The pressures driving change in higher education have intensified and evolved.
Three developments will have the most profound implications for the sector:
Financial fragility is far greater now than in 2018.
The causes of fragility haven’t shifted significantly, but their magnitude has grown. Colleges appear to be closing or merging at a weekly rate. And the shakeout has only just started. Many state universities are competing for the same small and declining potential student pool and have more “seats” than they can fill. A significant drop in the traditional high-school-leaving population coupled with difficulties colleges and universities experience shifting effectively into new student markets, have diminished public funding and raised concerns about tuition costs and available return on investment.
What’s different about financial fragility in 2024 over 2018 is that many institutions have less money in the bank than they did in 2018 and thus less ability to invest in the transformational changes required to reach fiscally resilient ground.
There are two things I’ve learned over my career in higher education:
1. Transformation costs money. The most opportune time to make change is when the institution has the funding to make a real impact.
2. Making the case for change is tricky when there’s money in the bank. I can’t tell you how often I’ve heard variations of, “Why change? We’ve got $50 million in unrestricted net assets. We need a good budget year/fall enrollment.” Or worse, “Our new lacrosse team and renovated science building will drive the enrollment growth we need to stabilize financially.”
After years of using reserves to cover annual operating shortfalls, too many institutions run on fumes. COVID relief dollars provided a respite, but they’re exhausted. And guess what? Reserves are spent down in a non-linear pattern. The last $40-$50 million goes fast.
So, in 2024, I find universities exploring a broader range of more aggressive and more transformative cost-cutting and revenue-generating options than in 2018, having exhausted the utility of options tried previously:
- Shared service efficiencies that once focused exclusively on back-office functions (payroll, HR, etc.) are moving to the front office (e.g., universities seek to share academic programming)
- Outsourcing and public-private partnership (P3) solutions are moving from peripheral functions (facilities management, dining services) to core and strategic functions (program management, faculty professional development, enrollment management)
- Scale economies, once pursued almost exclusively through enrollment growth and multi-institutional shared service, resource sharing and partnership opportunities, are increasingly sought through mergers and acquisitions. And yes, we’re seeing more program eliminations and employee headcount reduction.
A few, sadly, are waiting too long to act and are forced to close their doors suddenly and without notice. This is desperately unfair for students and employees alike, and we need to do everything we can to encourage such institutions to act sooner – to address their challenges when there are still options available to them.
Negative public sentiment is another driver and acts to financially weaken higher education institutions.
It results from growing public distrust of the sector, as evidenced by longitudinal polling data from a Gallop Lumina poll and other sources. It’s as if higher education leaders are battling on two fronts:
- Demonstrating the value of higher education by emphasizing affordability (often through tuition discounting strategies that don’t have long-term financial viability) and relevance (with credentials that demonstrably launch and advance careers)
- Proving that higher education’s values haven’t been hijacked by faculty and enabling administrators, whether because they emphasize and promote identity politics and anti-colonialism or because they reproduce privilege and promulgate oppression of marginalized groups
Success demands fundamental shifts in how the industry presents itself and interacts with the general public and elected local, state and federal government representatives.
The locus of regulatory control over the industry may be shifting to the state level.
This reflects several trends, including:
- Sudden higher education institution closures are taking regulatory and compliance agencies by surprise when they should have seen the collapse coming
- Concern that industry exits will harm students and communities, leaving them without means of redress
- Dissatisfaction and frustration with and distrust of the U.S. Department of Education and regional accreditors
- Concern that state taxpayer dollars support institutions that are no longer viable and unnecessarily redundant academic program offerings in low-demand fields while needs in higher-demand fields (e.g., healthcare) go unmet
- The politicization of higher education issues
- Perceived opportunity to quickly and effectively adopt constructive innovation into more institutions
Such a shift would drive significant change across the higher education landscape as:
- State agencies seek the capability, authority and credibility to manage expanded responsibility for regulatory compliance, accountability, financial solvency and even program scope
- Higher education institution leaders and their boards navigate new and changing regulatory environments, governing bodies and accountability regimes
