College and university financial health: one important view

Inside Higher Ed does many fine things for the post-secondary world. One of them is conducting repeated, careful surveys of key campus players.

This week they released a survey of chief financial and business officers, a crucial constituency with vital perspectives on campuses. IHE ran a similar one in 2018 ( my notes).

Let’s see what these CFOs/CBOs have to say. Here I’ll identify what I think of us the most interesting and future-oriented findings, but I also recommend checking out the full report yourself.

Which institutions are represented? “Respondents represented 218 public institutions, 190 private nonprofit institutions and three institutions from the for-profit sector.”

Let’s start with the big picture, as the CFOs/CBOs assessed the broader landscape.

Confidence Nearly two-thirds of respondents had positive views of their institution over the next five years. About one half extended that confidence a decade:

Recession to come soon? Asked about the broader economy and if a downturn was likely in the near future, these financial professionals “are more inclined to agree (45 percent) than to disagree (19 percent)…”

Defunding public higher ed Respondents offered a good glimpse of how far privatization has progressed.

On average, state appropriations account for about 35 percent of public institutions’ operating budgets, with community college CBOs reporting their college is more reliant on state funds (39 percent) than public master’s or baccalaureate (33 percent) and public doctoral CBOs (22 percent).

Just think about that. In 2019 “public” institutions receive less than half of their funding from the state. It’s down to one third or even nearly one fifth for some! ( As I’ve noted previously.)

Closing campuses CFOs/CBOs expect a continuing trickle of colleges and universities shutting down.

The majority of business officers expect there will be between one and five (30 percent) or between six and 10 closures (33 percent) in the 2019–20 fiscal year. Another 36 percent of CBOs believe there will be more than 10 closures.

Drilling down a bit, let’s look more closely at the campus level.

Sharing services and programs with other campuses A minority of these financial officers are apparently talking about sharing academic programs and services with other colleges and universities. And majority think they should be doing so:

Slightly more than one-fourth of CBOs (28 percent) say senior officials at their college have had serious discussions about consolidating programs or operations with another college or university. About six in 10 CBOs believe their college should share administrative functions with another college or combine academic programs.

Mergers What do they think about campuses feeling the urge to merge? Some will occur, it seems:

Nearly all CBOs expect there to be additional private college mergers in the 2019–20 fiscal year, with 54 percent expecting between one and five mergers, 30 percent expecting between six and 10 mergers, and 15 percent more than 10 mergers.

There are differences between public and private colleges and universities:

CBOs are less likely to believe there will be additional public college mergers in the coming fiscal year with 28 percent predicting no such mergers. But 53 percent of CBOs believe between one and five public colleges will merge, 14 percent think between six and 10 public colleges will do so, and 5 percent believe more than 10 public colleges will merge.

What about their own institutions?

Twelve percent of CBOs say senior officials at their colleges have had serious talks about merging with another college or university, down from 17 percent in 2018 but the same as in 2017.

Also:

Eighteen percent of CBOs believe their college should merge with another institution, including 40 percent of those who say their college has had serious discussions about merging or consolidating.

Now, why wouldn’t a campus merge? This is a fascinating view:

CBOs are most likely to see faculty opposition (54 percent), a desire to maintain the status quo (52 percent) and lack of mission compatibility (48 percent) as significant impediments. Less than four in 10 believe geography, governing board opposition, lack of financial necessity, and program overlap or incompatibility are significant impediments. Twenty-two percent believe alumni opposition is.

Discount rates This refers to how much less an average or median student pays than published sticker price. About one third thought their campus discount rate was fine; one third deemed theirs unsustainable.

Financial stress More than half of respondents thought their institutions were in good financial health.

Yet of those that weren’t, note this key detail about endowments:

Thirty percent of private nonprofit institutions (and nearly half of private baccalaureate colleges) took funds from their endowment over and above their normal distribution policies — often a sign of financial distress.

Credentialing What do they see happening with alternative credentials? “Seven in 10 business officers see promise in establishing alternative credential programs (such as certificates) as a source of new revenue for their institution. “

Responses to demographics I’m delighted that CFOs/CBOs join me in thinking about programs aimed at how America’s population is changing: “About half say the same about creating programs for new audiences, such as senior citizens.” I’m interested to see which model a CFO/CBO would like to pursue.

About public universities Beyond the elite, this subsector sees itself in particular straits. Doug Lederman sums it up powerfully:

CBOs at regional public colleges — which a precently published Inside Higher Ed special report calls the “vast middle” of public higher education, positioned between research universities and community colleges — are more pessimistic than their peers on multiple fronts.

They are less confident in the financial stability of their institutions over a decade than their counterparts in any other sector (28 percent express confidence, none strongly, compared to an average for all institutions of 62 percent); more likely than those at other types of colleges to expect their institution to share academic programs or administrative functions with another college in the next five years, and to say their institution should share administrative functions or merge in that time; and less likely to believe their colleges are well prepared to withstand the economic downturn that many economists predict is on the way.

Summing up: one half to two thirds of campus financial officers see their institutions as financially stable. They tend towards the possibilities of inter-campus collaboration and shared services. However, they also expect a small number of closures and mergers, possibly less in the short term and more in the medium term.

As data for higher ed’s future, I think this survey points out some useful trends. American higher ed is uneven, with areas of financial strength and weakness. Some will escape financial stresses, if their financial leaders are correct, while others will respond with program sharing, service sharing, and even mergers and closures.

Personally, this feels right at home for my peak higher ed model, as America’s post-secondary sectors shrinks past overshoot. We are overbuilt, and corrections are under way.

Originally published at https://bryanalexander.org on July 16, 2019.