Small private colleges and universities are in a tough position, but their business officers are preparing to the best of their abilities for the predicted upheavals in higher education. According to Inside Higher Ed’s Peril for Small Private Colleges: A Survey of Business Officers, a summary of the 2018 Survey of College and University Business Officers, business officers are migrating away from a “denial” mindset about the state of their finances to preparation for the future.
2018 brought an understanding that institutions’ financial challenges will continue, especially for small private colleges. In fact, “only 44% of chief financial officers at four-year baccalaureate colleges say that they are confident their college will be financially stable over the next 10 years, down from 52 percent a year ago…” Business officers tend to be more pessimistic than college presidents, and most business officers say their institutions are unlikely to merge with another, but “one in five says their college should merge.” Business officers who question their institution’s financial stability are more likely to question their trustees and presidents as well.
Furthermore, Inside Higher Ed finds that transparency is another challenge; faculty, staff, and students may be caught off guard by an institution’s financial challenges due to lack of communication. One in 10 business officers do not run periodical financial reports that project budgets to the end of the fiscal year; and while 64% of CBOs run monthly reports, three quarters say they are distributed to the cabinet, 69% to the governing board and/or finance committee, 12% to a faculty governing body, and 3% to a student governing body. 86% of CBOs, however, say that “campus leaders were providing good information to other constituents.” There seems to be a disconnect, as “notably more business officers this year than last backed the idea that ‘greater transparency in campus decision making will result in better financial decisions.’” While CBOs need the other parties on campus to be transparent about decision making, CBOs have been historically uncommunicative about financial health. Consequently, campus constituents may be surprised by drastic changes taken to shore up financial operations.
The survey results also reiterate concerns around financial predictability. “Two-thirds of business officers say their financial reports are based on accrual rather than cash accounting,” an approach that tends to mask true financial problems. Accrual accounting notes revenue and expenditures when they are earned and billed. Cash accounting is noted when cash changes hands. On college campuses, capital expenditures such as new buildings or one-time Wi-Fi refreshes may not be reflected well in accrual accounting, meaning that capital expenditures and debt services can reduce cash to dangerous levels on a whim.
So, how to address these financial challenges? 42% of business officers strongly agree or agree that they will lower their tuition discount rate for the 2018-2019 academic year. Even more common are plans to focus on increasing overall enrollment, launching new academic programs to generate revenue, and creating new master’s degree programs. Yet consultant Kasia Lundy suggests that these priorities indicate excessive optimism for the state of the market. Enrolling additional students may not be feasible while also decreasing the discount rate due to students being unable to pay additional charges.
It’s a dismal view. Yet I was surprised by the absence of any mention of retention and persistence of currently enrolled students. Upon more digging, I found that the survey questions did not reference degree completion efforts or programs around keeping students who are already enrolled on campus. To me, this suggests a more traditional mindset that enrollments should dominate revenue streams. Schools must be creative with their funding sources to survive - whether that looks like partnering with local entrepreneurs, changing enrollment processes to abandon beliefs that selectiveness equals prestige, or using a continuing education model rather than the traditional four-year structure. Single-source enrollment-based revenue does not allow enough flexibility to accommodate changing technologies, uncertain state and federal funding, and altered demographics among other considerations.
Of course, it stands to reason that retaining current students through graduation supports campus finances. In this age of uncertain enrollments in which the sheer amount of college-age students is decreasing, schools are seeing less international applicants, and iGen is skeptical of the entire institution of Higher Ed and enamored by entrepreneurship, the necessity to keep current students coming back is mission critical. These students will ultimately become the engaged alumni who support endowments after graduating. As we’re discussing predictable funding models and uncertainty surrounding accrual-based reporting, consistent retention rates will take some guesswork out of recurring tuition-based revenue streams. Supporting at-risk students, building community, and providing personal data-driven advising to keep students on campus creates consistency. To truly drive student success we must support students throughout the entire experience.