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US: Most university business officers anticipate financial challenges ahead

Short on time? Here are the highlights:

  • Seven in ten senior business officers at US colleges agree that there is a financial crisis in higher education
  • Half acknowledged that their institutions would face some financial instability in the coming decade
  • Most colleges are responding with new strategies to build enrolment, but there are some indications that many institutions are placing a growing emphasis on cost control this year

A new survey released by Inside Higher Ed finds that 71% of chief business officers (CBOs) agree that US higher education is in the midst of a financial crisis. This important indicator from the now-annual survey is on the rise, up from 63% last year and 56% in 2015.

The survey also finds a growing concern among CBOs for the future outlook of their respective institutions. An accompanying commentary from Inside Higher Ed notes, “Just 56% of survey respondents agreed or strongly agreed that their institutions will be financially stable over the next five years, down from 64% a year ago. Less than half, 48%, agreed or strongly agreed their institutions will be financially stable over the next 10 years, down from 54% a year ago.”

Simply put, the issue is enrolment. Student numbers are falling short of growth targets in many US institutions, and the prevailing demographic trends project only marginal growth in the pool of college-aged students in the years ahead. In the absence of growth, many CBOs can see a future where they will be asked to cut expenses.

In a reflection of the growing importance of international education to many institutions, a majority (54%) also acknowledged that any changes in US immigration policies that discourage foreign students from studying in the US would “affect their college’s financial situation a great deal (21%) or a moderate amount (33%).”

In response, a majority of US colleges are doubling down with new plans to increase revenues, whether by setting new strategies to increase enrolment (71% said they would pursue this option), or by reducing tuition discounts to students in order to increase net tuition receipts (23%).

In both respects, however, the percentage of respondents that indicated they would pursue such strategies declined from recent-year surveys, suggesting again that the emphasis is beginning to swing toward cost control this year.

Half of the CBOs responding to this year’s survey acknowledged that their institutions would likely cut some academic programmes in 2017/18. Just over three in ten (31%) said they would be introducing early retirement programmes to reduce staff numbers, and nearly half (44%) said their institutions would cut some administrative positions.

About a third of survey respondents are also looking to faculty for some savings, whether by increasing teaching loads for full-time faculty members or shifting some teaching responsibilities to lower-cost junior staff.

In a nod to more dramatic cost-saving measures, one in eight said that senior leadership at their college or university had held internal discussions about merging with another institution, and one in four report similar deliberations around consolidating services among campuses.

Only the latest indicator

This year’s Inside Higher Ed survey drew 409 responses from US CBOs over a six-week period in May and June 2017. This is the seventh such survey commissioned by Inside Higher Ed and carried out by Gallup.

The survey has become an important indicator for the business climate facing US colleges and universities, and it reflects growing scrutiny of, and concern around, the traditional business model for higher education institutions.

The main underlying factors here are a downward pressure on revenue (due to off-target enrolment numbers and increasing competition) and upward pressure on costs arising from necessary technology and capital investments, declining public funding support, and even simply inflation from year to year.

Starting about two years ago, we began to see a more open acknowledgement of the financial challenges facing US institutions, including a notably negative outlook from Standard & Poor’s in 2015.

But the situation is hardly unique to the US. Higher education institutions in Australia, Japan, Taiwan, and Europe are facing similar pressures, and many are actively pursuing new strategies to build enrolment, raises revenues, and/or control costs. From a recruitment point of view, this pressure on institutional business models is an important driver of new initiatives to build international student numbers, improve student services and student retention, and expand transnational education and online programmes.

In 2013, a report from the US-based research centre TIAA-CREF Institute observed that, “Many colleges and universities are responding by experimenting with changes to their business models. Most of these initiatives are occurring at the margins, but some may prove significant. For instance, some schools are changing their discounting policies; others are experimenting with four-year price guarantees, the length of time required to earn a degree, more vigorous recruitment of foreign students, partnerships with overseas institutions, and increased operational efficiencies – from streamlining back office functions to offering online learning to reach students … Few new business models have emerged for higher education thus far, but with so much experimentation underway, change is certain.”

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