A Cautionary Tale

Colleges and universities will require both financial prudence and boldness if they hope to subsist

Like all industries, higher education is susceptible to the ups and downs of the market. Yet many colleges and universities have historically dismissed this idea, continuing to raise tuition to address increasing expenses — making postsecondary education out of reach for more Americans as the cost of earning a degree has far outpaced the rate of inflation. 

[Above: The First-Year Village Courtyard at Goucher College]

CT sidebarAccording to data from the U.S. Department of Labor, in 2017, when inflation hovered around 2.2 percent, many institutions were increasing tuition at a rate nearly double that amount.

“I guess, in theory, you can raise prices forever, but one thing you cannot do forever is raise prices more than people’s incomes are going up — and that’s what we’ve been doing for many years,” says Richard Vedder, PhD, distinguished professor of economics emeritus at Ohio University. “That is simply unsustainable; it’s mathematically impossible in the long run.”

Until recently, though, higher education was able to survive under this model, as “the earnings differential from going to college was big and growing for a long time in the ’70s, ’80s, and ’90s,” Vedder says. “The payoff for going to college seemed to be so great that it didn’t matter too much what the fees were, but that became less and less true as those fees continued to rise faster than people’s incomes.”

As more students graduated and were unable to secure high-paying jobs — or any employment for that matter — the value, or at least the perceived value, of a college degree waned. 

“Word got out that higher education was no longer necessarily the great investment that it once was,” explains Vedder, “and as a consequence, there’s been a softening demand for colleges and universities in the last few years.”

But to attribute higher education’s financial troubles to this dilemma alone would be insufficient. 

In addition to changing perceptions of higher education and excessive spending by some institutions — for new programs and facilities, for example — academia is faced with the challenges presented by population and demographic shifts as well as significant changes in public interests and demands. 

Low overall enrollment due largely to a low birth rate has also had a hand in perpetuating the current financial crisis. In 2008, after rising to its highest level in two decades, the U.S. birth rate began to decline, which the Pew Research Center largely attributes to the Great Recession. Additionally, according to the Centers for Disease Control and Prevention’s National Center for Health Statistics, it dropped 2 percent between 2016 and 2017 — a 30-year low. Vedder says these decreases will have consequences going forward. 

“The decline in birth rates in modern American life is going to lead to smaller and smaller freshman classes at universities collectively over the next 10 to 15 years,” he says. “Right now, the Northeast and the Midwest in particular are being hard hit by declining enrollment because the populations of those areas are growing less. There are also out-migrations from those areas to [places] in the South and the West. Texas, Arizona, Nevada, places like that — which have more rapid population growth — are having less of a problem.”

In addition, advancements in technology and evolving interests are driving student demand for certain degree programs. “People’s tastes change, technology changes, and whereas Polaroid cameras were a big deal 50 years ago, they aren’t today,” Vedder says. “But it’s not bad; it’s good because tastes change and the markets respond to that. In higher education, schools have [previously] been protected against this kind of change.”

While some claim that diminishing federal and state funding for higher education has contributed greatly to the current financial crisis — partially the result of waning public support — Vedder says this is a secondary factor. 

José Antonio Bowen

José Antonio Bowen, PhD, president of Goucher College, calls the situation schools now find themselves in “the perfect storm of demographics, economics, values, changes in jobs, what I call the learning economy, and technology,” he says. 

All of these factors considered, colleges and universities are now under even more pressure to compete for high-achieving students while at the same time finding ways to cut or strategically reallocate resources. However, some believe that, for many institutions, it may be too late. 

Harvard Business School professor Clayton Christensen asserts that in the next 10 to 15 years, half of the country’s more than 4,000 institutions of higher education will be bankrupt. While Ivy Leagues like Harvard, which boasts a $37 billion endowment, will likely survive no matter what happens, both public universities and small private colleges are bracing themselves for the impact.  

Rising in popularity as both a proactive and reactive response to tough financial times, many institutions are engaging in academic prioritization. Through this process, schools assess and make determinations regarding programs to cut, expand, or even start — what Vedder refers to as a cost-benefit analysis. 

Bob Atkins

Some institutions have an in-house process for evaluating programs, while others are turning to outside firms. According to Bob Atkins, CEO of Gray Associates, a higher education strategy consulting firm based in Boston, data is often the key missing ingredient when it comes to program assessment. 

“You really don’t want to guess at this, for two reasons. One, it’s expensive if you cut a program and you shouldn’t have; it [may have been] financially positive, but you didn’t understand your numbers, or there was actually a market opportunity there that you hadn’t captured. So, it wasn’t that you [offered] the wrong program, you just weren’t doing it right,” Atkins says. “Fundamentally, that means there are two external aspects schools need to take into account: one is the market, the other is the economics.”

Gray Associates pulls together existing data and also conducts some of its own data collection to help colleges place courses and programs into one of four buckets: start, stop, grow, or fix. Statistics include those related to student demand, employment, competition, number of students enrolled and graduating, and more. Colleges and universities review and analyze this information to see how their programs stack up to similar ones across the country. 

Atkins says that in the last year, the firm has worked with approximately 50 institutions throughout the U.S. From these experiences, several themes have emerged. Specifically, he says enrollment in liberal arts-related programs is down, including philosophy and foreign languages — with the exception of Spanish. Conversely, he has noticed growth in tech (computer science and data security), healthcare (nursing and healthcare administration), and online programs broadly. 

“Programs to a degree have life cycles. They’re not as short and brutal as product life cycles, but some things just fade away,” explains Atkins. He notes, however, that this doesn’t mean that all schools will discontinue offering languages, for example. “Probably what will emerge are centers of excellence in languages, in one state university or two,” he says, “but every university, every campus, won’t have a German program anymore.”

This reality, Bowen says, means that institutions have to work smarter and more strategically in order to set themselves apart. “Colleges are in a much more fast-paced, competitive environment than we’re used to,” he says. “Now [we] are going to have to face the reality that with fewer students, there is a tighter market, and we are going to have to distinguish ourselves.”

For some, this has meant building remarkable but costly facilities or offering obscure programs such as casino management, hip-hop studies, or esports in an attempt to lure new students — a move that some criticize as an impulsive reaction to low enrollment. According to data from the National Center for Education Statistics, since 2012, colleges and universities have created nearly 42,000 new degree or certificate programs — a 21 percent increase since overall enrollment began its downswing. 

At Goucher, the need to distinguish oneself has meant remaining closely aligned with its founding mission as a private, liberal arts college as well as ensuring a quality education for all students and a fair workload for professors. Every two to three years, through a process led by faculty, the college conducts a programmatic evaluation — the most recent and expansive of which was completed this past summer. 

“We were looking at, is there a way to cut costs and increase quality?” says Bowen. “The way to do that is to sacrifice quantity.”

As colleges increase their offerings, some programs and classes end up with an excess of students — others, only a handful. This not only results in “inequitable” workloads among professors but also a lower quality experience for students in majors with dwindling enrollment, Bowen notes. “What we wanted to do is to try to solve both of those problems. In the past, the way colleges solved these issues was that they raised tuition,” he explains. 

“[Our] board made the decision that we could either raise tuition to cover extra costs, … or we could try to hold the line and cut costs. So we are being proactive,” says Bowen. 

With a focus on remaining true to its liberal arts mission — which emphasizes the molding of students into well-rounded, critical thinkers — the college decided to concentrate on its core offerings while eliminating those that were not foundational to that mission and had fewer numbers of students. Degree programs to be cut include math, religion, Russian studies, music, and elementary and special education, among others. 

“If you want to major in microbiology or micro-marine biology you can go to the University of Maryland or Johns Hopkins University. We just offer biology,” says Bowen. “[Our programs] will all be broader, because one of the things that I often say about a liberal arts education is it doesn’t matter what your major is, you are coming to a liberal arts college to learn how to think, how to solve complex problems with people who are not like you. That’s the number one thing employers want, and you can learn to do that with any content.”

Students at Goucher’s opening celebration

Goucher’s core curriculum is now a common set of courses that focus on complex problem-solving; students are then able to select a specific topic to study within those. “So students can study food, water, immigration, or disease, for example,” explains Bowen. “They then get an interdisciplinary approach to solving problems rather than having to take introduction to psychology, introduction to biology, and introduction to English.”

Although Goucher has not yet finalized where funds resulting from the program cuts will be reallocated, Bowen says the college will likely invest more in its general biology program as well as areas such as psychology, economics, math, and physics. “The majors that are understaffed and overpopulated will get investment,” he says. 

Bowen believes these changes, in addition to Goucher’s requirement that all students study abroad, help ensure a better experience for students and faculty alike. 

Nathan Mortimer

In Ohio, another area hard hit by declining enrollment, the University of Akron has been no exception. Nathan Mortimer, vice president for finance and administration/CFO, calls the university “revenue challenged.”

“We’ve had a number of years of enrollment declines, and [that] is really the place where we get the vast majority of our revenue and support,” he says.

This situation led credit rating service Moody’s to downgrade the school’s financial outlook to “negative” last year. Although Akron has since been upgraded to “stable,” that has not kept the university from making a drastic round of program cuts. 

Similar to Goucher, Akron regularly engages in an academic review process. However, Mortimer says the recent elimination of 80 degree programs — including French, history, math, and others — is not necessarily associated with the university’s financial challenges and instead represents an effort to control spending while making investments in more in-demand areas, such as cybersecurity, nursing, and dance. University officials report that the decision regarding which programs to eliminate was based on enrollment, degrees conferred, and duplication at other area institutions. 

“We’re making investments where we should make investments, but we’re controlling the spend,” says Mortimer, noting that Akron is investing in some unique areas. One new program “revolves around nature and how we can create things to mimic nature,” he says. “We call it biomimicry.”

Consequences and Opportunities
Academic prioritization, though an important element in institutions’ efforts to remain sustainable, can have some inadvertent but adverse effects. 

Atkins says at one university, in a state that decided to implement mandatory cuts for programs with five or fewer graduates over a period of five years, he noticed a pattern in the types of degrees getting the axe.

“What I saw was that many of the programs about minority students [were getting cut]. If you think about it, it’s logical because they are by definition a minority of people, but you’ll often see Africana studies on that list, and several of them were Native American culture programs,” he says. “You would think that would be random, but when you realize it’s going to cut out a bunch of programs in a given discipline, you begin to get worried that you might be doing something more fundamental to the university than trimming fur off the dog.”

Atkins believes that in the process to weed out unpopular programs, colleges and universities should keep in mind groups that will be most affected as well as consider both a program’s and the institution’s mission. He admits it’s not all about the dollar signs. 

“[Another] dimension that’s really important is mission. A school is always going to have programs that are critical to its mission, some of which it may not make money on — and that’s fine,” Atkins explains, adding that “they just have to make sure they have other programs that can help support those.”

One type of higher education institution with a unique and historically significant mission is HBCUs. According to Vedder, these schools are facing special financial challenges due to low enrollment, and small endowments, among other issues. One possible — and controversial — solution to their financial troubles he has put forth is expanding their mission in order to recruit a broader range of students.

“I think that HBCUs need to think about modifying their mission … a bit to reach out to other groups that have been underrepresented in colleges and universities — for example, maybe Hispanics,” Vedder says. “The Hispanic population in the U.S. is about as large as the black population and is growing faster, and there is an underrepresentation of Hispanics in [higher education].”

“That would be a natural extension of their mission,” he adds.

Despite the criticism he’s received for this idea, Vedder believes that tough times call for progressive measures to ensure viability. “When you have a special challenge, you have to reinvent yourself somehow,” he adds, “and that doesn’t mean you’re going to forget about serving African American students or that that is no longer a key part of your mission.”

Vedder’s assessment, if nothing else, highlights an area of opportunity. While he believes that promoting diversity in these dire financial times can be challenging for colleges and universities, he says the diversity of the population presents an opportunity for increasing enrollment by “reaching out to underserved populations” — those who are still underrepresented in higher education. 

Recognizing this, Goucher has dedicated additional money in recent years toward providing more facilities and resources for underrepresented student populations, such as its Center for Race, Equity, and Identity; an interfaith center; a full-time disability coordinator; and increased funding for scholarships. And in the last five years, Bowen says the college has increased the number of students of color from 28 to 42 percent. Overall, the school has had three record years in a row for increased enrollment. 

Yet being a small private college both benefits and disadvantages Goucher, Bowen says. “Smaller is bad because it means you’re more susceptible to small changes in the market,” he says. “[But] …we can also be more nimble.” 

Specifically, responding to students’ growing demand for new amenities and choices, such as additional dining options, is more difficult to accommodate than at a large public university. Goucher is also tuition-dependent; thus, it does not receive federal dollars. However, this also means “we don’t have to ask the government [when we want] to change,” says Bowen. 

Caution and Consideration
More often than not, faculty and staff are forced to shoulder the burden of financial challenges. “As enrollments decline, … you simply can’t keep the same number of staff, and as finances deteriorate like crazy at some of these schools, there are going to be more out-and-out layoffs,” Vedder says. 

In many of these cases, he says, seniority rules — a fact that often disproportionately leads to the dismissal of employees of color. 

Akron and Goucher, however, were able to avoid layoffs.     

Mortimer says Akron actually plans to hire more faculty to support the expansion of some programs. Goucher, on the other hand, averted layoffs by engaging in what Bowen calls “voluntary separation,” meaning if professors retired, they either weren’t replaced or were replaced with faculty members in another, more in-demand discipline. 

Contrary to the current trend of using more adjuncts — a move occurring across much of higher education designed to save money — Goucher plans to hire more tenure-track faculty as well as request that these professors broaden their focus. “We are going to ask [them] to be more generalists and to not just teach in their specific field,” he says. 

In addition to engaging in programmatic reviews, Vedder encourages greater cooperation among schools, particularly for campuses in close proximity to one another.

Current circumstances are forcing more and more colleges to consider such areas for collaboration as well as take more risks. To some extent, this is good, Vedder says, but he believes there will be “as many disappointments as there are successes.”

“There are a lot of ideas percolating; some of them will probably catch hold, and some of them won’t,” he says. “I am not a great predictor of the future, but the one thing I can say is that there will be a lot of change, or attempts at change. And Christensen’s prediction is probably more right than wrong: There will be a fair number of colleges — maybe a lot of colleges — that will bite the dust.”

For Bowen, fewer colleges and universities is not necessarily bad, as it would mean those remaining would likely be fully enrolled. “Part of the problem in American higher education is that we all offer the same four-year degrees in English and history and physics, and we also offer them in largely the same way,” says Bowen.

In the quest to set themselves apart, Vedder offers colleges and universities this admonition: “They ought to be a little bit careful about building lazy rivers and atriums and fancy buildings at a time of low enrollment,” he says. “I think there’s a need for boldness and caution simultaneously.”●

Alexandra Vollman is the editor-in-chief of INSIGHT Into Diversity. This article was published in our December 2018 issue.