Can U.S. Higher Education Disrupt Itself Before It’s Too Late?

I’ve been thinking a great deal lately about how disruption will play out in American higher education. My hopes – and concerns – reflect a bedrock belief that America’s colleges and universities operate on an unsustainable finance model that must adapt to new realities. It is impossible to predict how many colleges and universities have the capacity or willingness to make the kinds of structural changes that reach beyond where most have charted their courses.

That having been said, it seems likely that we will see an uptick in mergers, closures, and acquisitions, particularly for poorly endowed and under-resourced institutions that cannot control their financial aid discounts and spending rates.

While almost all institutions feel some level of pain, those with weak governance, internal fiefdoms that fail to communicate across the campus, uninformed faculty, and poorly articulated value propositions will be the first to fall.

EXTERNAL FORCES COMPOUND HIGHER ED’S INTERNAL PROBLEMS

External forces compound the growing problems faced by higher education, where the annual outlook by the ratings agencies has now eroded once again to “negative.” There are a number of quality institutions with financial aid discount rates over 70 percent. A number of these institutions are unable to stop the rise in these rates.

Basic math suggests that as the effects compound, these institutions will so severely limit their options that the impending question on the horizon is how and when they will lose their independence.

IT’S NOT TOO LATE TO AVOID THE DEBACLE AHEAD

In the once robust world of decentralized American higher education, the tragedy is that so much of what will play out could be stopped. There are a number of players who can step in to avoid the debacle ahead.

The first is, obviously, the higher education community itself.

Each and every college or university must determine its value to its community and to American society as a whole. Once defined, its leadership must be courageous in articulating its own value proposition.

Stakeholders – led by trustees and faculty – must accept this value proposition and must adjust their roles accordingly, clearly differentiating what is truly distinctive about their institution – what it does differently than its peers.

The campus community must live within its footprint. And it must adapt to the new realities that fund what it can do best within its means to serve the common good.

STATE AND FEDERAL GOVERNMENTS HAVE STAKE IN HIGHER EDUCATION

The second stakeholder group is government, both at the state and federal level. There has never been an effort to have the state and federal governments coordinate their support, especially their financial support, of America’s colleges and universities. The impact varies widely across states.

• Is it the responsibility of state governments, for instance, to bolster student aid and infrastructure needs rather than simply provide direct public subsidies?
• Should the federal government effectively designate America’s research universities as the lead participant in many strategic national research and development efforts?
• Can the federal and state governments lighten regulatory restrictions in an overregulated higher education industry?

MEDIA PLAYS POWERFUL ROLE IN SHAPING PUBLIC PERCEPTION OF HIGHER ED

The third stakeholder group is the media through which the message about higher education is delivered. Much of the negative perception of education shared by American consumers comes from the sensationalism of anecdote, political posturing, and polling. It festers in an unregulated, hyperactive, and reactionary social media environment. Good stories seldom draw ratings and sell print media. This combination of ratings-driven establishment and out-of-control social media has encouraged new – generally negative — perceptions not driven by data.

The cumulative effect is to throw higher education under the bus, often through some combination of bad data and self-inflicted wounds.

The positive message of higher education’s contributions to the common good in American society is often drowned out by sensational, if often accurate, stories of colleges in crisis. The weakness of its parts effectively drowns out the good of the whole.

CAN DISRUPTION RESTORE PUBLIC FAITH IN AMERICAN HIGHER EDUCATION?

This is the point at which disruption can play a critical role in restoring the faith of the American consumer in the value proposition of American colleges and universities. As disruption sweeps across colleges and universities, higher education is facing the same kinds of pressures as the health care industry.

If higher education, government, and the media that together shape the parameters of higher education continue with their current level of disconnected incoherence, the results may work against a robust college community.

America loses in the end. However, there is an alternative view.

Led by America’s colleges and universities, disruption within higher education can be good for American society – especially if it is intentional and self-directed.

Higher education must break out of the “we’ve never done it this way before” mindset that governs broad national policy despite solid evidence of remarkable innovation in isolated sectors of the academy.

The fact is that the financial model of American higher education is broken. The revenue generated no longer supports the people, programs, and facilities that form the decentralized higher education community that is still admired globally.

Something must be done soon. The answer will likely come from within higher education. My strong hope is that positive disruption arrives before consumer perception and the fiscal crisis intersect to do irretrievable damage.

Last month, Rick Seltzer reported in Inside Higher Education about a brewing controversy at Oberlin College, which is facing a significant budget shortfall. The College, including its prestigious Conservatory, faces a multi-million dollar deficit caused largely by lower-than-expected enrollment.

Trustees charged with looking into Oberlin’s shortfall found that the College relies too heavily on cash from gifts. In a letter to the student newspaper, The Oberlin Review, two faculty members argued that it is “inadequate and depressing that neither the board nor the administration has the leadership or imagination to address the crisis in any other way than by eliminating raises for faculty and staff.”

OPTIONS FOR CLOSING BUDGET GAP WITHOUT CUTTING COMPENSATION

In response, Oberlin’s administration pledged to look for new revenue to reduce spending in the short term. This will encourage and permit development of long-term strategies to broaden its appeal to college-bound students, raise money through a new comprehensive campaign, offer early retirement plans, and place stricter conditions on funding for large capital projects.

IS OBERLIN’S CAMPUS CULTURE HURTING ENROLLMENT?

There are two ways to look at Oberlin’s situation. The first is to criticize the school for getting itself into this mess, failing to educate its stakeholders about the crisis and not including them more directly in seeking a solution.

Critics might argue that any financial changes must be more fundamental because Oberlin has a shaky financial model that will be subject to unanticipated cyclic downturns when some combination of enrollment softness, brand weakness, and fundraising failures and endowment shortfalls hit the College in the future.

It is unlikely that Oberlin suffers from an enrollment shortfall, as some contend, because its faculty and students lean toward one end of the political spectrum, even if, in fact, they do. Oberlin appeals to students who are comfortable with the campus culture; indeed, it one reason that 27 % of those who are accepted in the college of arts and science actually enroll there.

An alternative to criticizing campus culture for the current budget woes is to commend Oberlin for facing the tough questions that beset its peers and aspirants across the country. Most college leaders envy Oberlin, with its sterling reputation and a $770 million endowment upon which to base its decisions.

What Oberlin should demonstrate to the rest of American higher education is that serious, purposeful, and inclusive conversations must occur if an institution is to avoid what many less endowed and recognized colleges already face – open concerns about whether they are sustainable.

For most of higher education – public and private – the facts are clear. The operating model doesn’t work, especially if the college relies overwhelmingly on a tuition-grounded comprehensive fee.

At all but a handful of colleges and universities, fundraising cannot keep up with growing demands on the budget. Fundraising is, at best, a long-term solution. Even with the run-up in the stock market, most institutions do not have endowments that are meaningful supplements to tuition revenue.

Auxiliary revenues are flat and typically diverted to pay for academic programs that student tuition cannot finance. At the Division 1 level, for example, only one in eight athletic programs pay for themselves. And most colleges have already made tough decisions on creating basic efficiencies — either through short-term actions like salary freezes or on a more permanent basis, like modifying health and retirement plans.

There is little wiggle room left in budgets that are largely fixed by labor and capital costs including debt repayment, facilities upkeep, and technology. There is almost no discretion left in many college operating budgets.

Some colleges panic, surmising that a shift to new programs at the undergraduate, professional, or continuing education levels will keep the wolf from the door.

Others are thinking more about online programming opportunities. It may be that a solution based on shifts, modifications, and new programming ventures will offset growing financial aid discounts and annual operating increases. It is more likely that such actions will delay the reckoning that will come when discounts make long-term survival an open question.

In the end, what we need to hope for most is that colleges are nimble and creative institutions with long histories that survive the upheavals that they face as these venerable institutions have in the past.

What’s so encouraging about Oberlin is that they are asking the right questions.

The road may be a little bumpy until transparency improves, but Oberlin put its future on display to address systemic issues. And it did so before it had no choice.

Change is coming to higher education. Each institution will find a different solution on a path to sustainability. But the solution will be about strategy, not tactics.

In the end, the institutions that survive will not be protected by their money, alumni base, or reputation. They will prosper because they figured out how to remain relevant in the 21st century.

In a recent Wall Street Journal article entitled “Baby Boomers Looking for Reinvention Try College — Again,” Douglas Belkin notes that “adult students have been a growing force at universities for more than a decade – mostly blue-collar workers or those pursuing advanced degrees focused on getting new skills.”

Looking at older, retiring adults, Belkin suggests that universities could use the tuition payments and many of these older students pay full freight. In a telling statistic, the article relates that about 10,000 baby boomers are retiring every day.

TUITION FROM ADULT STUDENTS HELPS COLLEGES’ BOTTOM LINES

Colleges and universities are overwhelmingly dependent on the revenue that they receive from tuition, fees, room and board. Many are not reaching their projected enrollment numbers. Colleges face rising financial aid discount rates, now at 50 percent. The number of full-pay students has dropped precipitously in the past 20 years while the sticker price at high-priced tuition schools approaches $70,000 per annum.

In addition, the demographics for the traditional draw of students within the 18-22 year old cohort are terrible with no significant improvement over the short term. The usual building blocks of admissions – academic-oriented admits, legacies, student athletes, over-the-transom acceptances, international students, and transfers — have not produced a robust applicant pool. Indeed, the problems creating a seamless pathway for groups like transfers are now considered a national crisis, with a great deal of experimentation going on at the state level.

With the financial outlook so bleak, perhaps it’s time for many colleges and universities to re-imagine who they serve and how they contribute to workforce preparation in America.

There will always be room for the traditional, residential liberal arts college filled with 18-22 year old students. But it’s time for the broad middle market of public and private colleges and universities to think of educating late-stage adult populations beyond graduate and continuing education programs that cater more to traditional workforce development than workforce re-imagination for late-stage career and retiring employees.

It’s in this developing grey area of retiring baby boomers where Mr. Belkin’s reporting holds special merit.

Is it possible that aging and higher education can intersect in new, imaginative and extremely practical ways to serve America’s workforce and enhance its productivity?

Why should we lose the talent, entrepreneurialism, and creativity of retiring baby boomers, especially those who seek new professional horizons and carry with them a generation’s worth of valuable work experience?

It makes practical sense for American high education to develop this market for a number of reasons.

TRADITIONAL COLLEGE MODEL DOESN’T MEET NEEDS OF OLDER STUDENTS

American higher education should be a seamless, continuous pathway that takes account of the full capabilities of its citizens. The current education formula trains broadly in the liberal arts, towards an end goal of employment after graduation, and for early- and mid-stage professional advancement. It does not provide workers in the later stages of their careers with an opportunity to match their professional interests with their life expectancy.

HIGHER EDUCATION CAN BE PATH TO MEANINGFUL RETIREMENT

The media is full of images of retiring workers who have planned well to live a life of contented comfort. But what about the millions of retirees who want something different than what a fully funded 401k fund provides – a chance instead to try something new, contribute to their communities, and remain relevant in their field if not at the same job? Is there really only one path to a meaningful retirement?

This failure to account for a lifelong seamless educational pathway to address the full range of retiree interests further exacerbates the issues that arise in a post industrial economy that is moving faster than the educational system that develops its workforce.

That’s not to say that there are not already programs that serve retiring baby boomers. Mr. Belkin cites programs at Harvard and Stanford, for example, to demonstrate the innovative programming already in place. Both programs provide an opportunity for accomplished professionals to take a moment before they try something new, often with potential global implications. Other colleges and universities offer similar platforms. Many more have “learning experience” on-campus and travel options open to most groups, especially alumni.

COLLEGES NEED MORE STUDENTS & REVENUE TO SURVIVE

But higher education is in a financial crisis driven by its dependence on insufficient revenue from a tuition-driven operational model.

If tuition continues to be the foundation upon which college and most university budgets are built, doesn’t it make sense to find new segments within the enrollment market that can pay the bills and enhance workforce productivity?

There are good and bad examples of the mounting disruption in American higher education. Rethinking who attends college, when they attend, and why they came effectively re-imagines the enrollment market for most colleges and universities. It will make better use of people, programs and facilities. It’s good and necessary disruption that can make higher education more sustainable in the long-term.

Rethinking how to create a life-long seamless pathway directly addresses the core mission of American higher education – to serve the common good.