced manpower in textile production, especially weaving. The warriors then were craftsmen, rooted in an agricultural society, who saw their traditions and way of life threatened by the mechanization of their livelihoods.
The protesters – the Luddites – were English textile workers and independent craftsmen who destroyed weaving machinery to protest the mechanization of textile production. They were fearful that years spent learning their craft were wasted and that unskilled workers would take their place. Eventually, the military suppressed the Luddite movement. England became the world’s leading industrial power throughout much of the 19th century.
Two hundred years later, the parallels persist as America moved from an industrial to a post-industrial economy. Workers in the manufacturing sector have seen their jobs disappear and wages stagnate as income inequality has continued to rise for over twenty years, despite some recent upticks. The presumed culprit is cheaper overseas labor, principally identified as Mexican and Chinese. The Luddites of 19th century industrial England have become the “America first” nationalists of 21st century America.
Globalization and National Security Concerns Interwoven
Symbolized by the debate over renegotiating NAFTA and abandoning the Trans Pacific Partnership, it has become a battle to stem the tide over “free trade” globalization cloaked in concerns about national security. Internally, the battle lines are also cultural, on issues like Planned Parenthood, immigration and refugees, and Supreme Court picks. The philosophies behind these competing claims are decoded into a broader national debate about “American values.”
For the moment, the effect is to split the country almost uniformly, depending upon the crisis de jour. Practically, there is a political dimension with the red and blue states recast, within limits, as “nationalists” and “globalists,” respectively. The problem with the rhetoric today is that people will get hurt. It’s probably where the large crowds protesting immigration policies can do the most good, however, especially if they can humanize the negative impact of “America first” policies.
“Eds and Meds” are Economic Engines
There is another danger, already recognized in cities like Boston, New York, Seattle, Washington, and San Francisco. These are the “eds and meds” capitals of the country whose economies are in each case bigger than those of most countries with which America competes. They are the booming economic engines of the US economy. It’s why the Silicon Valley’s biggest technology players have joined together to speak against the immigration ban.
The stakes are high. How American higher education plays its hand could set the United States on a path that will shape its ability to compete.
To this end, it’s important to have clear strategic goals in mind. Here are some first thoughts:
Higher Education Must Choose Battles Wisely
Build a strategy out of the initial tactical responses that have occurred in response to the early policy initiatives of the Trump administration. Protests are fine – critical, in fact – but choose the battles wisely. America’s leading educators should speak out on policies that affect higher education, linking what they say to social, cultural, and political concerns about American values. Their campuses must be prepared to support them, particularly if they focus on the issues and stay out of the politics.
Higher Ed Must Be Broadly Inclusive
America’s colleges and universities must remove what can sometimes be seen as legitimate criticism and become more tolerant of ideas, including those with which they and their college communities disagree. They must practice what they preach on how best to be broadly inclusive.
Higher Ed Must be Leader in Post-Industrial Economy
“It’s the economy stupid.” American workers list job security as their principal worry. In a world in which “do no damage” should be a primary operating principle, it is dangerous for the American economy to power down, for example, because of knee-jerk immigration policies. We need the best and the brightest with us. But we also need a Manhattan Project version of a Tennessee Valley Authority initiative to move the Rust Belt mindset forward.
The goal is a growing economy to build a robust middle class across the country. America signaled that globalization would undergird the world economy when Bill Clinton signed on to NAFTA.
The trick now will be for leaders – including those who run American colleges and universities – to help America prepare to lead a post-industrial economy.
It will require sane, reasoned debate. Let us begin.
Last week, National Association of College and University Business Officers (NACUBO) and Commonfund released their report on the endowment performance of the 805 colleges and universities who responded to their survey. The outlook was fairly dismal and sheds light on the precarious foundation on which American higher education’s financial model is based.
Endowment Returns Fall to Average Return of -1.9%
According to the report, net return on endowments has continued to decline for the second year, returning on average -1.9% in fiscal 2016. The returns dropped the 10-year average annual returns to 5 percent, down from 6.3 percent in the previous fiscal year. Last year’s average return lowered the five-year average rate to 5.4 percent, down from 9.8 percent a year ago.
Both numbers are lower than the 7.4 percent median annual return that most colleges and universities believe are necessary to maintain their purchasing power – supporting “student financial aid, research, and other vital programs” — over time.
College and University Expenses Increase Even As Endowment Returns Fall
As endowment returns fall, expenses on college and university campuses continue to rise. It is not surprising, therefore, that most respondents reported increasing the money that they spent from their endowments, boosting spending at an average of eight percent which took most colleges above the rate of inflation.
There are a couple of ways to look at this anemic endowment growth. Colleges and universities hold endowments over the long-term. If endowment performance is cyclical, then historical trends suggest that the problem will self-correct over time. The second possibility is more troubling.
The plain facts are that the world has become a less comfortable place with rules and protocols that are uncertain. While some aspects of the market continue to do well, general global and national volatility and growing income inequality – among numerous other factors — may affect the complexity that impacts endowment earnings.
Should the courts decide against lifting the immigration ban, the impact on labor and enrollment in college and university settings alone could be dramatic and disruptive.
Further, most colleges and universities do not have the $34.5 billion in endowment that Harvard enjoys, even when Harvard has also slashed the number of its employees in its endowment office.
Colleges and Universities with Smaller Endowments at Greater Risk
Small institutions are particularly at risk, noted John G. Walda, NACUBO’s president and CEO, in an interview with Inside Higher Ed: “…if we have another couple of years of stagnant returns…they’re going to have to seriously consider cutting back on the amount of dollars that are spent at their institutions….” The question that logically arises is from where will this money come?
Can Schools Make Up Endowment Losses with Debt?
One possibility is that colleges and universities with some level of endowments could borrow to cover lean times, especially to replace depreciated facilities or build new ones. Yet the picture on institutional debt was not particularly encouraging either.
Almost 75 percent of the colleges and universities surveyed carried long-term debt. Among these institutions, the average total debt was $230.2 million as of June 30, 2016, up from $219.1 million in the previous fiscal year. Median debt also rose to $61.5 million from $58.2 million. Two-thirds of those surveyed reported decreasing their overall debt; however, indicating a reluctance to make new investments in areas like infrastructure.
Raising Tuition or Fees is Risky Proposition in Current Climate
Another source of income is, of course, the comprehensive fee that consists of revenue generated by tuition, fees, room and board. Political and consumer voices make large tuition spikes impractical and even dangerous.
It is unlikely that many colleges will package comprehensive fee increases much above the rate of inflation, presuming that they are competently managed institutions. Next year’s tuition numbers will begin to be posted after board meetings over the next few months.
Cold Truth: Higher Ed’s Financial Model is Unsustainable
American higher education must face up to the cold truth that it is operating on an unsustainable financial model, one developed in an era of different demographics, political and consumer concerns, and funding options that originated in the post-Vietnam era of rapid enrollment growth.
The world has changed even if the way that we imagine college and university finances has not.
But there is a more pressing, immediate question for American higher education to address. Some Congressional leaders are working to link endowment spending to student scholarship and debt levels, the danger of which is aptly demonstrated by the fiscal 2016 endowment returns.
Consumers who vote with their feet to reject the historic value proposition of high sticker priced four-year colleges will also affect this brave new world. And the Trump Administration is casting a heightened level of uncertainty with its first actions on immigration and the possible appointment of special groups to look at “higher education reforms.”
We live in interesting times. Now is the time to prepare for them.
MSNBC’s Thomas Roberts speculated recently about whether there was enough soap in America to wash off the mud splattered by the dirty, depressing, and uninspired efforts by both presidential candidates to win votes.
A week ago, we answered the question of who will lead us over the next four years. With this answer will also come a deeper dive into how the Supreme Court will function, which party will control the US House of Representatives and the Senate, and whether there is a path to common ground between the executive and legislative branches.
At the center of the debate will be the fundamental issue of how weakened and ill-defined political ideologies relate to one another. Gridlock is not the fault of a single individual but arises from an inability or unwillingness to seek consensus on issues on which two or more parties can agree. Will the moderates and progressives among the Democrats be able to develop a negotiated common ground? What is the future of the Republican Party? Indeed will the Republican Party as we know it historically continue to exist or is a fractious civil war now underway within it?
Higher Education has Sustained Collateral Damage
For the rest of us – including those working in higher education – there has been considerable collateral damage. Higher education joins a litany of other once sacrosanct, bedrock institutions upon which the promise of America is anchored. America’s colleges and universities produced educated citizens and a trained workforce. A college degree was a powerful symbol of access and choice creating mobility and translating an individual’s potential into a practical reality.
It’s one of the best aspects of American life.
Higher education was also a safety valve that created a pathway traveled by millions of Americans responding to shifting technology, demographics, and labor patterns. It moved the workforce into proximate parity with the shifting demands of an increasingly post-industrial labor force. It was a sacrifice that millions of American families made because the cost/benefit analysis was simple, clear, and direct.
In short, higher education was about aspirations – the promise of an individual made possible by a commitment from America. It always worked best for that “next” generation, especially when its mission broadened with the creation of community and technical colleges for those seeking workforce training but not a four-year degree. It has not been a steady, uninterrupted development, however, and higher education also hit some major bumps in the road.
Assault on Reputation of Higher Education
Perhaps the biggest crisis now facing American higher education is the assault on its reputation. The ideologues attack American colleges and universities as bastions of liberal entitlement. Consumers are in open revolt against high sticker price – confused as the cost of attendance – with the cost/benefit analysis producing less obvious benefits and families unwilling to make the level of sacrifice required. Politicians rely on anecdote and polling to develop plans – good and bad – often to regulate higher education institutions in the absence of new discretionary money.
It’s a mess that tarnishes the reputation of American colleges and universities.
It would be so much easier if higher education could collectively make the case for why American institutions like colleges and universities still function well within the American and global economies. Sadly, the approach must be more nuanced, aggressive in design, and play out over the long term, especially in light of the de-industrialization of large swaths of America.
It’s not enough to save the auto industry if the people, towns, and infrastructure don’t share in and demonstrate the success. It’s about feeling the pain of these regions while also re-shaping the potential that already exists.
Is There a Seat at the Table for American Higher Education?
It’s how the pieces fit together that make it possible to finish the puzzle. American higher education must have a seat at the table to contribute to rebuild the American economy. These must be based on a coordinated strategy rather than a scattered, laundry list of political tactics fed by state and federal tax dollars.
Higher education can still claim its bully pulpit to insist that we cannot create economic incentives without the proper context and a careful linkage to its educational infrastructure.
The facts are that America’s colleges and universities are educational enterprises. But they are also places of innovation, creativity, and entrepreneurial leadership. And perhaps most important in the 21st century, they are sustainable economic engines fueling the rekindling of local and regional economies.
It’s time to understand that the best way for higher education to reclaim its moral authority is to demonstrate by word and action what role it can play in local, regional and national partnerships linked together with clear purpose and design.
Earlier this month, Jeff Selingo wrote in The Washington Post about the coming era of consolidation among colleges and universities. Mr. Selingo based many of his comments on findings from a study by Parthenon-EY Education to which he also contributed.
The study concluded that more than 800 American colleges exhibit factors that call into question their sustainability over the long term. These factors include
- having enrollments under 1,000 students,
- tuition discounts higher than 35 percent, and
- high debt payments for recent campus capital improvements.
As expected, nearly 80 percent of these potentially unsustainable colleges are small – with fewer than 1,000 students – but nine percent have more than 10,000 students.
Seth Reynolds, a managing director at Parthenon-EY Education, offered two important observations. The first is that “small and large colleges that are thriving . . . have either found a strong niche or they operate at a large scale.” The second conclusion is perhaps even more telling: “But for most institutions, the path forward is not one that they can take alone. They need to shift their mindset and consider collaboration in ways they haven’t before.”
Some may consider these bleak conclusions. But they do not mean that the sky is falling for American higher education.
Mr. Selingo notes that higher education is primarily a location-bound, highly regulated, bricks-and-mortar industry with wide variations in capacity to reflect changing American demographics. He notes that the report suggests that circumstances will force many institutions into deeper partnerships with one another.
The report also suggests that the biggest obstacle to deeper partnerships is pushback from various constituencies, including trustees, faculty members, students, and alumni. Mr. Selingo concludes that “if the current rich diversity of the American higher education system has any hope of existing another few centuries, campuses need to rethink their long-held position that the best way to survive is to operate on their own.”
Greater Collaboration, Even Consolidation, May Be No-Brainer
There is a good deal of common sense embedded into this logic. Many colleges and universities – including a good number whose names are widely recognized – operate on older, unsustainable financial operating models that lack coherence and transparency.
Looking at ways that combine a mix of people, programs, and facilities to create not only efficiencies and economies of scale but also new opportunities for students and faculty is something of a no-brainer.
Or, at least it should be.
The problem is that the spark that triggers the kinds of changes that higher education institutions must make is missing. The protectors of the historic traditions that shape the governance of these institutions support, at best, incremental change and point correctly to the relative handful of closures and mergers annually to make their case for the status quo.
The root of the problem is perhaps that no one is talking about overall health, focusing instead on trend lines and a murky future. Many argue that solving the growing income disparity in America, or waiting it out for more robust economic growth, will largely make the concerns over sustainability in higher education go away.
Lessons From the 1800s on Changing Higher Education Landscape
History doesn’t support this analysis. There have been distinct phases of growth in higher education. One in particular in the 19th Century illustrates the kind of future that might be in store for American colleges and universities.
In the 19th Century, the predominant trend that followed a period of expansion in American higher education was a surprising number of mergers and closures, especially as the Civil War deaths decreased that generation’s ability to support colleges and universities across the country. By the end of the century, a new commitment to public, professional, and graduate education reshaped the higher education landscape.
The point is that change happens and that the record supports an unsteady and uneven evolution ahead.
As we look at the Parthenon-EY Education study, it is essential to think through how best to prepare for change. The worst case is that either side – whether incrementalists or disruptors – wins. It is far better to imagine a negotiated evolution.
Disconnect Between Data & Perception Must Be Reconciled
To do so, we must do a much better job of linking data with a more thoughtful education of key higher education constituencies to produce a common understanding of the issues. It must begin with the recognition that American colleges and universities are – overwhelmingly – tuition dependent, endowment poor, and debt ridden. Many are open enrollment institutions with archaic management practices. And most important, governance practices and constituency perceptions must be brought into better alignment with what the data suggest.
There’s a tremendous opportunity to manage the crisis to a more sustainable future. But it must start with a recognition that the fundamental disconnect between what the data tell us and what uninformed campus communities think is happening must be reconciled quickly.