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Navigating uncertainty: Addressing frailty and enhancing value in today's higher education | Baker Tilly

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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.

Daniel Greenstein

Daniel Greenstein

Managing Director

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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?
Is start-up lab equipment and related costs always necessary to make a faculty hire?

Consider the usual array of shared service and other consortia, but extend their remit beyond the usual procurement, payroll, and other back-office functions. The advantages of shared programming consortia are already referenced above. Why not consider engaging consortia approaches to:

affordable employee housing in partnership, for example, with regional education, healthcare, and other professional service providers. This approach may be particularly advantageous for universities and colleges located in areas where housing costs are increasingly unaffordable for employees
and student health and wellness needs, for example, by sourcing health insurance and health care provider collaboratively

Some institutions may even want to seriously consider some form of institutional consolidation to take advantage of scale economies and/or acquire capabilities they need but may not have the luxury of time or resources to build for themselves.

Oh, yeah. There’s artificial intelligence to contend with as well. There is hazard ahead for those that let current circumstances distract their attention entirely from the future of higher education that will, at least in my view be built around (rather than integrate) artificial intelligence There will be first mover advantages to those that invest time and resources today inviting faculty, staff, and students to explore how and where AI can streamline routine operations, improve student outcomes, and enable faculty, staff, and students alike to work at a wholly different and higher level of effectiveness.