Fighting for Relevance: Why Colleges Close and How to Prevent It

In March, veteran women’s college Sweet Briar announced its closing, surprising the higher education world. And recently, Moody’s released a report announcing that it projects college closures to triple in 2017. While colleges closing isn’t a new phenomenon, the rate of closures can be cause for concern. Rising costs and lower revenues are affecting higher education — is the model broken beyond repair?

In short, no, but significant change needs to be made before the system devolves further.

Rising Costs

It’s not cheap to run a college or university. As with the rest of the economy, the cost of doing business continues to rise for institutions, and those costs can cause colleges close to the brink to finally shut down. Some of the biggest cost centers include:

• Salaries. Not all salaries are created equal, but the trope of starving academic is not borne out by the data. According to this survey, professors can earn up to $200,000, depending on where and what they teach. While many institutions are looking to control costs via the use of adjuncts, salaries still remain a significant cost. And that’s just for professors; administrators also represent a drain on an institution’s finances. According to data from the College and University Professional Association for Human Resources, the median base salary for senior leaders at colleges and universities has gone up 2.4 percent in 2014–15, the same as the year before. These numbers vary based on title and type of institution, but those high in the academic echelon are earning salaries in the six figures. While these salaries may be deserved, they can put a strain on an institution with limited resources.
• Bloated administrative structures. In addition to the salary costs, the number of administrators has risen over the years. The number of non-academic administrative and professional employees at colleges and universities has more than doubled in the last 25 years. While institutions defend the number of adminstrators as necessary to provide the services college students need and have come to expect, expanded administrative structures can become unsustainable to a struggling college.
• Facilities. While you can’t judge a book by its cover, many students do, in fact, judge a campus by its facilities. And in an era of increased competition, spending money on things like more luxurious dorms, better dining halls or improving lab space all seem like appealing options to stand out. But those facilities come at a cost, and not all institutions can foot the bill.
• Deferred maintenance. The flip side to improving facilities is navigating maintenance that may have been deferred for decades. As any homeowner knows, it may not be visible when all the plumbing is replaced, but it is is critical…and expensive. Colleges that have been struggling with revenue for years may have put off important repairs, and are faced with making tough decisions about how much they can spend on updating their campus.

Falling Revenue

At the same time as costs are rising, revenues are falling — a recipe any Econ 101 student can tell you is heading for disaster. Two of the major factors in falling revenues are tuition and enrollments.

The tuition rate seems like it should be a direct indicator of revenue, but the reality is more complicated than that. Tuition discounts are at an all-time high; according to a report from the National Association of College and University Business Officers, tuition discounts reached 48 percent for incoming freshmen at private colleges in 2014. While the sticker price of college can seem exorbitant, if students are only paying (approximately) 50 percent of that price, revenue is half of what can be expected.

Closely correlated to tuition is enrollments, and this is the most significant factor in declining revenue. Simply put, enrollments are flat or down, particularly at small private colleges. According to Moody’s, 50 percent of small, private colleges had a three-year growth rate of 2 percent or less. If those schools that have a small endowment and deeply discounted tuition cannot entice students to attend their instituition, then enrollments will continue to fall. This vicious cycle can then lead institutions to discount tuition even more, or neglect infrastructure needs that can then turn potential students away.

Reason for Hope

There are solutions administrators can consider to shore up their financial stability.

First, think about new offerings that are of value to the community. This might be specific programs targeted to fill the needs of local business, or short-term, intensive bootcamps that teach specific skills.

Second, consider changing how classes are offered. Online learning is so commonplace as to be almost a requirement, but universities also can consider having more start dates and offering more flexible ways for students to complete a degree, such as competency-based education.

Third, develop partnerships and even consider merging with competitor colleges. If an institution has a competitor with strong programs within 50 miles, developing a partnership where students can go back and forth between the two colleges with no loss of credits might be worthwhile. This can be a political minefield, but if it prevents two institutions from closing, it can be useful.

Fourth, institutions should consider their tuition model. It’s possible that offering a flat fee for all four years, with the promise of no tuition raises, will be appealing enough to students tired of skyrocketing costs, even if a college does not offer discounts. Or, a university could emphasize that it keeps tuition low by not offering amenities such as luxury dorms or focusing on athletics, appealing to the bargain shoppers of the education world. Regardless of how institutions choose to approach tuition, taking a non-conventional approach will likely help.

Fifth, expand the student population. Many colleges are already doing that with online programs and reaching out to international students. This is a great start. But there are more untapped populations out there who need, and want, a college degree. Consider developing programs for people who have one bachelor’s and want one in a different field. Can an institution create a “fast track” program? Or partner with high schools to help advanced students begin their college program earlier?

Finally, institutions should evaluate their campus and see if there is a new way to approach the problem of upgrades. It’s possible that a college might decide the capital investments are not worth it, and choose to go entirely online. The institution that does so could potentially drop tuition prices dramatically, thus increasing student enrollments. Or, make a virtue of necessity and point to utilitarian but non-luxurious facilities as part of the university’s emphasis on education instead of atmosphere.

One thing is clear: colleges and universities need to begin rethinking how they do business. From cutting bloated administrative structures to reimagining the tuition model to developing partnerships, those institutions that take risks and boldly make changes are the ones that will survive. Those who stagnate will struggle. How are you reimagining education?