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California Association of Private Postsecondary Schools

Are Colleges Ready to Adjust to a New Higher-Education Landscape?

11/26/2013

The Chronicle of Higher Education.  November 25, 2013.  Moody’s Investors Service on Friday released a report with grim news, particularly for public institutions: In a survey, 28 percent of public institutions, compared with 15 percent the year before, said they expected declines in their net-tuition revenue, increasingly the lifeblood of many institutions. For private institutions, the news was not quite as dire. Nineteen percent expected declines, compared with 18 percent last year, but that finding should come with a caveat: The Moody’s survey included only the institutions the credit-rating company evaluates, which means they are probably among the more financially stable private colleges out there.

One has to wonder if American higher education is the proverbial frog in a slowly warming pot of water, not realizing that it’s about to be boiled alive. The Chronicle’s own survey on enrollment trends at small private colleges and comprehensive state institutions, released last month, showed half of the 436 respondents missing their enrollment and net-tuition-revenue goals. The survey allowed respondents to leave comments on the state of affairs at their institutions. One respondent said that his institution was having a hard time maintaining or increasing enrollment while keeping the discount rate at a sustainable level.

“Students have more need, but families often have less willingness to take out loans than in previous years,” he wrote. “The poor job market and the media focus on ‘Is College Worth It?’ has raised questions in the minds of families and students about the value of a college education.”

Another respondent was acidic about the industry generally. “I’ve become a firm believer that most of our campus leaders are stuck in a ‘quick fix’ mentality when it comes to enrollment success,” he wrote. “I continue to see campuses make knee-jerk reactions and spend heavily to improve enrollment in the short run, only to see the cycle turn downward once the strategy is no longer viable, or their competition matches that strategy with one of their own. True campus-culture changes are the real creators of success, but most leaders are too afraid to upset the apple cart and deal with the inevitable groaning from faculty.”

It is probably more fair to say that changes in campus culture, administrative structures, and business practices could help many institutions, and that those changes need to go beyond merely laying the problem at the feet of faculty members.

“The story in this Moody’s report is not a new story, and I don’t think that it is a bump in the road,” said Rick Staisloff, a former college chief financial officer who now advises institutions on financial strategies. “It is a permanent change in the landscape about how higher education will be financed from all its stakeholders. The challenge is that institutions have not adjusted to that reality.”

In the coming months, I will take a close look at the costs of college and the changing landscape, and This email address is being protected from spambots. You need JavaScript enabled to view it.  However, experts in higher-education finance point to a few basic problems facing the enterprise.

First, the possibility that higher-education institutions are unfocused. The “buffet model” of higher education—where students come to a college and choose from a vast array of majors and programs—is not financially sustainable, Mr. Staisloff said. “That points to a disconnect between the mission and market,” he said. More institutions should ask themselves: What are we good at? What can we offer that you can’t just get anywhere? And perhaps they should offer a more-limited palette of majors and programs.

“We don’t understand where our economic engines are,” Mr. Staisloff said. “We need to figure that out, so we can do more of those things and do less of the things that don’t support the mission or the bottom line.”

Second, an economic reality that scholars of higher education have talked about for 40 years: the enterprise’s heavy reliance on expensive labor. “I am thinking, frankly, that we have to have productivity gains in higher education,” said John Curry, a former vice president at the Massachusetts Institute of Technology who now works for the Huron Consulting Group. “The big gains have to come out of the education-research sector because that is still on the order of 70 percent of the operating budget of universities.”

While other industries have been able to replace labor with capital—in other words, find equipment and technologies that have allowed them to scale up productivity—that solution has been elusive in higher education. (That is, without compromising academic rigor, the college experience, or some other quality.)

Third, the need for institutions to work on retention. Getting students into college is not the challenge; getting them through is. “It’s less expensive to keep a student than to attract a new student,” said John Lawlor, who works with colleges on enrollment and marketing issues. Admissions offices often get too much credit and too much blame when it comes to getting students and keeping them. “It takes a village to recruit a student and keep a student …. There is a need to get the entire campus community to get involved in recruitment and retention.”

Last—and perhaps most important and most confounding—colleges are working with an American landscape that is fundamentally different in terms of ethnicity and financial health, compared with the era of the postwar college boom. Regions rich in colleges—the Northeast and Midwest—have a paucity of students, and student numbers are growing among populations that don’t have a long history of college achievement.

While incomes for the richest Americans have gone up since the recession, incomes for middle-class Americans have been stagnant for many years. Many Americans aredrowning in debt—not just student-loan debt, still considered a decent investment (if you finish college), but just plain old debt from consumption. Some economists talk about a“permanent slump” in the economy.

“That is an economy that can’t support the higher-ed business as we know it today,” said Mr. Curry, who then invoked the metaphor of the frog on the stove top. “That, to my mind, might be the biggest pot of boiling water out there.”