Oberlin’s Financial Crisis: Sobering Lessons For Higher Education

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.