Posts Tagged “net tuition revenue”
The failure to grow net tuition revenue is an existential threat to America’s colleges and universities. Most are overwhelmingly dependent upon tuition, fees, and room and board to support the educational program that they offer.
Colleges operate with fixed costs in labor, benefits, land, state and federal reporting requirements, and debt repayment leaving only a small set aside for discretionary spending. Added to that are the paper losses that higher education incurs through tuition discounting off the advertised sticker price.
While the average discount among colleges is 50% of every potential dollar received, the cold fact is that for many institutions this number is now over 70% of what would be available absent a discount. This is unsustainable.
New Offerings May Be Promising But Resource Needs Can Stymie Success
For the moment, most colleges look to expanding their program base, turning often to new programs that meet perceived workforce needs. In one sense, this is encouraging because it forces institutions to adjust their offerings to the needs of the American workforce in a global economy. When done successfully, such strategic academic programs can produce an important new source of revenue.
However, it may not be as easy to relate new programming ideas to the college’s historic mission. And it can produce some ugly moments on college campuses as new, sexier programs run up against the turf wars and campus inertia that characterizes some campuses.
Further, new program measures may require expertise in areas that are beyond that of current staff.
- Are most colleges really ready to compete regionally and even globally with the online program capacity of large research universities?
- Do they have the technology in place or the cooperative partnerships waiting in the wings to pull it off?
- Further, are they prepared to commit to tenure-track positions or will they rely heavily on the use of adjunct faculty?
- Before it enters a competitive marketplace, does an under-resourced institution actually know what it does not know?
A further complication for many colleges arises when new program ideas are less grounded in the core mission on which many are based – a residential, liberal arts education.
In the most ugly settings, a kind of turf war can erupt among groups that understand that a college budget is a rationing tool. Occasionally, colleges approach new, “out of the box” programming through more normal faculty-led channels, greatly improving the chance that the new program will succeed.
The real issue, however, is that new program expansion is akin to putting a band-aid on an open wound. The wound may heal, but the remedy may not address a deeper problem that is far more dangerous and systemic.
New Model of Collaboration Holds Promise for Higher Education
What is needed most in an era of massive tuition discounting is a new, collaborative model that allows colleges and universities the financial space to develop programs true to their mission but relevant to their repositioning in a changing labor market.
In the end, it’s all about how colleges compete through collaboration. Thirty years ago, colleges began to look at collaboration in admissions markets, locally and abroad, cross-registration between neighboring campuses, administrative operations, off-campus study, joint purchasing, and even occasionally shared faculty appointments, among other tactical cooperative ventures.
Slowly, these approaches found some level of acceptance on college campuses often more noted by fierce turf protection shaped by campus cultural inertia. The good news is that there is a strong tradition of college and university collaboration upon which to build.
Successful Collaboration Is Systemic Part of Campus Culture
The difference today is, however, that higher education institutions must now reexamine collaboration as a way to survive and remain relevant both to their historic mission and to the rapidly changing needs of the global workforce.
There are precious few discretionary dollars on colleges and university campuses by which to experiment and innovate.
Collaboration must be systemic, woven into the very fabric of campus culture and creatively drawing upon opportunities among colleges that have remained dormant because there was no sense of urgency to explore them.
A college thrives with the right balance at the intersection of people, programs, and facilities. The solution – and the level of experimentation – may vary among collaborating institutions. Geography, resources, the force of will, and politics may determine the depth and breadth of collaboration.
Key stakeholders must look beyond the college gates to shape a collaboration that holds true to individual missions and differentiates the parts as clearly as the whole. In the best sense, it shapes how colleges adjust to a new reconfiguration of people, programs and facilities within a global market.
The alternative to a new culture of collaboration is a system that picks winners and losers based on outdated financial models. Some institutions will survive because they are adaptable. Others will have the resources to weather any storms.
But for more than a few, the alternative is a steady march past collaboration toward a future full of mergers and acquisitions. While this may be inevitable, there is still enough time to adapt and shape a stronger and more promising future.
For the American consumer, there is a good deal of persistent confusion about the cost of higher education. Media reports usually point to the high “sticker price,” which does not reflect the actual cost of an education that most American families pay.
On the public side, it fails to incorporate the subsidy paid annually to public colleges and universities from the state’s annual budget. Indeed, the level of direct and indirect public subsidies often accounts for the difference among states in the level of public sector tuition charged.
Net Tuition Revenue is Key Metric for Higher Education
But the bottom line is net tuition revenue. How much does a college take in after deducting financial aid from the potential revenue received from whatever sticker price they advertise?
This is where the tuition discounts have the most dramatic impact. The average financial aid (tuition) discount at many private colleges and universities is now at 50% of every dollar received. In fact, at many colleges and universities – including some with broad name recognition – this discount has risen to well over 70% of tuition.
Net tuition revenue is flat or declining at many colleges and universities. This is an unsustainable trend.
There are two alternatives. One approach is for an institution to grow, effectively increasing the amount of revenue to offset rising financial aid discounts. The second approach is to find a way to stop the decline of net tuition revenue.
The cold fact is that most higher education institutions are overwhelmingly tuition-dependent, with growth from other revenue like auxiliary enterprises, fundraising, and endowment drawdown extremely limited.
The failure to grow net tuition revenue has become an existential crisis on many college campuses.
Options to Improve Bottom Line May Have Short-Term Success
If the money spigot is turned off, colleges and universities can find temporary measures to hide their institutional financial distress. They can use debt to offset capital and some program expenses. They can turn to temporarily restricted funds in their endowment, essentially borrowing against themselves while they launch new program measures that may provide new revenue to repay the endowment loan.
Colleges can also expand enrollment, grow continuing education, graduate, professional, and online programs, and create new internal efficiencies and economies of scale on campus or through collaboration. All are options to improve the bottom line.
Financial Aid Conversations Feel Like Haggling Over Used Car Price
Enrollment management is as much an art as a science. Colleges run the full spectrum from those with sophisticated, predictive analytical tools to the majority that run their enrollment operations using a financial aid model developed decades ago and modified only at the edges since.
In many cases – especially at colleges that fail to differentiate their mission and programs – the distribution of financial aid is the principal tool through which they close the deal with prospective students and their families to bring in the class. For these institutions, enrollment has become more of an art than a science.
More crudely put, for the American consumer confused by the babble over high sticker prices, college admission is a bargain that looks and feels as unpleasant as the most stereotypical visit to a used car showroom. One can appreciate the pressure on all parties as the negotiations take shape.
Why Do Colleges Charge What They Do?
The crisis over net tuition revenue lays bare one of the biggest cracks in the foundation upon which American higher education rests. Most colleges do not have a clear value proposition that is the groundwork for justifying the price that they charge.
Typically, the language a college uses to explain its tuition and fees sounds like text written from a big accounting firm, explaining incremental increases due to salary increases, rising medical costs, and expanded discounting as the discount rate increases. What is missing in the argument is a case for why tuition is charged, what value a college offers, and what the end product offered is to a prospective student.
What makes this disconnect especially sad is that many higher education institutions provide education of tremendous value. They offer not just technical training but a comprehensive education that goes far deeper than specialization.
The best colleges train students to think by teaching them to write, speak, apply quantitative methods, use technology and work in a collaborative setting.
Colleges Leaders Must Clearly Explain the Value of Higher Education
And here’s the big secret: it’s called the liberal arts. What happens on college campuses in not narrowly political; that is, it’s neither liberal nor about the arts. It’s a way to prepare students of any age for a future in which the specialization they also acquire may matter less because the jobs that they will hold do not yet exist. And we get the added benefit of an informed, educated citizenry that will protect and preserve what we as Americans most cherish.
As Americans’ belief in their political, cultural, and educational institutions continues to decline, we paradoxically offer a higher education system that is the envy of the rest of the world. We must be ever vigilant on matters of cost. But what we need most are advocates who can explain the value proposition before the argument fails to resonate with American consumers.
In our new book, How to Build a College: A Practical Guide for Trustees, Faculty, Administrators and Policymakers, Dr. Joey King and I argue that the sky is not falling around higher education. By and large, colleges and universities are nimble and resourceful institutions, most of which will prosper in the 21st century.
However, college and university operating models that rely overwhelmingly on tuition and debt for their revenue are broken and unsustainable. Change – whether determined internally or forced by outside conditions – is coming.
Many institutions are making changes to adapt to their new realities. The question is: Is this change systemic and sustainable enough to strengthen America’s colleges and universities over the long term?
Trimming costs around the edges doesn’t change campus climate
It’s increasingly clear that college stakeholders are creating new efficiencies and shifting some financial responsibilities across their operating budgets. This a good first step, one that has been going on for at least 20 years at the better-managed institutions.
Further, many colleges and universities band together through cost sharing to develop new efficiencies in programs and operations. But these admirable efforts are first steps. They do little to change campus climate.
Higher ed investments limited by flat or declining tuition revenue
Most colleges and universities report stable or decreasing net tuition revenue. At tuition-dependent colleges, particularly at smaller privates and second- and third-tier publics, the impact is effectively to shut off the most reliable source of support.
At public institutions, the inconsistency and uncertainty of state and local contributions further exacerbate their problem. The effect is to limit investment, except through the issuance of new debt and fundraising, upon which many of these colleges and universities depend to make upgrades that keep their programs and facilities attractive.
Cost and risk of new academic programs can be high
Another solution is to sponsor new academic programs. These programs are often a good idea since many respond directly to local and regional workforce needs. But they incur substantial start-up costs, require a multi-year commitment, and sometimes draw upon already scarce resources.
Fundraising for new programs can help a little. But most colleges and universities will increase the draw from their endowment – if they have one – or turn to temporarily restricted funds to execute and assess their new programs. This can be a solution, but it depends on the quality of the market analysis, the strength of external partnerships, and the commitment from the faculty and staff.
Colleges often sponsor these new programming efforts by expanding the areas of their outreach. Specifically, they build new or expanded continuing education, graduate, and professional programs.
The danger is, of course, that these programs become cash cows of poor quality with a limited shelf life. Unless implemented thoughtfully, they may detract from the mission of the institution and diminish its reputation and standing.
Often staffed by adjunct faculty, many new programs lack the depth of services that supports student retention, especially for traditional students at residential liberal arts colleges. They can be a temporary fix, but they seldom reach their full potential.
Online programs are promising but not cure-all
The newest wrinkle is the push by many colleges to offer online programming. Innovative colleges can make a credible case for online programs. The inflow of cash is desperately needed to build out new academic programs and bolster existing ones that may not support themselves financially. But there are basic concerns that must be diligently addressed:
- Does the college have the in-house expertise to support online programs?
- If not, is their choice of an online partner a good one?
- Can the college compete effectively in a world where large research universities with broad brand recognition play on the same field?
- Is there an opportunity for a cooperative venture between different types of institutions?
Improving bottom line requires re-imagination of operating model
In the end, colleges and universities often face limited choices for improving their bottom lines. It is most likely that some combination of heightened internal efficiencies, cooperative ventures, and a re-imagination of how a college’s operating budget is put together that provide the best recipe for a path to sustainability. This will require two changes at most institutions.
The first mandates a review of how colleges operate.
- Is it possible, for example, to imagine real estate as an asset?
- Can colleges and universities think more realistically about what a fully-owned facilities footprint might look like?
- How much of it can be its own land with facilities operated by third parties that are better equipped to operate in the security, food service, or hospitality business?
Perhaps the more greater challenge is that higher education institutions must look outside their own industry for possible solutions to their current dilemmas.
- What lessons can be learned from other industries facing similarly rough transitions from 19th century program and facilities models?
- Are there new analytical, financial, financial aid, insurance, and student life programs and products that can be developed to suit 21st century needs?
- Can working relationships emerge with new partners, especially on the corporate side, that add value to support well-defined college missions?
- In doing so, does the case for higher education change in ways that resonate better with American consumers while still retaining the underpinning of the liberal arts?
Change is coming. Higher education must shape its future or be washed over by the cultural, social, and technological changes swirling around it. Our bet is that American higher education will find its way.
American colleges and universities are reaching for every means through which they might increase net tuition revenue. Net tuition revenue is the revenue that the college takes in from tuition after factoring in (i.e. deducting) all institutional financial aid.
Net Tuition Revenue is Flat or Decreasing at Many Colleges
The harsh reality is that net tuition revenue is flat or decreasing at many institutions. Since tuition is the principal source of revenue for these institutions, this is an increasing problem. Put simply, a college cannot continue to exist without sufficient revenue to meet its expenses.
In the short term, colleges may be able to rely on one-time donations, increases in the annual fund, a higher endowment spending rate, or the use of temporarily restricted funds, but in the end, the financial health of almost all is heavily dependent on how much tuition they bring in each year.
Demographics Work Against Increased Enrollment as Revenue Source
Since national demographics work against higher enrollment levels from the traditional applicant pool of 18-22 year-old first-time students, an institution must now rely on other means to pay the bills.
Some look beyond the traditional pool of full-time, first-time students, working to build their transfer population or full-pay international students. But the transfer pipeline is hardly seamless and the optics of rising tuition sticker prices work against transfers, who often attend less expensive community colleges.
In addition, the policies of the Trump Administration cast a long shadow over the ability of colleges and universities to plan the size of their international student population with any certainty.
How best to create a robust admission pool from which to draw remains a thorny problem, but it’s important to institutional health. Colleges and universities rely on strong enrollments to right size their institutions. This means, in part, accounting for “stop outs” and “drop outs,” who diminish the size of their student body. If retention figures are not steady, or better yet improving, the impact on an institution’s bottom line can be dramatic.
Need for Predictable Retention Creates Alliance Within College Administration
The need for predictable student retention creates an alliance among enrollment, academic affairs, and student life professionals. Higher education institutions — and many of their accreditors — place special emphasis on improving retention to become more sustainable.
The problem is that it sometimes becomes more of a numbers game. Student affairs staff provide a plethora of programs and opportunities for students to connect. They work individually to support students who are homesick, unengaged, or dissatisfied with the campus environment. But what they often miss is that first link that should be made between what the school offers and what prospective students want.
It is not enough — indeed, it is unsustainable — for the student affairs budget will provide support for clubs that represent the whims of students at a unique moment in a particular class. Succeeding generations may not sustain the passion of students focused on a singular interest in later years. Further, the college or university may not be able to justify a growing roster of club and related activities.
No matter how wealthy, a college cannot support everything that each student might want to do.
Student Life Program Must Be Aligned with Enrollment Strategy
What will be required in the future is a more orderly, systematic, and systemic approach to student life tied directly to enrollment strategy. At the moment, most colleges enroll students because of the quality of their academic programs, if these are defined, well-respected, and differentiated from competitors.
But students live on a campus that is defined both by the classroom experience and the thousands of teachable moments that occur each day outside of classrooms and laboratories.
They may have institutional reputations as Christian colleges, outdoor environmental programs, the home of Greek life, and liberal or conservative, for example, that appeal to a certain type of student. The best example is how students attract their student athletes into well-regarded athletic programs.
Athletic Programs are Example of Student “Fit” and Retention
For generations, colleges have attracted athletes because athletics offers a unique, idiosyncratic experience for teammates. An athletic team is a “new home,” where students associate with others with similar passion and interests. For student-athletes, the culture of an athletics program will — in many respects — determine fit, and correspondingly, improve overall retention numbers based on this fit.
Enrollment officials should see their student affairs colleagues as a kind of front line on retention. It may be that much of the retention problem could be solved if student life worked more carefully with enrollment.
Student affairs must define not what current students want so much as how enrollment can attract students on the basis of what enrollment determines will be most attractive to prospective applicants.
Is it more useful for a college to have an equestrian team in an urban setting or a gospel choir that reflects the college’s efforts to recruit in urban areas? Should a college invest in a marching band if research demonstrates a demand for this kind of activity among prospective applicants?
These efforts to link enrollment strategy to shape student life to recruitment can have innumerable benefits. Like athletics, co-curricular student life offerings provide students a home-away-from-home and outside of their classroom experiences. It makes the fit possible.
Students experiencing a good “fit” are more likely to stay enrolled, boosting retention. And retention is perhaps the best predictor of how to increase the bottom line by growing net tuition revenue that every college desperately needs.