Posts Tagged “future of higher education”
The following essay was published in the Boston Business Journal on April 13, 2018.
The catastrophic closure of Mount Ida College in Newton [Massachusetts] has everyone, especially Mount Ida’s students, wondering what happened. Parents, faculty, staff, trustees and donors feel betrayed by the abrupt closure. What is going on?
Moody’s recently warned that the number of college closures and mergers would triple between 2017 and 2018.
Private higher education is especially vulnerable to the four horsemen of the higher education apocalypse: galloping debt, spiraling deficits, unfunded deferred maintenance, and out-of-control tuition discounts. Many of our colleges are borrowing and spending more money than they take in.
We applaud Gov. [Charlie] Baker for calling for an inquiry of the decision by Mount Ida’s trustees. We believe that it is time for the Commonwealth of Massachusetts to lead by monitoring institutions that depend so heavily upon federal and state dollars.
Here are some steps to take:
Insure colleges and universities against catastrophic closure. Colleges are businesses with increasingly limited lifespans. By pooling risk among institutions, students and citizens will be protected from the often unforeseen consequences of catastrophic closure. After the College of Saint Catharine in Bardstown, Kentucky, closed in 2016, the bondholders hired a litigation firm. They sued any former student who held a balance, from unpaid tuition to a parking ticket. The judge added a kicker, adding 12 percent interest to those unpaid balances over the course of 10 years. The results of that have been disastrous.
Use a valid stress test to monitor the fiscal health of colleges and universities. The U.S. Department of Education issues a list of colleges and universities that failed to maintain stable financial composite scores annually. Financial Responsibility Composite Scores determine a college or university’s financial health and qualify them to receive federal aid under Title IV. Based upon a now outdated method of ratio analysis once used to predict corporate bankruptcies, these composite scores are unreliable, outdated and prone to manipulation.
In August 2017, the General Accountability Office issued a report entitled “Higher Education: Education Should Address Oversight and Communication Gaps in Its Monitoring of the Financial Condition of Schools.” The GAO warned USDE that composite scores are famously unreliable barometers of stability that are sometimes “gamed” by unscrupulous institutions.
Find ways to address the coming tsunami of unfunded deferred maintenance. The quality of facilities is often ignored when budget decisions are made. Unless an institution is using a “plus 10” (+10 percent of capitalization) formula to fund ongoing maintenance of buildings and grounds, most colleges and universities have unfunded maintenance costs totaling at least $100 per gross square foot of constructed space. Some smaller institutions are carrying deferred maintenance of $50 million or more, causing students at Brooklyn College, for example, to rebel at their condition of their facilities.
Find innovative ways to give tuition-dependent colleges and universities access to capital markets. Public bonds, private bonds, and hybrid financial instruments now make it possible to repurpose crumbling buildings. Real Estate Investment Trusts (REITs) enable colleges and universities to fund building projects. Some colleges and universities, like Marygrove College in Detroit, have turned their buildings and grounds over to land conservancies. Still other institutions have used equity or sale/leaseback agreements, which exchange a deed or title for uncapped portions of a property’s fair market value.
Brian Mitchell is a principal in Academic Innovators and past president of Bucknell University and Washington & Jefferson College. He is co-author, with W. Joseph King, of How to Run a College: A Practical Guide for Trustees, Faculty, Administrators and Policymakers. Gerard O’Sullivan is a former provost and dean, CEO of Corvus Education LLC, and Visiting Professor of Higher Education at Immaculata University.
Painting a grim picture for American higher education, Moody’s Investors Service recently changed the industry’s outlook from “stable” to “negative.”
This return to negative ratings reinforces a number of trends that bear close review.
The facts are clear and inescapable:
- The comprehensive fee – tuition, fees, room and board – will approach $70,000 a year at a number of high sticker-priced colleges and universities.
- Students and their families are voting with their feet, with 46 percent of first-time students beginning or having had some experience in community colleges.
- Politicians sensitive to anecdote or polling or simply worried about the price of a higher education degree, promote policies that reinforce this optic.
- Recent efforts to tax wealthy endowments to skew higher education spending priorities, often towards demands for moderated tuition or increased financial aid, illustrate this point further.
Higher education has taken some steps. Efforts have been underway to trim rising costs and achieve basic efficiencies since the Great Recession. These efforts vary widely depending upon the urgency felt within an institution, its level of creativity and nimbleness, shifting demographics, and the relative strength of the net tuition revenue it receives.
Trimming costs or enrolling more students, however, cannot cure what higher education faces. America’s colleges and universities have a revenue problem.
Fixed costs in land, labor, and debt repayment and rising costs in health care and financial aid largely determine a college’s operating budget. Labor alone might be sixty percent of a typical small college’s budget.
Most colleges are heavily tuition dependent. There is little or no discretion in the operating budget. For some of them the financial aid discount rate now approaches seventy percent. Dorms will be full until the institution, desperate for revenue, closes, merges, or is acquired.
Many of these colleges rely on other sources of support. Auxiliary revenue sources like residence and dining hall fees cover some of the territory lost to declining tuition revenue.
Endowment income also helps, but most colleges do not have sufficient endowment revenue to make a significant difference. Comprehensive campaigns and research grants and contracts address longer-term needs but do little to fund short-term revenue problems.
College Operating Model is Outdated, Unsustainable
The truth is that colleges rely on an older, archaic operating model where tuition increases historically matched expenses to balance an annual budget, often aided by auxiliary services revenue. For many schools, it was that simple. As new financial, cultural, demographic, consumer, and program pressures build, these “Mom and Pop” shops do not have the flexibility or capacity to meet the new demands.
What’s the path forward?
There are a number of changes that must be made immediately to offset this growing crisis:
- College governance is weak and ineffective and must be immediately adapted to meet new oversight demands, with the faculty playing a more important role in creating an innovative educational enterprise.
- Colleges must understand the institution’s value proposition, if the mission is still relevant and differentiated from its peers, and where the college wishes to be in out years. Why should the college exist in the 21st century?
- The “Mom and Pop” operations must give way to a newer, more flexible model that accounts for changes in how colleges use tuition, re-imagine underutilized real estate assets, re-configure capital campaigns to meet shorter-term needs, re-think the use of temporarily-restricted funds, and seek additional partners to produce new revenue streams.
- Higher education institutions must set aside older enrollment strategies in favor of newer financial aid analytical models that differentiate academic programs, emphasize student life, expand when practical the traditional 18-22 year old applicant pool, and focus on outcomes through stronger career counseling networks that create a lifelong affiliation.
- Stakeholders must work much more aggressively at retention and graduation strategies, using student life, including athletics, as an enrollment tool to increase student fit and the level of satisfaction.
- Colleges must determine what facilities footprint the institution can afford. Its leadership must grow/shrink the college to create a better fit among people, programs and facilities.
- Institutions must get out of those business arrangements that are eating up financial capacity for which there are better service providers. If the college can use its legal, accounting and student life teams to create a robust residential life program, for example, does it really need to own its housing, with its corresponding debt, that might otherwise go to academic support?
- The campus community must think of technology as an ongoing operating lease rather than a draw against remaining levels of debt capacity.
- Its supporters must remember that a college is both an educational enterprise and an economic engine for its region, and seek strong public private partnerships to mutual benefit.
Despite the dismal forecasts, the decentralized and complex higher education system remains a cornerstone of American ingenuity, creativity and promise. The task ahead is to imagine the possible.
This op-ed first appeared on The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.
Moody’s and Standard & Poor’s recently released their updated outlooks for American higher education. The news is not good.
Moody’s revised its 2018 outlook for higher education from stable to negative “as aggregate operating revenue moderates while expense growth increases.” Moody’s vice president, Susan E. Shaffer, elaborated: “the annual change in aggregate operating revenue for four-year colleges and universities will soften to about 3.5% and not keep pace with expense growth, which we expect to be almost 4%.”
Private Colleges May Outperform Publics, But Cost-Cutting is Needed
Moody’s expects private institutions to outperform their public sector counterparts. But about 15% of universities will be forced to cut costs in response to stagnant or weak revenue growth next year. The ratings agency believes that support from tuition and related fees, research funding, and state appropriations will remain weak. Further, net tuition will be depressed over affordability concerns and slow enrollment growth.
While private universities will have revenue growth of about 3% – 3.5%, these numbers will be considerably less robust in small- and mid-sized colleges and universities. This is especially dangerous since so many of them serve low- and moderate-income students. They draw from the same regions in which the students and their families live.
Moody’s notes that the recruitment demographics are horrible and that higher education is subject additionally to changes in its relationship with the federal government.
Moody’s speculates that federal tax reforms, the levels of research support, and changes to the Pell Grant and subsidized federal loans in the future could profoundly impact affordability and access.
Higher Education Flexibility is Limited in Face of Fiscal Challenges
Standard & Poor’s makes a similar finding. Presented as grim, the S&P outlook finds that higher education’s flexibility “in programming, financial operations, enrollment, resources or student draw” is limited. Like Moody’s, S&P cited the recent federal tax on colleges with large endowments, together with growing consumer skepticism and demands for lower sticker prices and more effective services.
Significantly, Standard and Poor’s also warned of lasting damage to college and university reputations in the current political climate.
S&P offered some encouragement, however, finding that higher education institutions could improve their standing if they established new partnerships, peeled back their reputation for cultural inertia, and increased their efforts to recruit non-traditional students.
Writing on these subjects for EducationDive, Jeremy House summarized that “all parties seem to agree that a myriad of issues haunt higher education.” He noted that the American Association of State Colleges and Universities (AASCU) “called 2018 one of the most uncertain years for higher education.”
Future of US Higher Education Depends on Ability to Innovate
Mr. House reported that the common agenda driving the future of higher education in the S&P and AASCU positions is a call for innovation. He further suggested that colleges could grow their student body by serving more post-traditional students, enhancing strengths and partnerships, embracing data analytics, technology, and online learning.
For those of us who work at imagining ways to strengthen American higher education, these are good and necessary tactics. But by themselves they are insufficient, roughly equivalent to the proverbial Dutch boy plugging the holes in the dike. Further, it’s not so much that the dam threatens to break but more that consumers will find new, alternative ways to find and use the water effectively.
The success of American higher education will depend heavily on innovation. That’s why the warnings from Moody’s and Standard & Poor have special urgency.
Those institutions that are the most adept and nimble will likely craft the best path to sustainability. It starts with these colleges and universities developing a clear value proposition and sense of self. That’s quite different from remembering their history, although working their history and traditions into their value proposition is unmistakably necessary.
Future Strategy Must Combine Principle and Practicality
What’s most needed is a sharper strategy that combines principle and practicality. American higher education must anchor a seamless pathway to a lifelong education that prepares Americans for rapid change in a global economy. It must bridge the chasm between formal education and employment by preparing its graduates with a worldview that is able to imagine their contributions to society.
But strategy alone is insufficient.
The plain hard fact is that higher education operates on a mid-20th century business model that is unable to anticipate 21st century changes. Many colleges and universities run like the “Mom and Pop” corner variety stores that ultimately failed because they could not compete and adapt as the world changed. For them, it was more about a failure in process and delivery than in the quality of the product.
Indeed, the biggest obstacle facing American higher education is the cultural inertia that permeates many campuses to reinforce an antiquated, incremental business model.
Can the business side of higher education keep up with the educational innovation that now energizes its research and teaching?
I’ve been thinking a great deal lately about how disruption will play out in American higher education. My hopes – and concerns – reflect a bedrock belief that America’s colleges and universities operate on an unsustainable finance model that must adapt to new realities. It is impossible to predict how many colleges and universities have the capacity or willingness to make the kinds of structural changes that reach beyond where most have charted their courses.
That having been said, it seems likely that we will see an uptick in mergers, closures, and acquisitions, particularly for poorly endowed and under-resourced institutions that cannot control their financial aid discounts and spending rates.
While almost all institutions feel some level of pain, those with weak governance, internal fiefdoms that fail to communicate across the campus, uninformed faculty, and poorly articulated value propositions will be the first to fall.
External Forces Compound Higher Ed’s Internal Problems
External forces compound the growing problems faced by higher education, where the annual outlook by the ratings agencies has now eroded once again to “negative.” There are a number of quality institutions with financial aid discount rates over 70 percent. A number of these institutions are unable to stop the rise in these rates.
Basic math suggests that as the effects compound, these institutions will so severely limit their options that the impending question on the horizon is how and when they will lose their independence.
It’s Not Too Late to Avoid the Debacle Ahead
In the once robust world of decentralized American higher education, the tragedy is that so much of what will play out could be stopped. There are a number of players who can step in to avoid the debacle ahead.
The first is, obviously, the higher education community itself.
Each and every college or university must determine its value to its community and to American society as a whole. Once defined, its leadership must be courageous in articulating its own value proposition.
Stakeholders – led by trustees and faculty – must accept this value proposition and must adjust their roles accordingly, clearly differentiating what is truly distinctive about their institution – what it does differently than its peers.
The campus community must live within its footprint. And it must adapt to the new realities that fund what it can do best within its means to serve the common good.
State and Federal Governments Have Stake in Higher Education
The second stakeholder group is government, both at the state and federal level. There has never been an effort to have the state and federal governments coordinate their support, especially their financial support, of America’s colleges and universities. The impact varies widely across states.
- Is it the responsibility of state governments, for instance, to bolster student aid and infrastructure needs rather than simply provide direct public subsidies?
- Should the federal government effectively designate America’s research universities as the lead participant in many strategic national research and development efforts?
- Can the federal and state governments lighten regulatory restrictions in an overregulated higher education industry?
Media Plays Powerful Role in Shaping Public Perception of Higher Ed
The third stakeholder group is the media through which the message about higher education is delivered. Much of the negative perception of education shared by American consumers comes from the sensationalism of anecdote, political posturing, and polling. It festers in an unregulated, hyperactive, and reactionary social media environment. Good stories seldom draw ratings and sell print media. This combination of ratings-driven establishment and out-of-control social media has encouraged new – generally negative — perceptions not driven by data.
The cumulative effect is to throw higher education under the bus, often through some combination of bad data and self-inflicted wounds.
The positive message of higher education’s contributions to the common good in American society is often drowned out by sensational, if often accurate, stories of colleges in crisis. The weakness of its parts effectively drowns out the good of the whole.
Can Disruption Restore Public Faith in American Higher Education?
This is the point at which disruption can play a critical role in restoring the faith of the American consumer in the value proposition of American colleges and universities. As disruption sweeps across colleges and universities, higher education is facing the same kinds of pressures as the health care industry.
If higher education, government, and the media that together shape the parameters of higher education continue with their current level of disconnected incoherence, the results may work against a robust college community.
America loses in the end. However, there is an alternative view.
Led by America’s colleges and universities, disruption within higher education can be good for American society – especially if it is intentional and self-directed.
Higher education must break out of the “we’ve never done it this way before” mindset that governs broad national policy despite solid evidence of remarkable innovation in isolated sectors of the academy.
The fact is that the financial model of American higher education is broken. The revenue generated no longer supports the people, programs, and facilities that form the decentralized higher education community that is still admired globally.
Something must be done soon. The answer will likely come from within higher education. My strong hope is that positive disruption arrives before consumer perception and the fiscal crisis intersect to do irretrievable damage.
Last month, Rick Seltzer reported in Inside Higher Education about a brewing controversy at Oberlin College, which is facing a significant budget shortfall. The College, including its prestigious Conservatory, faces a multi-million dollar deficit caused largely by lower-than-expected enrollment.
Trustees charged with looking into Oberlin’s shortfall found that the College relies too heavily on cash from gifts. In a letter to the student newspaper, The Oberlin Review, two faculty members argued that it is “inadequate and depressing that neither the board nor the administration has the leadership or imagination to address the crisis in any other way than by eliminating raises for faculty and staff.”
Options for Closing Budget Gap Without Cutting Compensation
In response, Oberlin’s administration pledged to look for new revenue to reduce spending in the short term. This will encourage and permit development of long-term strategies to broaden its appeal to college-bound students, raise money through a new comprehensive campaign, offer early retirement plans, and place stricter conditions on funding for large capital projects.
Is Oberlin’s Campus Culture Hurting Enrollment?
There are two ways to look at Oberlin’s situation. The first is to criticize the school for getting itself into this mess, failing to educate its stakeholders about the crisis and not including them more directly in seeking a solution.
Critics might argue that any financial changes must be more fundamental because Oberlin has a shaky financial model that will be subject to unanticipated cyclic downturns when some combination of enrollment softness, brand weakness, and fundraising failures and endowment shortfalls hit the College in the future.
It is unlikely that Oberlin suffers from an enrollment shortfall, as some contend, because its faculty and students lean toward one end of the political spectrum, even if, in fact, they do. Oberlin appeals to students who are comfortable with the campus culture; indeed, it one reason that 27 % of those who are accepted in the college of arts and science actually enroll there.
An alternative to criticizing campus culture for the current budget woes is to commend Oberlin for facing the tough questions that beset its peers and aspirants across the country. Most college leaders envy Oberlin, with its sterling reputation and a $770 million endowment upon which to base its decisions.
What Oberlin should demonstrate to the rest of American higher education is that serious, purposeful, and inclusive conversations must occur if an institution is to avoid what many less endowed and recognized colleges already face – open concerns about whether they are sustainable.
For most of higher education – public and private – the facts are clear. The operating model doesn’t work, especially if the college relies overwhelmingly on a tuition-grounded comprehensive fee.
At all but a handful of colleges and universities, fundraising cannot keep up with growing demands on the budget. Fundraising is, at best, a long-term solution. Even with the run-up in the stock market, most institutions do not have endowments that are meaningful supplements to tuition revenue.
Auxiliary revenues are flat and typically diverted to pay for academic programs that student tuition cannot finance. At the Division 1 level, for example, only one in eight athletic programs pay for themselves. And most colleges have already made tough decisions on creating basic efficiencies — either through short-term actions like salary freezes or on a more permanent basis, like modifying health and retirement plans.
There is little wiggle room left in budgets that are largely fixed by labor and capital costs including debt repayment, facilities upkeep, and technology. There is almost no discretion left in many college operating budgets.
Some colleges panic, surmising that a shift to new programs at the undergraduate, professional, or continuing education levels will keep the wolf from the door.
Others are thinking more about online programming opportunities. It may be that a solution based on shifts, modifications, and new programming ventures will offset growing financial aid discounts and annual operating increases. It is more likely that such actions will delay the reckoning that will come when discounts make long-term survival an open question.
In the end, what we need to hope for most is that colleges are nimble and creative institutions with long histories that survive the upheavals that they face as these venerable institutions have in the past.
What’s so encouraging about Oberlin is that they are asking the right questions.
The road may be a little bumpy until transparency improves, but Oberlin put its future on display to address systemic issues. And it did so before it had no choice.
Change is coming to higher education. Each institution will find a different solution on a path to sustainability. But the solution will be about strategy, not tactics.
In the end, the institutions that survive will not be protected by their money, alumni base, or reputation. They will prosper because they figured out how to remain relevant in the 21st century.
There are a number of reasons why higher education no longer enjoys the level of status and prestige that it once did in American society.
Public perceptions that confuse sticker price and the cost of attendance, the unwillingness or inability of many American families to share the financial burden incurred by their children, and confusion over whether a college degree translates into a job certainly affect how American families perceive the value of a college degree.
Higher Education as Political Punching Bag
Much of the damage in perception is linked, however, to how politics has intruded into the public mindset about value. Writing for Education Dive, Autumn A. Arnett and Shalina Chatlani reprint from the Washington Post: conservative skepticism around funding for liberal arts education is on the rise, as critics of higher education point out institutions for being ‘elitist’ and ‘politically correct’ centers of student protests that fail to provide skills actually needed for the job market.”
They highlight “growing conservative skepticism on whether institutions are sufficiently addressing student ROI comes at the same time Congress is considering potential reauthorization of the Higher Education Act, which Republicans have already said ought to put the onus of responsibility on institutions to prove they are making college more affordable and worthwhile.”
Many See College as Elitist Bastions of Political Correctness
The reporters argue that many see liberal arts institutions as elitist, teaching students skills that will not transfer to the workplace. They illustrate their point by quoting Donald Trump, Jr., in a speech he gave last year in which he critiqued colleges: ‘We’ll take $200,000 of your money; in exchange, we’ll train your children to hate our country . . . We’ll make them unemployable by teaching then course in zombie studies, underwater basket weaving and, my personal favorite, tree climbing.” They also relate that higher education leaders are working to educate Americans about the value of a college degree “rather than a current impression that a liberal arts education only breeds political correctness, hate speech and protests.”
The depth of support among average Americans for this message surprises many of us. Reporting in the Wall Street Journal recently, for example, Doug Belkin discussed the plight of Emily Ritchey, a rural Pennsylvanian attending highly selective Franklin & Marshall College in Lancaster, PA. Ms. Ritchey noted the difficulty she has had adapting to the different perspective and broader worldview at F & M. Most significant perhaps, however is her report of her parents’ reaction to her studies: “My family asks me all the time if I’m just learning liberal rhetoric. They keep telling me it’s important to learn something practical.”
Has the debate really come down to these arguments? Put differently, has higher education lost the high ground, dragged down into the muck of partisan politics over simple but misrepresented words like “liberal” and “arts”?
Colleges as Foundation for Unpatriotic Views
Has America become so anti-intellectual that many of its citizens equate intellectualism with elitist behavior? Further, do they view elitism as the foundation for an unpatriotic view that somehow diminishes the unique history and unparalleled promise of the great American experiment in democracy that higher education once took the lead to foster?
The problems facing higher education mirror other once seemingly untouchable segments of American society. Federal and state employees are often derisively referred to today as bureaucrats. Religious leaders have taken a major hit in their credibility sometimes seeming to get more airtime for their defense of alleged acts by morally-bankrupt politicians than for their efforts to facilitate open discussion and promote understanding and good will.
It is unlikely that Americans view of politicians and the media could drop any lower in national polling.
For more than 70 years, the United States has staked out its claim to be the leader of the free world. It did so at enormous human and financial cost but always with a sense of optimism and self-confidence.
Part of what made America’s world leadership possible is that higher education provided a safety valve that prepared millions of Americans for the change from a manufacturing to a post-industrial global economy.
As America evolves, there is no single straight or even clear path toward the future. Some Americans have been left behind, economic disparity has grown, and a growing split between economic classes – represented by the chasm between the rhetoric and reality in the current national tax plans – are persistent issues.
It may be that higher education has lost the battle over the language that describes what its colleges and universities do in this hyper-charged partisan environment.
But the work goes on and higher education can respond better and more nimbly to new changes than any other homegrown industry because it represents the best of what has always fueled the American spirit, shaped its economic potential, and defined its cultural awareness.
A new language of promise and potential must adapt to the global stage on which these institutions play and on which America must lead.
Colleges and universities must explain better what they do while working more efficiently and creatively to do so. It’s important because where the country will head is directly dependent on the leadership, talent, and training available on college campuses. Misplaced political rhetoric and misunderstood cultural motivations do not diminish, however, what colleges and universities contribute to America.
America’s colleges and universities are in the early stages of dramatic change. For many, the concentration has been on the development of new academic programs, designed to differentiate academic offerings among institutions and create new revenue streams. For others, efforts to find efficiencies internally or through participation in consortia have improved the bottom line on the expense side of the ledger. These efforts to work within the framework of the existing financial model have been fruitful, especially since it is unlikely that substantial increases in revenue from tuition are likely to occur.
One thing is clear. It’s not enough to say that we should throw away the old financial model. In fact, it can be dangerous. Colleges and universities prefer to move prudently and methodically, with sometimes painfully slow attention to process. In shared governance, there are three groups that must be recognized – trustees, faculty, and administrators.
Coordination and buy-in take time. Otherwise, it’s the equivalent of throwing the baby out with the bath water. Colleges must have a solid foundation to thrive and upon which to implement change.
College Fiefdoms Can Hinder Change
The biggest problem is likely to be on the administrative side. Higher education institutions are like small cities with all of the complexity and potential for confrontation that exists in these political environments. Each administrative division often operates as an individual fiefdom. This is particularly problematic when trustees do not understand that their role is to put their noses in and fingers out of the tent as Cornell’s president, Frank H. T. Rhodes, once said.
The role of faculty can also be complicated, especially if faculty governance is weak or dominated by a few individual voices. Friendships among all parties can muddy the necessary distance between them when the difficult and sometimes unpopular administrative decisions must be made.
The first step, arguably more important than issues like strategic partnerships, any decisions on outsourcing, or participation in cost-saving consortia, must be to determine how best to integrate the various fiefdoms into a common institutional sense of self.
College Leadership Needs Authority to Make and Manage Change
It mandates that the senior leadership have both an ability to manage change and the authority to make it. And it starts with the value proposition. Based on the mission and history of the institution, colleges must ask themselves who are we and what image do we present to the world beyond the college gates?
These questions presume that a common platform exists through and by which all campus groups can communicate effectively. Writing in University Business a year ago, American University’s provost Scott A. Bass noted that the University “utilizes more than 36 databases for different student-related administrative and learning management functions . . . Yet, there is little or no integration among these discrete data elements.” American University is right to call the question and smart to do so strategically since most institutions finds the same circumstances on their campus.
Dr. Bass asks the question: “Do these systems facilitate effective support for a student who has complex issues and who experiences multiple touch points throughout a given academic year?” The answer is clearly “no.” The effect can be to reduce student retention and graduation rates as frustrated students leave or transfer elsewhere.
In short, the haphazard approach to fiefdoms claiming multiple uses of technology across the campus does not support the student. It also fails to serve the institution well.
Coming Together Around a Common Institutional Database
For change to occur, there must be renewed concentration on how to build a common platform. At the institutional level, diverse databases encourage institutional bureaucracy. They are expensive to install, upgrade, and maintain. They often do not adapt well to solution upgrades. Further, the efforts to connect them are always difficult at best and can impair critical strategic decisions based on multiple inputs of research that must inform these decisions.
The overall point is that while change must occur on college campuses, it is not necessarily a bad or troubling moment. It requires that fiefdoms in critical areas like enrollment, financial aid, advancement, student affairs, career services, and athletics give up a little to support an institution now often at cross purposes with itself.
Change further assumes that a college or university understand its value proposition and be prepared to take the steps internally to support it. And it mandates that the board of trustees and faculty see integration as a way to connect the dots to develop a coherent strategy.
In the end, the integration of a college’s databases is an opportunity for the college community to come together. It is the right kind of efficiency designed to help a college create a more unified, service-friendly, and better-orchestrated database that serves its stakeholders. It is a strategic decision that must be led by the president.
On campuses suffering from cultural inertia, it must break with the older traditions of “we’ve never done it this way before.” And in the end it can be a seminal moment in the tenure of a president who has the courage to lead.
Every solution offered by a college or university faces a pending crisis in a different way. Wealthy institutions have the resources to weather challenges by kicking the can down the road, often for decades. That’s why it is significant that Harvard University last week issued a warning about its financial constraints that every American college and university must heed.
The good news is that Harvard ended the 2017 fiscal year with a $114 million surplus, which is $37 million larger than last year’s surplus. Most of the surplus was due to the money the University saved by refinancing its debt.
Writing in the Boston Globe, Deidre Fernandes reports: “The university’s financial chiefs cautioned that the surplus may reflect a ‘high water mark’ for the foreseeable future – a sign that the financial disruption experienced by universities and colleges across the country is hitting the biggest brand in education, too.”
In Harvard’s annual report, Vice President for Finance Thomas J. Hollister co-wrote, “The business model of higher education is under enormous pressure. Large research universities have been to date somewhat less affected, but they are not immune.”
The sticker price of many elite institutions – now approaching $65,000 – $70,000 at places like Harvard and Boston University – fails to reflect their need to increase financial aid to make it possible for their students to attend their institutions. Fixed costs, including faculty and staff compensation, facilities growth and maintenance, and technology, for example, increase the pressure further.
Harvard’s concerns grow when the weak performance of its endowment, compared to many other richly resourced schools, are factored into the equation. This year, the Harvard Management Company reported that the University’s endowment grew to $37.1 billion, an increase of 8 percent, up from a 2% return in 2016.
That having been said, Harvard continues to invest heavily in areas like its physical plant. But what is perhaps most interesting is that the University is aggressively seeking new sources of revenue.
Even Harvard is Seeking New Sources of Revenue
To this end, Harvard is growing its continuing education and executive education programs, which are less dependent on financial aid to attract students. To illustrate: “Between 2015 and 2017, the income Harvard generated from undergraduate students increased by just 7 percent, and graduate degree programs brought in 11 percent more revenue. But revenue from continuing education programs jumped by 19 percent during that period, from $345.5 million to $410.7 million.”
Why Should Anyone Care About Harvard’s Finances?
Why should anyone else care what happens at endowment-rich Harvard? The University’s detractors come at them from many sides, of course, but most of them argue that a wealthy, elitist institution with a massive endowment is not a suitable object of pity. They respond that Harvard could self-fund its undergraduate colleges simply by drawing interest off its endowment.
What these detractors miss, of course, is that American higher education institutions serve a variety of purposes, offer different missions, have varied histories, and undertake their academic programs by relying on whatever sources of support that they can put together. Harvard does it better and for longer than most.
The fact is that Harvard has both a mission-driven institution and is economic engine that fuels the regional and national economy. The draw on its resources comes from innumerable needs, supporting its position as a global incubator, research and medical powerhouse. But the fact that Harvard should find new sources of revenue by looking at its continuing education and executive education programs has a spillover effect on the rest of higher education because the Harvard brand is so strong.
So, whatever you think personally what happens at Harvard bears watching.
The lesson from this year’s annual report is that America’s colleges and universities do not have a sustainable economic model, no matter who they are or how successfully they put their funding pieces together.
It appears that Harvard recognizes that its high sticker price, dependence on an uncertain economy’s effect on its endowment, and people-heavy and land-centric base require entrepreneurial solutions that did not matter before.
History of American Higher Education is at Inflection Point
The lesson for the rest of America’s colleges and universities is clear. We are at an inflection point in the history of American higher education. The way that American colleges and universities finance their academic programs is broken. For some, time is running out as their discount rates approach 70 percent, their fundraising remains weak or anemic, and their endowment returns do not offer the safety valve that Harvard enjoys. Those that can should use this time to plan for how they can survive by shifting priorities and approaches within their finance model.
One lesson is especially telling. A rebounding economy or improving wages, should these even occur, will not be sufficient to return America’s colleges and universities to a misty, distant past where revenue met expenses, even with increasing sticker prices offset by increased financial aid.
What is equally certain is that higher education is nimble and creative. Most institutions will likely find a way to modify what they must do to remain relevant. But it is no longer possible to kick the can down the road.
One of the more interesting and at times alarming changes in American higher education is the redistricting of public college systems in various states. The most active discussions – some of which produced radical change – have been in states like Vermont, Pennsylvania, Georgia, Maine, New Jersey, and Wisconsin.
In Vermont, higher education officials have merged Lyndon and Johnson State Colleges to create efficiencies in their region. Taking a different tack, Pennsylvania opened discussions on whether to merge colleges within its state system, producing a report that ultimately called for no dramatic changes. In Georgia, a more systemic “rolling” reorganization occurred, with consolidation affecting 14 state campuses unveiled in phases as the reorganization continues.
Wisconsin’s Comprehensive Reorganization of Higher Education System
Wisconsin’s leaders have taken a different approach, favoring a comprehensive reorganization of the state’s public higher ed system. Following an unsuccessful effort to split the flagship Madison campus from the rest of the state university system, lawmakers approved appropriations that cut $250 million from the system’s budget. They also stripped tenure and shared governance protections from the law. More recently, faculty objected to new policies that punish students who disrupt speakers and that give the regents more power in hiring, including administrators from outside academe.
The proposal will merge all 13 of the state two-year campuses into seven of the state’s four-year universities. The Wisconsin Technical College system will not be affected. The system’s president, Raymond W. Cross, argues that this approach will increase access and reverse the declining enrollment of the two-year campuses. It will encourage more students to pursue a four-year degree and better reflect the demographics realities of an aging population and a shift from rural to urban areas. Specific details remain sketchy.
Faculty Call for Slower Change Unlikely to Win Favor with Public
The faculty are, by and large, deeply concerned about the proposed changes. Budgets are, after all, rationing tools. Efforts to save money may do little to improve what many faculty believe to be a declining position as they fight budget cutbacks and perceived threats to academic freedom and shared governance.
Many faculty are calling for a more orderly, slower, and structured approach that is systematic and research-based with substantially broader input from them. For these faculty, the process matters.
This strategy may buy some time but it is unlikely to win in the broader court of public opinion. It’s an “inside baseball” tactic that will cast concerned faculty, staff, and students as proponents of cultural inertia who are out-of-touch with the needs of a global workforce and the tolerance of taxpayers to foot the bills for the growing cost of higher education.
The public will have little interest in a public drama about how appointment and tenure decisions will be made in a combined system.
Some Support for Merger of Community Colleges into Four-Year Campuses
The merger of the community college system into the seven four-year public campuses may or may not be a good idea. In most respects, it’s up to the voters of Wisconsin to decide what they wish to support with their tax dollars.
Some of this decision is already obscured by the lack of transparency that went into the planning before the Wisconsin system announced the proposal.
And yet, the primary motivation behind whatever turns out to be the outcome must answer the question of how best to provide access and affordability for Wisconsin’s college-bound students.
What Solution Will Provide Students Access, Affordability?
This is where both sides can come together. They will need to demonstrate transparency, open communication, clarity, precision, and an eagerness to assess a drastic reorganization like the one proposed.
To foist change on a higher education community that values process will not work. To maintain an inefficient higher education system that is not nimble enough to react to changing demographics and new workforce needs is equally impractical.
Yet there are broader policy questions that must be immediately addressed.
What is the purpose, mission, and value proposition of the community colleges and the state four-year public colleges? Are they the same or different? Does their history correlate or were they organized in their hiring, facilities, and program development for different reasons and designed to promote different outcomes? Surely the institutions are better than chess pieces that can be moved around to suit demographic and budget projections.
What is the value to this merger for the students and taxpayers? If the system can demonstrate that this change serves students better and meets the needs of Wisconsin’s workforce, there is value in developing an agenda and timeline for this merger, especially if there is broader input from the public system’s stakeholders.
But there is also a responsibility to demonstrate beyond a reasonable doubt that such changes will also create new opportunities, basic economic efficiencies, and enhanced opportunities for innovation, creativity, and collaboration.
It’s unclear, for example, if the Georgia reorganization has accomplished much of what its officials promised in these areas.
The takeaway from Wisconsin is that changes are coming in higher education, including for public colleges and universities. What isn’t clear is if the process for promoting change can withstand the challenge of making change happen.
As reported last week by Ashley A. Smith in Inside Higher Education, one of the most interesting developments in higher education is how the growing concern over high tuition sticker prices is playing out in state and national politics.
Much of the discussion is a good-hearted effort to make college more affordable, especially for middle class students and their families. These efforts are noble and the cause is just.
Free College Tuition: A New Entitlement for the Middle Class?
There is also some hint, especially at the state level, that programs that address high tuition sticker prices do well in polling, especially for candidates with broader national political ambition. These programs leverage the ability to redeploy state budgets, or seek new revenue, to craft a new middle class entitlement.
While the approach may vary, these programs seek tuition relief. Referred to generally as “college promise” programs, they are tuition-free initiatives for community colleges, and in some places, four-year public colleges. They have been rising in popularity across the United States.
The “college promise” programs raise an important question in American society: Should a college education that is increasingly an entry–level expectation for millions seeking full-time employment be a right or an expectation?
It’s against this backdrop that the non-partisan College Promise Campaign launched by President Obama and the Educational Testing Service recently released reports exploring what they thought were five promising models.
Model 1: Children’s Savings Accounts Plus College Promise
The first approach supports payment by combining children’s savings accounts with a college promise model. The goal is to offer an option to increasing debt, expanding college access to families who are loan adverse or beset by rising debt before they graduate. In this model, the City of Oakland has already raised $25 million of their $35 million goal to support multi-year scholarships to supplement the children’s savings accounts.
Model 2: Publicly Funded “Free Tuition”
The second model may be the best known among the group, pioneered already in states like Tennessee and New York. The financial backing comes from strategies like tax credits, tax increment financing, outside philanthropy, and lottery revenues. Its impact, especially in New York, which has the largest number of private colleges in the nation, can be dramatic and deleterious to private colleges, particularly in states where the public-private mix is more balanced in favor of them.
Model 3: Mix of Public-Private Philanthropy, Partnerships
A third model uses philanthropy and public-private partnerships to raise support for college promise programs. It can be stand-alone, using individual donors or corporate support, or can be backed by a public-private mix, like the Michigan Promise Zones. In this case, Michigan uses an increase in the state’s education tax to mix with private donations.
Model #4: Outcomes- and Future Income-based
The fourth approach calls for the use of outcomes-based models in which the student might receive a $10,000 scholarship but must pay it back through a deduction in future earnings. If a student earns less under this income-sharing agreement, then the student may end up paying less than the $10,000. Purdue University’s “Back a Boiler” program is a good example.
Model #5: Federal Support for Two Years of Community College
The final model examines the role of the federal government, especially after President Obama’s proposal that would have made two years of community college free nationally with states partnering on the tuition bill. The authors of this report think that the federal approach should not pick winners and losers but should help states stabilize state support for colleges and students by incentivizing them.
Higher Education as a Public Good with State-Specific Solutions
There’s much to commend here. There is a predisposition in the report findings to argue that the federal government should not manage a centralized program that would increase bureaucracy at the federal level. There is a recognition that the best solution might be different in each state, depending upon the mix of colleges and universities, level of tuition paid, and the workforce needs in the region. And perhaps most significantly, there is an appreciation for higher education as a public good.
The report findings suggest that education is a right and not a privilege. It’s a fundamental debate that must be settled in an era in which the expansion of entitlement programs is unlikely.
Support for Higher Education is a Shared Responsibility
Yet at the same time, its authors agree that support for higher education must be a shared responsibility among many players. This better suits the national fiscal climate. What is less clear is that one of the partners within shared responsibility must be the student and their families. For this to work, all participants must have skin in the game to the extent to which they are able.
There is a political truce that will also need to be worked out among the various higher education sectors.
This begins with an appreciation of the contributions that each group, including private higher education, by educating the public and serving as a critical economic engine in many states. It will also mean that the role of each sector, including the value proposition for community colleges for instance, must be understood to better justify state support for access and choice.
Without defining the purpose and outcomes across the state and federal government programs that support higher education, it is unlikely that a coherent and seamless higher education pathway can develop. But the models described show great promise.
And that’s a good news story.
At the annual meeting of the National Association of College and University Business Officers (NACUBO) in Minneapolis last week, there was a good deal of attention paid to how higher education should address the steady decline in support for America’s colleges and universities among consumers (that is, students and families) and key external stakeholders.
Indeed, NACUBO took appropriate preventative steps by showcasing a marketing effort designed to make a stronger, broader, and more articulate case for why colleges create value – both practically and philosophically – in American society.
Those of us who care deeply about the future of higher education commend NACUBO for working to get in front of this steady erosion in support.
Sharpening the Case for the Value of Higher Education
It’s clear, however, that we have a great deal of work to do to sharpen the argument and make it more relevant to the audiences with whom we wish to engage.
That may be the most important take-away from NACUBO’s discussions: The value proposition for American higher education must reflect the concerns of those who we are trying to convince. It must also resonate with them.
That’s not to say that we should abandon the older arguments. Historically, the most appealing case made by higher education about its value was that America’s colleges and universities produced an educated citizenry broadly prepared to contribute to global society.
Founded and nurtured by the liberal arts tradition, higher education offered more than narrow technical training. Given the rising nationalism and growing tribalism in American culture, this is a critical argument to make.
In fact, it may be the most important argument to make – a foundation upon which a broader case can be built. But laying the foundation is no longer sufficient, although it is essential that the argument on the broader social good of higher education be strengthened and supported.
It makes no sense either to politicize the criticisms of the argument or to cater exclusively to consumer whims, anecdotes, and polling about why higher education matters.
There will always be a subset of arguments about whether or not higher education has been captured by the left. For those who think in political terms, it’s what matters, and sometimes it appears, it’s the only thing that matters.
Economics, Not Politics, Shape Perceptions of Higher Education
There is some merit to these arguments, but many of us do not believe that the broad middle group of educators is narrowly ideological either by discipline or practice. It’s generally healthy to have these political debates, but it will likely be economics rather than politics that shape American perceptions of higher education in the future.
It’s also wrong to build entirely new justifications based narrowly on consumer whims. But this is where additional work must be done. Colleges are tuition-driven by nature and design. The 94 institutions with endowments of $1 billion or higher control nearly 75% of the $529 billion reported by all institutions.
It is a myth to assume that all colleges are wealthy places, living off draw-downs from expansive endowments. Further, at all but a handful of colleges, the often-touted fundraising juggernauts with impressive campaign totals are typically some combination of aggregated annual fund receipts and deferred gifts that build to a bigger number. There is an open question as to how much immediate benefit comes to a college from comprehensive fundraising campaigns.
The financial and demographic issues facing most colleges and universities are challenging:
- From 2010-2016, the average comprehensive fee (tuition, fees, room and board) rose 43% for private colleges and 68% for public colleges.
- Financial aid discounts now exceed on average 50 cents of every tuition dollar received.
- Significantly, recent surveys show that 46% of graduates from U.S. four-year institutions have enrolled in community college at some point.
In an era of steady or declining demographics, consumers are voting with their feet. In a new survey, one in eight colleges have had merger, closing, or acquisition discussions internally over the past year.
Despite these challenges, the sky is not falling as some doomsday prognosticators predict. For the moment, American higher education has lost the public relations battle with the outcry over high sticker prices and a one-sided read of employment after graduation statistics.
Higher education exists in an increasingly transactional world in which families no longer put “skin in the game” because they view higher education as a right supported by the state and not a privilege in which families must also play a role.
But the foundation of preparing students for a global society in which students must graduate with a pragmatic understanding of how they can contribute is a good beginning defense of the value of a higher education degree.
On to this foundation must be grafted other justifications, however, that build from previous arguments on value. If the rigors of the 21st century demand creativity and imagination, it will be an evolving curriculum within higher education that will provide the entrepreneurial encouragement and training.
It’s already happening in ways large and small throughout American higher education. It’s why our colleges and universities are the basis for imitation and the envy of the world.
Those who advocate for America’s colleges and universities must find words – sometimes different words — that are neither defensive not outlandish to explain their value. It’s a public relations battle that higher education cannot lose.
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.