Economic Challenges Facing Higher Education Institutions

I was a recent guest on The 21st Show through Illinois Public Radio to talk about layoffs at Western Illinois University. https://lnkd.in/eRypRa4a I tried to make several important points about enrollment, layoffs, and competition in higher education: - The context matters. Larger, research-intensive public institutions in a given state have historically enjoyed better state support and private giving. They have been able to invest superior resources into capacity for recruitment and branding, and they can better weather budget shocks than regional public universities. - We often pit institutions against one another in a kind of survival of the fittest competition. We say, "You either grow enrollment and survive or you don't" without thinking about the ramifications for opportunity and community health. The problem is that you have a system premised on competition without similarly positioned competitors. - Despite demographic change being very much a regional and national issue, we are asking individual institutions to come up with solutions. We've taken a national trend and pushed it into this system of individual/institutional competition. You will have winners and losers. Some students, employees, families, and communities will suffer more than others in this model--ones that have often been left behind in policy. - Not everyone is well-served or will be admitted to a large or mega-university. There is a strong case to be made for retaining the vibrancy of regionally-responsive, affordable, nearby postsecondary options. Our current approach is starving these institutions, requiring them to make cuts, potentially inducing a death spiral. It's a bad approach for our economy, democracy, and communities. - The increasing frequency of budget cuts and layoffs across higher education changes the employment contract that has prevailed for a long time. Higher education could offer employees job stability as a type of perk against lower than average compensation. Institutions are now facing both financial instability and lower than average compensation. It will make it harder and harder to attract talent. - There are important conversations happening about the "right size" of regionals in the midst of depopulating areas or population change. I think there is necessary work to be done on how to contract well. But at the same time, I want to challenge the fact that we aren't asking whether it is a good thing for a small number of institutions to continue growing larger. All questions about "right sizing" seem to focus on regionals and the answers always seem to be cutting programs and services for those students and regions. Okay, enjoy ;)

💰 🧮 💸 🎓 A common refrain I hear when talking to college and university trustees: budgets in higher ed are unlike anything in the business world. How colleges make and spend money remains mysterious even to those who've spent their careers in higher education. That's why in the latest installment of the Higher Ed 101 series on the Future U Podcast, Michael Horn and I took a deep dive into college budgeting with Rick Staisloff, a former college CFO and founder of RPK Group. Whether you're a board member, college professor, or tuition-paying parent, this episode offers valuable insights into college budgeting—what works and what doesn't. My three takeaways: 1️⃣ College budget buckets are too large. Most institutions don't really know where they're making money or where they're spending it. "We have to get into unit cost to really understand the financial health of an institution," Staisloff told us. Most colleges don't know how much it costs to graduate a biology major versus an English major, for instance. When enrollment was growing and public funding flowed freely, this approach probably wasn't fiscally responsible but it functioned. Now, when institutions need to be strategic, leaders need greater insight into resource allocation—otherwise they're moving pennies instead of dollars. In other words: show me where you spend your money, and I'll show you what you value. 2️⃣ The lack of transparency leads to lack of accountability. While colleges might set enrollment goals, their leaders often don't know what financial targets they should be hitting. "I'm always struck at the institutions we work with at how seldom deans, chairs, budget unit heads are given a clear sense of what good looks like and what they're supposed to be achieving," Staisloff explained. 3️⃣ It's business intelligence, stupid. My biggest takeaway: how little higher ed leaders know about their business. Part of this is cultural—campuses resist discussing ROI of individual programs. Part is technological—colleges have underinvested in ERP systems, leaving them flying blind in financial forecasting. This becomes increasingly problematic as we face an enrollment cliff and federal funding uncertainty. 🎧 Listen to the full episode here: https://lnkd.in/e8zV_PSy 📺 Watch highlights of this episode as well as select full episodes on our YouTube channel: https://lnkd.in/dRRBvpiR I'm biased, but this episode should be required listening for new board members:

The Real Crisis in Higher Education: Faculty and staff can’t afford to live, and students can’t afford to learn. Both are true, at the same time. I’ll say it again: Both are true, at the same time, and miss the point. Faculty and staff—positions that often require graduate degrees—are frequently paid around $40,000 a year. Adjunct faculty often teach at multiple schools, struggling to piece together health care benefits. Meanwhile, the sticker price of tuition for students can exceed $65,000 annually, before factoring in housing, food, books, and childcare. Graduate programs can run into the hundreds of thousands of dollars. Some might argue that low faculty pay and high tuition are driven by the pay of senior leaders or debt. But if you look at institutions’ 990s or public disclosures, executive pay and debt almost always accounts for less than 2% of total expenses. Even eliminating both wouldn’t significantly impact faculty salaries or tuition costs. I’m not saying leadership pay or debt shouldn’t be scrutinized, but after nearly 20 years in higher ed, I’ve heard too many simplistic arguments about why the sector isn’t adapting to meet the current and future needs of our communities. I’m continuing to make the bet: The decisions we make now about embracing complexity to solve this and investing in the people who work within our institutions will have the largest impact on higher education over the next two decades.

“Thank you for your interest in working with my group. Unfortunately, I don't have any openings now or in the foreseeable future. I wish you the best as you go forward in your career.” I’ve written this email in response to #postdoc seekers at least two dozen times this week alone. So have my colleagues. It’s not because we don’t want to hire these amazing postdocs. It’s because our funding has been decimated. You’ve seen the waves of posts of prospective #PhD students who had their offers withdrawn as the US government capriciously cut funding as part of the current administration’s war on higher education. The consequences of these actions are much greater than hurting us academics. I’ve had three calls this week from equipment vendors trying to get me to upgrade or buy new equipment. If we’re cutting student lines, how could we afford to buy equipment now? Who is going to use said equipment? For those who gleefully think they’re winning this war on #science and #highered, the consequences could be disastrous. Cuts in science funding will cause: 1. Economic Decline and Job Losses Innovation Slowdown: Federal funding fuels basic science, which underpins technological innovation. Without it, the pipeline of new technologies—from medical devices to clean energy—slows dramatically  Local Economies Hit: Research universities contribute billions to local economies. For example, UC Davis alone generates around $2 billion in economic activity and supports nearly 10,000 jobs. Cuts could lead to job losses and reduced economic vitality 2. Loss of Global Competitiveness The U.S. has historically led the world in science and technology due to robust federal investment. Reducing this support risks ceding leadership to other nations that continue to invest heavily in R&D 3. Stifled Medical and Scientific Breakthroughs Research into diseases, public health, and emerging technologies often begins with federally funded basic science. Without this foundation, life-saving discoveries may be delayed or never realized 4. Brain Drain and Talent Loss Young scientists and researchers may seek opportunities abroad or leave academia altogether if funding dries up. This weakens the talent pipeline and reduces the nation's capacity for innovation 5. Undermining Education and Equity Many research grants support graduate students and early-career researchers. Cuts disproportionately affect underrepresented groups who rely on these opportunities to enter STEM fields, exacerbating inequality 6. Long-Term National Security Risks Scientific research contributes to national defense, cybersecurity, and pandemic preparedness. Undermining this work could leave the country more vulnerable to future crises 

Everyone's talking about AI. But there’s another issue quietly crushing higher ed - and no one wants to talk about it. It’s not sexy. It’s not futuristic. But it’s one of the biggest threats to enrollment performance today... It's Deferred Maintenance. In higher ed, “deferred maintenance” refers to the practice of postponing critical repairs, upgrades, and renovations to campus facilities - everything from HVAC systems and roof repairs to outdated dorms and empty buildings. It sounds operational. But it’s absolutely strategic. 👉 According to the Gordian State of Facilities in Higher Education Report, the backlog of deferred maintenance nationally is estimated to exceed $112 billion. 👉 Roughly 60% of space on many campuses is at or past its expected useful life. 👉 And the average facility age continues to climb, year after year. For tuition-dependent institutions, the logic is understandable: When budgets are tight, focus on this year’s revenue. But the reality is, this short-term thinking may be actively hurting the very thing institutions need to survive - enrollment. And I’ve seen it firsthand. - Campus tours where students walk past shuttered buildings - No air conditioning at admitted student events - Dated, uninviting physical spaces that don’t match the price tag And then we wonder why conversion rates are down. We talk a lot about “meeting students where they are” - but we forget they’re arriving with a rising baseline of expectations. The 90s-era “lazy river” race may be over, but students still notice - and care - about the physical environment they’re paying to live and learn in. Especially when comparing a $55K/year experience to a well-funded public institution that looks the part for half the cost. So no, this post isn’t about tech or trends. It’s about buildings, boilers, and broken campus windows. Because in a world where visit-to-enroll and admit-to-enroll rates matter more than ever, your facilities are your funnel. And the longer we delay investing in them, the harder it becomes to enroll the next class.

💸 If federal student aid isn’t making the government money — and students and families are struggling to repay — where’s all the surplus going? Let’s talk about it. ⬇️ For decades, economists have debated the Bennett Hypothesis – former Education Secretary William Bennett’s claim that generous federal aid simply gives colleges room to raise tuition. Well, after reviewing the data, I think it’s time we acknowledge the uncomfortable truth, the Bennett Hypothesis is real. The evidence (details in the comments) is hard to ignore: 📈 Since Parent PLUS was introduced in 1980, tuition and fees have increased 14x — while the Consumer Price Index has only risen 4x. 📚 Research from the New York Fed shows that every $1 increase in federal student loan availability raises tuition by $0.60. 🏛️ Newer studies focused specifically on PLUS loans found that when availability was tightened, tuition growth and enrollments slowed — and students only captured about 60% of the subsidy’s value. This is not to say that the evidence is unambiguous. Studies on law school borrowing show that changes in GradPlus did not correlate with tuition changes — likely because law students already had access to a competitive, liquid private loan market. The answer to all of this isn’t to walk away from federal aid. Far from it! Higher education still pays off, on average — with clear benefits for career earnings, stability, and mobility. But ROI is deeply tied to cost, and when borrowing is unlimited, the price tag can be too. 🎯We need a system that preserves access while connecting the cost and value of education. How can we do this? Forward thinking #employers, who know they can’t just sit on the sidelines and hope #universities will mint them ample new graduates in the exact roles they need to power their #workforce. Forward thinking university administrators, eager to lean into alternative funding programs that connect their financial incentives with their students’, and that preserve access to the highest value programs. Because the truth is, the costs of inflation — and of these programs — aren’t borne equally. 📌 More to come on this exactly in my next post. #StudentLoans #HigherEd #StudentDebt #CollegeAffordability #EdPolicy

Sleeper issue in public higher education affordability: states don't have the advantage of running perpetual annual spending deficits like the federal government. So when federal funding cuts impact state budgets - like potential Medicaid cuts - those same states are forced to make tough decisions about their own spending priorities. (Spoiler: higher education doesn't usually come out on top.) As F. King Alexander and Stephen Katsinas point out in this morning's Inside Higher Ed (https://lnkd.in/gV6nRG-B): • In 1991, state spending on higher education exceeded Medicaid by 33.7%, but • By 2021, that trend had flipped, with Medicaid outpacing public higher ed spending by 83%. (Other spending, like k12 and prisons, remained stable.) Preserving higher education funding isn't always linear, and federal and state budgets are complicated - especially when there's cost-sharing involved. Most importantly, it requires proactive solutions both within higher education and sometimes beyond. Otherwise, we risk further disinvestment in an already strained system. 

In the 90s, it was unfunded discount rates disguised as “scholarships.” We all know how that is going. Today, it’s the cost of acquisition; an equally seductive and dangerous blind spot. Institutions are spending millions to enroll students without a consistent way to measure what that spend actually yields. And just like before, we’re calling it strategy when it’s really financial drift. As a former CFO, and now CEO, I’ve learned that if you can’t track what it costs to fill a seat, you’re not leading with discipline. You’re just chasing volume and hoping the margins show up. This article breaks down the model we use at Unity Environmental University. It’s not perfect, but it’s consistent. And in a sector this volatile, that’s what separates leadership from luck. Read the full breakdown, and if your institution isn’t doing this yet, ask yourself why. Are you leading with data, or just spending with hope? #HigherEdLeadership #CostOfAcquisition #DataDrivenStrategy #EnrollmentMath

There are so many indicators like Ricardo Azziz writes about here that strongly suggest a demographic pattern that cannot support the current number of colleges and college seats. No reasonable person can look at all of the data and suggest the future is bright for the current higher education model. Yet, we continue to see college after college (mostly private) unwilling to do what every other industry has done: consolidate. Industries that have been through materially significant consolidation in the form of closures, mergers, and acquisitions included airlines, restaurants, car rentals, hotels, banks, hospitals, agriculture, telecommunications, media, and many more. Higher education leaders who ignore this market and economic reality are doing a disservice to their students, faculty, staff, and communities. Sadly, it is too late for many colleges. Their operational and enrollment data suggests financial doom is only a function of time. However, opportunities exist for those private and public colleges that still have assets available. Their runway for survival and even growth is long enough -- if they act sooner rather than later. Some will. Some won't. For those that will, scale on both the cost and revenue sides of the business is critical. Mom and pop mergers of 2 colleges will not generate enough cost nor revenue to scale. Those looking to consolidate should think big. 5-10 or more colleges coming together.

I had the opportunity to read a terrific article on the multiple "cliffs" facing higher education. We've spoken about the demographic cliff for quite some time, and have seen this coming for a decade or longer based on birth rates from the Great Recession of 2007-08. However, there are a number of other "cliffs" that are more unpredictable which more recently have found their way into the higher education space. These include the student debt cliff, which is leading to a major shift in the perception of higher education's value. This debt cliff intertwines with a devaluation cliff, where many are perceiving higher education degrees as invaluable, unnecessary or not beneficial to positioning them for their future. And, lest we forget the political cliff, which has been bubbling up amidst the politically polarized landscape, and is now seen playing out in extremes during the past months as idealogical polarization and many missteps continue to cause much of the public to lose faith in institutions of higher education. Perhaps not a cliff, you can also add in other challenges, such as the jagged terrain of the FAFSA debacle, where delays in the federal government's processing of the critical forms necessary for student to receive their grants and loans has caused students a great degree of financial uncertainty about their college journey. Sadly, each of these trends creates a system of winners and losers, and much like what always happens in society, the losers are usually those who would have the most to gain from the benefits of a college degree. The outcome of all of these trends will not affect all institutions equally, and will not affect all students equally. We will continue to see the "haves" have access and options, while the "have nots" will be the ones losing out. When institutions fail and go away, when students give up on the college application process because of frustrations, delays or lack of options, and when they look at the costs as a hill too high to climb, it is typically those from disadvantaged backgrounds that are left on the outside looking in. I have tremendous concern about where the higher education landscape is headed for many obvious reasons. But, perhaps one less obvious one is that the continually gloomy landscape will end up doing what most things in society do...widen the gap between those who have access and means and those who do not. We claim that education has the power to be the great equalizer, but the landscape is shaping up to make access to education become a great divider that further widens the gap between those who have the tools and resources to navigate it, and those who do not. Fairleigh Dickinson University David Rosowsky https://lnkd.in/eHuktTV8