Key points:
- If institutions want to thrive, they must plan and reach for sustainable practices
- The hidden failure of higher education
- Will 25 percent of colleges consolidate? An update on a prediction
- For more on sustainability, visit eCN’s Campus Leadership hub
In today’s financially uncertain environment, colleges and universities face numerous challenges threatening their sustainability. Rising operational costs, declining enrollment, unstable endowments, and increased pressures from government regulation have created a precarious situation for many institutions.
According to The Hechinger Report, colleges are closing at a rate of one per week, largely due to a failure to secure necessary funding and adapt to changing market conditions. While higher education has long been resilient, no college is immune to financial risk. Proactive mitigation strategies are crucial for long-term sustainability.
One of the most effective ways for colleges to address financial challenges is by diversifying their revenue streams. Many institutions rely too heavily on tuition and occasional large donations, a model that is no longer sustainable in the face of rising operating costs due to inflation and fewer generous donors. To reduce reliance on these traditional income sources, colleges should explore new and diverse revenue opportunities.
Expanding continuing education programs and online offerings, offering courses or certificates for businesses to train their employees, or creating consulting services using faculty and key staff can all generate additional revenue. Colleges can also leverage underutilized campus spaces by renting them out for conferences or events. Another innovative approach is for institutions to explore commercial ventures related to their academic strengths, such as research-based companies or publishing enterprises.
Bentley University and Middlebury College are examples of institutions that have successfully diversified their revenue. Bentley generates income by offering corporate training and executive education programs, capitalizing on its business reputation. The university also rents out its facilities and offers consulting services, further expanding its income streams. Similarly, Middlebury has built a global reputation through its language schools and business initiatives, which attract students and generate revenue beyond traditional tuition. This is evident in the creation of its biomass energy plant, which reduces energy costs and serves as an educational tool and revenue source. The college also enhances its financial sustainability through publishing ventures associated with its Bread Loaf School of English, generating additional income and bolstering its reputation in the humanities. Both institutions illustrate how strategic diversification and entrepreneurial efforts can significantly strengthen financial sustainability in higher education.
Another emerging revenue source is the growing Metaverse in Education market, expected to reach USD 19.3 billion by 2028. By investing in virtual simulations and educational games, colleges can enhance learning experiences and tap into this lucrative market.
Enrollment management is another key component of financial sustainability. Colleges must adopt a strategic approach to enrollment, targeting diverse groups of students and improving retention rates. Data-driven strategies using predictive analytics can help institutions anticipate student behavior and develop targeted recruitment and retention efforts. Online degree programs and short-term certifications in high-demand fields like cybersecurity, data analytics, and healthcare can appeal to working professionals and non-traditional students seeking flexible learning options.
Southern New Hampshire University (SNHU) exemplifies how a data-driven, flexible enrollment strategy can drive growth. SNHU has successfully leveraged online programs to attract a diverse range of non-traditional students, offering certifications in fields that meet evolving industry demands.
Operational efficiency is another area where colleges can improve their financial outlook. Streamlining administrative processes, eliminating wasteful spending, and using technology more effectively can significantly reduce costs. Conducting an audit of operational expenses allows institutions to identify inefficiencies. Outsourcing non-core services such as food service or IT support can lead to substantial savings. Implementing cloud-based systems and automating administrative tasks can lower costs, while hybrid course delivery models reduce the need for physical infrastructure. By repurposing existing campus facilities, colleges can meet changing student needs while saving money.
Strategic financial planning is essential for managing debt and ensuring long-term sustainability. Colleges must align their short- and long-term budgeting goals, regularly evaluating their debt structures. Overleveraging can strain an institution’s finances, particularly if enrollment projections fall short. Refinancing or consolidating debt to secure lower interest rates can alleviate financial pressures. Further, colleges should prioritize building the endowment, and as the Bi-Partisan Policy Center calls for, establishing cash reserves and a “rainy day fund” to help them navigate unforeseen challenges like economic downturns, enrollment declines, or reductions in grants and contributions.
Monitoring key financial metrics is crucial for early detection of potential risks. Tracking metrics like market demand, operating margins, run rate, and debt service coverage allow institutions to respond proactively to financial challenges. Financial forecasting models that account for shifts in enrollment or funding can help institutions prepare for various scenarios. Assigning risk indicators to significant expenditures or revenues, such as capital projects and major gifts, ensures colleges can adjust before small issues become major problems.
Leadership also plays a critical role in navigating financial risks. College presidents must now spend a significant portion of their time focused on fundraising and relationship-building with key stakeholders. Successful leaders like Ron Machtley, former president of Bryant University, and Joseph Aoun, president of Northeastern University, transformed their institutions through dedicated fundraising efforts. Aoun strengthened Northeastern’s position by cultivating strong donor relationships, while Machtley focused over 75 percent of his time on fundraising, resulting in significant long-term growth for Bryant University.
Trustees also bear a major responsibility for supporting the president’s fundraising efforts. Board members must give substantially, actively engage in donor cultivation, and dedicate most of their board time to revenue generation. Strong collaboration between the trustees and president are essential for ensuring financial stability and growth.
In an increasingly competitive and financially unstable landscape, higher education institutions that focus on fundraising and revenue generation, embracing entrepreneurial ventures, living lean and saving for downturns, and adopting proactive, data-driven approaches will be best positioned to succeed. By mitigating financial risks and embracing innovative solutions, colleges and universities can secure their future, ensuring they continue to provide valuable educational experiences for generations to come.
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