Maturing from adolescence into adulthood: Major factors shaping the sector in 2016

Higher education is leaving its adolescence and entering adulthood. The post-World War II growth spurt is over. Sheer physical expansion ― in tuition, enrollment, faculty and staff numbers, buildings, and everything else ― is fast becoming a thing of the past. Simply following the traditional trajectory isn’t a choice at all, for any institution. 

State of Higher Ed 2016In this new level of maturity, there is no longer a rising tide to lift all boats. Colleges and universities will need to find new currents and ride them. Institutions will have to carefully pick initiatives, making clear choices about what to do and, most significantly, what not to do. We will be experiencing a shakeout in the industry.

Start with where we are now  Revenue challenges First, as confirmed by Moody’s most recent outlook report, most of higher education is experiencing, and can expect to continue to experience, extremely modest revenue and asset growth (no more than 3%) in 2016.1 Counter to the rapid revenue growth for most of the past three decades, higher education now faces a zero-sum game in which additions must be accompanied by subtractions. And while modest revenue growth represents an average, there will be many institutions beset with actual declines in revenue that are unlikely to be temporary.

Think long term ― see articles in this report for insights you can use to focus on academic quality; invite faculty to become your partners in change; consider mergers or affiliations with other institutions and re-evaluate investments; measure outcomes; step up communications, promoting efforts and results to stakeholders; and target demographic segments in recruitment and program planning (see Fact No. 2, below).

Demographic changes Second, seismic shifts in our national demographics mean that historical numbers of students aren’t available from traditional sources.2 Recruiting new populations is essential to survival. Institutions will need to shape programs that specifically attract new clientele, or find new clientele that will be attracted to current programs. 

Technology transformations Third, the digital revolution continues its inexorable march forward, in spite of skepticism and occasional failures. The digital revolution is transforming how institutions operate and, more significantly, how they provide their educational programs. Electronic classrooms in many forms will continue to revamp pedagogy and the underlying economics of our institutions. While this new technology presents opportunities, it also poses threats. Students can now take high-quality online courses elsewhere and then transfer credits into your institution, thereby reducing your tuition revenue. Colleges and universities will need to mitigate the challenge of this new technology while also leveraging the potential it affords by finding alternative sources of revenue and reducing their own instructional costs substantially, as well as developing their own online and hybrid courses.

Next, look at where we are going As the industry enters adulthood, three hard facts in particular will shape our thinking and behavior:

Fact No. 1: Your institution is on its own. You have to take decisive action. Too often, boards, presidents and faculty feel entitled to success because the college or university is serving an important purpose or has a great reputation. It’s pointless to assign blame — to students for not arriving in sufficient numbers, to donors or alumni for insufficient giving, to accreditors for scrutiny of the financial condition, or to faculty for resistance to change — just as it is pointless to passively watch for deserved appreciation to emerge. The government won’t come to your rescue. Fundraising and endowments may grow, but not enough. Unless you target specific underserved groups, demographics won’t get any better. A sufficient number of students won’t choose to enroll and live on your campus just because you believe it is so special. Find out what is important to each of your key constituencies and provide it as soon as possible.

Fact No. 2: Opportunity abounds. There are external factors that represent huge opportunities. Two prime examples:

  • Potential students from growing demographic groups ― such as Hispanic and Latino ― and students who live in the West and South 
  • Potential students who are outside your geographic reach and could access your programs only through online or hybrid delivery systems
To take advantage of opportunities, your institution needs to be unique. What could truly distinguish your institution from the competition? Create or promote offerings that lead a student to choose your institution over others that now look and sound the same, e.g., curriculums or programs with effective branding that attracts students, such as programs that link liberal arts and vocational objectives in clever ways.

You also need to focus on only a few things and do them very well. Many institutions have added programs to attract students without reducing or eliminating less attractive programs, thereby building too much cost and complexity into the system.

Chances are good that the recession of 2008 resulted in budget reductions at your institution. Those reductions, while painful, probably reduced some low-priority expenses that should have been cut previously. But as revenue slowly grows, resist the pressure to restore those cuts; instead use the incremental revenue to fund new initiatives that will embrace the future (e.g., attract new students and improve retention) rather than just returning to past practices.

Fact No. 3: This is the year of the distressed college, and it may start the decade of the distressed college. Right now, many colleges and universities are leading a secret life. That’s right. They know they are in trouble, but they aren’t talking about it. Or they are in both deep trouble and denial, even to themselves. We know about Sweet Briar College and several others, and we know the warnings from Moody’s about the financial risks for smaller tuition-dependent colleges. It’s a good possibility that there are as many as 100 Sweet Briars in the making, and they likely have some or all of the following symptoms:

  • The numbers (applications, yield, enrollment, faculty utilization, financial assets) are all trending downward, with no end in sight.
  • The board and president don’t have credible answers or solutions to the challenges facing the institution.
  • Lenders and accreditors are worried.
  • Cash is either an issue or likely to become an issue soon.
  • Faculty, students and alumni are either clueless about the precariousness of the institution or resisting any significant change.
To separate your institution from the distressed-college fold, begin with a realistic view of your situation. Your biggest challenge will be to get real, and face your situation without illusion. Consult with all key stakeholders who have on-the-ground information, both to learn and to gain their support. Determine a projection based on your current course, which usually leads to the conclusion that your current course is not sustainable. Then think boldly about new paths that are consistent with your mission, but that take the institution in a sharply different direction. Denison University offers an example of an institution maintaining much of its current practices while designing an academic program that breaks with the norm.3

Colleges and universities must deal directly, as adults, with the facts and pursue opportunities aggressively, with strong leadership showing courage in the face of potential opposition and with vision to lead the institution toward a successful future.

1 Thomason, Andy. “Moody’s Upgrades Higher Ed’s Outlook From ‘Negative’ to ‘Stable,’” The Chronicle of Higher Education, July 20, 2015.
2 Williams, Joseph P. “College of Tomorrow: The Changing Demographics of the Student Body,” U.S. News & World Report, Sept. 22, 2014.
3 Weinberg, Adam. “Beyond Business: Global Commerce and the Liberal Arts,” The Huffington Post, Jan. 14, 2014.

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The State of Higher Education in 2016
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