"Field Notes" is an occasional Connect column covering practical and philosophical issues facing admissions and registrar professionals. The columns are authored by various AACRAO members. If you have an idea for a column and would like to contribute, please send an email to the editor at connect@aacrao.org.
By: Adrian Raul Cornelius, University Registrar, University of Maryland
Higher education finance is a topic of great interest and impact to colleges, universities, local and state governments, the federal government, politicians, and citizens. The current state of affairs of higher education finance in the United States has been discussed, debated, analyzed, and documented by a host of writers, reviewers, newspapers, professional journals and associations, and government organizations.
Within the past recent years, American citizens have witnessed tremendous catastrophes in the country’s economy. With continuously rising costs of tuition and fees, higher education, regretfully, has not gone unscathed in this sea of national financial agony. Moreover, many wonder if it will be the next bubble to burst (Cronin & Horton, 2009).
The financing of higher education has been dramatically impacted by such elements as: decreases in state appropriations to colleges and universities; the changing format of federal financial assistance from need-based aid to grants and loans; increase in federal and state accountability requirements; a constrained private loan market; and declining institutional endowments. These circumstances, among others, are all occurring at the same time as more students than ever are seeking higher education even as a declining, stagnated, or uncertain economy significantly decreases or precludes their parents from affording the rising costs of tuition.
A major reason for rising tuition has been the even faster rate of increase of the cost of instruction. Increased expenditures for instruction-related activities, which are academic support activities (e.g. library, student services, academic administration), have contributed tremendously to the rising costs of attendance. Many believe that the increases in the cost of administration are due to a heavily compliance-driven government accountability system (Stampen & Layzell, 2001).
Over the last thirty years, college tuition has been increasing at an extraordinary rate, and has especially spiked since the mid-1990s. According to Cronin and Horton (2009), “With tuitions, fees, and room and board at dozens of colleges now reaching $50,000 a year, the ability to sustain private higher education for all but the very well-heeled is questionable” (p. 1). Lewin (2008) referenced the biennial report from the National Center for Public Policy and Higher Education (NCPPHE), which indicated that tuition and fees had increased 439 percent from 1982 to 2007, while the median family income rose 147 percent. According to Patrick M. Callan, President of the NCPPHE, quoted in Lewin (2008), “If we go on this way for another twenty-five years, we won’t have an affordable system of higher education” (p. 1). This tuition increase phenomenon poses a real threat to the viability of colleges and universities, and has resulted in growing concern and action on the part of the institutions regarding how to better manage the dramatic costs of higher education.
One consequence of major concern resulting from the financial crisis is that, with an almost dried up private investors loan market, the American middle class, which has traditionally paid for a college education by taking out loans, may become priced out of higher education. This problem is especially exacerbated with institutions’ most recent inability to offer tuition discounting at previous levels because of declining endowments. Pandya (2009) reported, “In 2008, the University of California endowment lost $1 billion; Harvard's endowment dropped by 22 percent, or $8 billion” (p. 1).
Another most consequential effect of the financial crisis is that increases in federal financial aid have occurred at lower rates than increases in tuition. As a result, students are being forced to make choices that break traditional enrollment patterns, which place a greater burden on institutions as they try to predict and manage their enrollments, and plan their budgets. For example, applications for community colleges are rising dramatically (especially of students who would traditionally attend four-year colleges) and enrollment in public colleges is increasing while the highly endowed private colleges are worried about declining enrollments. Students are also considering cost-savings options such as living at home while attending college. On the other hand, traditional colleges and universities are being presented with stiff competition from corporate higher education institutions offering creative degree programs and online courses (Cronin & Horton, 2009).
Disappearing money has caused all kinds of ripple effects defining the state of financial crisis at colleges and universities, from deferred acquisition and maintenance of infrastructure and equipment to freezes in the replacement and hiring of new faculty and staff. Pandya (2009) exemplified, “In both the history and English academic job markets, there were large decreases in jobs available and increases in job searches canceled” (p. 2). This is extremely consequential because, with unavailability of faculty, college and universities are not able to increase their enrollments to take advantage of greater demand for education caused by the country’s economic downturn. With further actions such as programs elimination and layoffs, the impact on quality outcomes is severe.
Other contributors to the financial crisis in higher education are: student debt incurrence (due to increase in borrowing); arms-race spending (especially by private, elite, universities); continuously advancing research technologies and their increasing supporting costs; enrollment and diversity growth; and more promotional expenses in an increasingly competitive marketplace (Rooney, Borden & Thomas, 2001). At the same time as these converging issues have emerged, state legislators and governing boards are demanding more accountability from the institutions, which must now focus all their efforts in controlling cost impacts while at the same time appeasing politicians.
As institutions position themselves to withstand budgetary deficits, the federal government continues repositioning the manner in which it funds higher education, especially by means of grants and loans. Colleges and universities, therefore, need to promptly activate strategies that would keep education affordable and accessible at their institutions, while finding the way to remain viable and successful in this new marketplace. The following are a few strategies that might prove relevant to institutions:
1) Generating increased revenue by expanding enrollments, adding sought after programs, leveraging tuition increases with sustained access, increasing tuition in programs that prepare students for higher paying jobs, and increasing fundraising and entrepreneurial endeavors.
2) Decreasing operational costs by offering more distance education and online courses, eliminating non-productive programs and services, reducing consumables, engaging in cost-sharing with other institutions and companies, and tightening fiscal management. Privatization of selected university services could also be a tactical way to cut operational costs. In addition, corporate training and extension courses are also potential profit centers.
3) Increasing fundraising and redefining institutional missions and programs to attract students, and creatively leveraging price discounting strategies to find the most meaningful balance between merit-based and need-based institutional aid without polarizing access. Institutions might also consider capitalizing on their most valuable assets, their students, to market institutional value and increase profile.
4) Budgeting has also been strongly recommended as a tremendous means of counteracting financial constraints. Fain (2007) stated, “Linking an institution's aspirations to budget numbers can also help presidents make better pitches to state lawmakers and potential donors” (p. 4). However, it seems like colleges and universities do not use budget often enough to their advantage. Through proactive measures, institutions might be able to harness reserves to meet contingencies. This strategy gives institutions the advantage of having flexibility in substantiating limited funds and in reallocating funds without causing irreparable damage to programs.
In this unsavory environment, institutions need to carefully manage operations so that short-term solutions do not threaten long-term institutional stability (Lasher & Greene, 2001). It is crucial that institutions procure practical solutions to managing a financial crisis of this severity. Presidents and leaders need to strategically manage their administration and budgets. It is imperative that they comprehensively assess and monitor current resources, keenly study fiscal and enrollment trends, proactively anticipate austerity, promptly employ expertise in developing contingency plans, and capably execute adaptive measures. Preparedness for crises, or “crunches,” is indeed critical to institutional stability, and ought to be intentionally, proactively, and strategically incorporated in the institutional and budgetary planning processes.
References
Cronin, J. M., & Horton, H. E. (2009, May 22). Will higher education be the next bubble to burst? [Commentary]. The Chronicle of Higher Education. Retrieved July 4, 2009, from http://chronicle.com/weekly/v55/i37/37a05601.htm?utm_source=cr&utm_medium=en.
Fain, P. (2007, October 5). Vision for excellence [Money and management]. The Chronicle of Higher Education, 54(6), A26. Retrieved July 5, 2009, from http://chronicle.com/weekly/v54/i06/06a02601.htm.
Lasher, W. F., & Greene, D. L. (2001). College and universities budgeting: What do we know? What do we need to know? In J. L. Yeager, G. M. Nelson, E. A. Potter, J. C. Weidman & T. G. Zullo (Eds.), ASHE reader on finance in higher education (pp. 475-502). Boston, MA: Pearson Custom Publishing.
Lewin, T. (2008, December 3). College may become unaffordable for most in the U.S. New York Times. Retrieved July 5, 2009, from http://www.nytimes.com/2008/12/03/education/03college.html.
Pandya, S. (2009, April 28). The financial carnage on campus. Retrieved June 30, 2009, from http://www.miller-mccune.com/business_economics/the-financial-carnage-on-campus-1168.
Rooney, P. M., Borden, V. M. H., & Thomas, T. J. (2001). How much does instruction and research really cost? In J. L. Yeager, G. M. Nelson, E. A. Potter, J. C. Weidman & T. G. Zullo (Eds.), ASHE reader on finance in higher education (pp. 557-567). Boston, MA: Pearson Custom Publishing.
Stampen, J. O., & Layzell, D. T. (2001). Tuition and student aid in public higher education: Searching for an organizing principle. In J. L. Yeager, G. M. Nelson, E. A. Potter, J. C. Weidman & T. G. Zullo (Eds.), ASHE reader on finance in higher education (pp. 237-249). Boston, MA: Pearson Custom Publishing.