Article
Navigating uncertainty: Addressing frailty and enhancing value in today's higher education
April 1, 2025 · Authored by Daniel Greenstein
The financial fragility in US higher education was already breathtaking in December 2024. It isn’t getting any better. It has been building for years.
Sandy Baum and colleagues at the Urban Institute developed trend data, 2004-19, for several economic indicators to depict the financial weakening of most higher education sectors. Phil Hill has shown how weakness concentrates by looking at divergent enrollment trends at regional public and flagship universities, respectively. Kelchen’s trend analysis of annual operating margins (whether colleges spend more or less than they earn in a given year) also testifies to how weakness concentrates – in his analysis in institutions that post negative annual operating margins several times over ten years (2014-23).
My analysis of enrollment trends 2010-23 amplifies the point. The sectoral trends I uncovered didn’t surprise me – four-year privates up slightly over the period (less than 10%), four-year publics down (less than 10%), and community colleges down even more. What surprised me was the average enrollment decline amongst the losers. It was eye-popping – pushing into the 30+% range in all sectors with lower enrolled institutions losing more students than higher enrolled ones (apparently size matters to market share – who knew?). The same pattern is reflected in institutional net assets over the same time frame. Forty-one percent of private, not-for-profit four-year institutions experienced negative or zero growth in their net assets between 2010 and 2023.
Fragility isn’t exclusively financial. Even private institutions with massive endowments and publics in growth states that are awash with cash and investing handsomely in higher education are feeling pressure from a skeptical public and/or the current political environment.
The administration’s actions to eliminate fraud, waste and abuse from federal government expenditures add uncertainty to these weaknesses.
Rating agencies are sensitive to the looming risks. In mid-March, Moody’s revised its outlook for higher education from stable to negative citing the following reasons:
- risks from funding cuts (pronounced for universities in receipt of significant NIH funding);
- cuts at the Department of Education generally and the federal student aid office in particular;
- an expanded excise tax on university endowments;
- enforcement actions against diversity, equity and inclusion (DEI) programs;
- potential reductions or eliminations of visas for international students, or decline in appeal of study in US; and
- volatile macroeconomic conditions.
So, what should a university or college do?
Higher education leaders are acutely aware of these potential threats, and many are beginning to take mitigating actions. I’m seeing institutions race to minimize their exposure to reduced funding and higher costs, for example, by implementing hiring freezes or making tentative offers of institutional aid to graduates. Some are doubling down demonstrating their “value”, for example, by raising the income thresholds under which enrolled students qualify for free tuition.
Other high-potential actions are organized by implementation difficulty (or time to impact).
They aren’t new ideas, even if some are of a minority interest. Given the current circumstances, their time may have come for more general consideration.
The first group focuses entirely on administrative and operational functions that do not directly impact the academic enterprise. It includes the following:
Review service models associated with routine administrative and business operations.
- Are compliance and reporting regimes over-engineered for the regulatory environment and too costly to maintain? Is it worth it for administrations to delegate more responsibility to their operating units in return for more robust accountability?
- Is it time to centralize business and administrative functions that are performed redundantly, giving operating units a higher degree of autonomy but at a significant cost to the institution (e.g., HR, data, etc.)?
Outsource functions that are more effectively performed by third parties (where performance may be measured in cost and service quality. There appears to be an uptick in outsourcing for internal audit, grants administration, enrollment management, and other functions).
Review and, where appropriate, restructure institutional debt, whether to raise cash as a bulwark against a sudden downturn or minimize debt service payments.
Let’s be clear. Implementing these actions will buy time and not address the fundamental challenge of US higher education—that its education and business models no longer work. The models could work if people and their governments were more willing to pay the price we are asking for the services we offer. We can double down on helping consumers understand the value of higher education. We should.
At the same time, we need to take a hard and dispassionate look at ourselves and ask what we can do differently to enhance our value, maybe even reduce our price – to affordably and sustainably improve our performance and rebuild the public’s trust.
Hence, a second group of opportunities. Each requires more careful planning and engagement in shared governance. Each may entail greater risk but in return for potentially higher reward because they begin to address structural frailty in the industry’s operating model. Together, they point a path up along and across the industry’s next “S” curve, if you will
Do everything possible – I mean everything – to improve student outcomes. Given the price of attending a postsecondary education, our average industry-wide graduation rates are not great, and they don’t help with our tarnished image. This is unconscionable given the wealth of research evidence we have under student support and instructional practices that work to improve student outcomes. It isn’t any longer a question of what to do to improve our students’ success (it hasn’t been for a while); it’s a question of why we aren’t doing more of it.
Assess and potentially narrow and focus the academic program array (degrees, majors, minors, and areas of concentration), aligning it to demographic, student, and employer demand, and critically to the institution’s enrollment (student number) and revenue realities. Such changes can be implemented without reducing student (and by extension, faculty) opportunity where course and program sharing consortia can be established.
Refresh real estate and facilities strategies, asking the most challenging questions.
- Are there public-private partnership opportunities that realize rental or other income while improving community relations and/or creating experiential learning and related opportunities for students?
- Should some research move off campus so rent can be charged as a direct cost, mitigating impacts of reduction in indirect cost rates paid by federal funding and other agencies?
I understand how complex this work is and the passions it can unleash within and around university and college communities.
Accordingly, whatever you do, pay close attention to change management. It is a practice; like any practice, it can be done more or less well with better or worse outcomes. Use analytically driven, structured and methodical processes in project planning and execution, clarify anticipated outcomes of any initiative and routinely assess progress in advancing them, course correcting where necessary, and pay careful attention to communicating well and effectively with stakeholders.
The work is hard, yet it is essential. I don’t see how we can avoid engaging in it any longer. The strategy of hope – for a good fall enrollment, state appropriation, donor haul? It seems to have outlived its usefulness.
Baker Tilly is here to help.
For more information, or to learn how Baker Tilly’s higher education specialists can support your institution on its change management journey, contact our team.
