Skip Ribbon Commands
Skip to main content

 Email  Share  Print

Looking Up: What Colleges and Universities Learned From the Economic Downturn

10/8/2013

Mark Toner

man on cliff looking up

 

As Drexel University (PA) rode out the tail end of the Great Recession, college leaders looked beyond the boundaries of its Philadelphia campus for ways to strengthen and sustain the private, 23,500-student university. But they didn’t have to look much farther than the far side of the Schuylkill River, where another venerable Philadelphia institution presented a historic opportunity.

Founded in 1812, the Academy of Natural Sciences was not only a Philadelphia landmark, but also a respected research institution facing the same kinds of financial challenges as Drexel and other colleges and universities. The two institutions merged in 2011, adding the Academy’s strengths in environmental science and policy to Drexel, and giving the Academy a strong financial footing.

“We took a challenge facing the Academy and an opportunity facing Drexel and put something together that’s powerful and unique,” said Drexel President John A. Fry.

The challenges posed by the fiscal realities of recent years are well-known, including reduced philanthropy, the growing need for student aid, and a continuing erosion of state support for public institutions. But for a growing number of institutions, refocusing has taken the place of retrenchment, as college and university leaders reshape priorities and launch initiatives intended to proactively address future declines.

“It’s a time not only of great challenge, but an enormous amount of opportunity,” said Fry. “We relish the chaos, because it inevitably creates all sorts of opportunities for us to work with groups we may not have had access to and to think about things in different ways. While the environment is tough out there, we’re in the mode of capitalizing on it.”

Through the Fire

To be sure, the financial environment has been tough for institutions of all kinds. Despite a gradual rebound in funding, overall levels of state support for public institutions fell to 25-year lows in 2013 as net tuition revenue rose to 47 percent of public higher education costs, according to a report by the State Higher Education Executive Officers (SHEEO). “Students are paying more, while public institutions are receiving substantially less money to educate them,” SHEEO President Paul E. Lingenfelter said in a statement accompanying the report.

Even as more states begin exploring performance-based budgeting that ties funding to student outcomes, most public funding goes to covering fixed costs, limiting institutions’ options, said Jane Wellman, an independent consultant and executive director of the Association of Governing Boards’ National Commission on College and University Board Governance. “The reality is that most states haven’t been funding enrollments for many years,” she said.

At independent institutions, the discount rate has continued to rise as families’ budgets have been stretched; the national average across private institutions is now 43 percent, according to Kenneth L. Hoyt, former president of Centenary College in New Jersey and the Ohio Foundation of Independent Colleges. “It’s hard math to make work,” said Hoyt, now founding principal of The Higher Education Practice, LLC.

Private philanthropy also continues to falter. While a number of high-profile, nine-figure donations to universities this year have made headlines, it may take more than a half-decade for fundraising at most nonprofit colleges and other charities to reach pre-recession levels, according to the Giving USA Foundation.

Others look beyond the immediate financial challenges to longer-term trends with the potential for even greater impact: demographic shifts, growing needs for financial support, greater competition among institutions for both students and funding, and disruptive online models that could upend many institutions.

“We’re emerging from the worst of the recession and its effects, but we’re also in—and moving more deeply into—a coming period of remarkable challenge and change,” observed David W. Strauss, principal of Art & Science Group, LLC, a Baltimore-based consultancy. “You can make an argument that institutions will emerge in as much control of their destiny as they choose. Some will continue to be what they want to be. Others will be what the market will force them to become. But most institutions are somewhere in the middle—they have a choice to make.”

Doubling Down on Success

As the Great Recession ground on, leaders at Hendrix College (AR) looked back to choices made during the decade’s earlier downturn as a guide, reinvigorating a signature program that had helped forge the small Arkansas college’s competitive advantage in the early 2000s.

“That first economic downturn, compared to the most recent one, didn’t look so bad at all,” recalled Provost Robert Entzminger. However, cutbacks to the state-funded distinguished scholarship program still forced Hendrix to increase discounting to maintain the quality of its student population early in the decade. At the same time, a record-breaking $300 million gift in 2002 to the University of Arkansas from the Walton Family Charitable Support Foundation—in part to start an honors college—created new competition for the kinds of students Hendrix had long recruited.

Leaders at the college knew that comparable institutions in the region were priced higher than

Hendrix, but research suggested they couldn’t increase tuition without offering something “visibly different from what we had done before,” Entzminger said, particularly given other honors college programs in the region.

Hendrix leaders identified out-of-classroom experiences as a strength that could be leveraged. Out of that came the Odyssey Program, which required undergraduates to complete a broad range of learning experiences, including internships, service learning, research, and study abroad, and receive a separate credential detailing them for prospective employers or further education. Unveiled in 2005 with a concurrent tuition increase, the Odyssey Program increased the student population by 40 percent in the years that followed, according to Entzminger.

“We felt that retrenchment was the way of beginning a downward spiral,” he said. “We were convinced we should do everything we could to move forward despite the challenges we faced. The alternative would be to continue to lose students.”

So when enrollments began to plateau during the onset of the Great Recession, Hendrix leaders

again looked to the Odyssey Program to chart their course, opting for initiatives that have further integrated it into the college’s offerings, including a freshman seminar and retooled, more holistic advising. Over the past decade, the college has added faculty and built new buildings to support the program while maintaining a board-mandated student-faculty ratio.

“The recession slowed us down, but it didn’t change the mindset,” Entzminger said.

Data Drives Destiny

Colleges seeking to build on such internal strengths typically follow a structured process: Following input from a broad range of stakeholders, strategic plans are developed to connect objectives to specific tactics. Those tactics, in turn, must be connected to a financial plan that supports them, and give specific members of leadership and staff specific goals for which they are held accountable. Perhaps most importantly, Strauss said, these plans must be based on empirical evidence—or, in other words, data.

“When there is real evidence, you are able to break logjams,” he observed.

More and more institutions are acknowledging the importance of data, driven by their own leadership and broader trends in public policy, said Hoyt.

“Starting in the 2000s, I began to see pressure coming from two places: boards—especially corporate trustees who wanted everything to be measurable—and the whole assessment of learning movement.”

As president of Centenary, Hoyt found himself looking for “data we didn’t have,” he said. “One of the challenges out there for doing strategic planning—or even budgeting—is that the core competency in institutional research only exists in a few institutions.” Too many institutions, Hoyt said, find themselves scrambling for data during reaccreditation, especially given that accrediting institutions often now require evidence of strategic plans tied to the budgeting process—“with evidence that resources are being made available to do the things in the plan,” he added.

Technology and outside support can help. “We need more IR [institutional research] in higher

education, but electronic data collection can do in a day what used to take years,” Wellman said,

adding that what institutions need are not “people to put data in rows and columns, but storytellers.”

Even colleges with limited IR capacity can begin with existing data sources, such as the National Center for Education Statistics’ Integrated Postsecondary Education Data System (IPEDS) or the Council of Independent Colleges’ Key Indicators Tool and Financial Indicators Tool, which are available for more than 800 private institutions nationwide. Such tools provide a starting point to benchmark an array of performance and financial indicators against peer institutions, which in turn can identify issues ranging from retention to faculty compensation. “Somewhere in the data you can begin to see the kind of things that have to be fixed,” Hoyt said.

In particular, issues impacting student retention rates present “huge holes in your battleship as you go forward,” observed Hoyt. “If you fix them without spending more money to get more students in the door, that has a very powerful multiplier effect on the health of the institution.”

What’s often missing, Hoyt argues, is data that drills down beneath the aggregate picture of an institution and allows leaders to evaluate the impact of specific programs. But institutions that track students through programs—from inquiry through application, attendance, and graduation—can identify the points where students “vote with their feet,” he said. A similar approach to analyzing financial aid can allow institutions to make dynamic adjustments to reduce overall discount rates, or to more narrowly target students in strategically vital programs.

“Most of the opportunities for resources are really in what you teach, what’s the demand for it, how many people take it,” Hoyt said. “Institutions have to stop spreading resources around like peanut butter. The business folks who sit on college boards know the P&L [profit and loss] of every product they sell. They go crazy when they can’t see those kinds of numbers” for an institution.

Communication is critical across all stakeholders. At public institutions, that includes “a skeptical audience at the state level that believes that higher education doesn’t pay attention to cost management and prefers to do things in the traditional way,” Wellman said. “Find a way to document and communicate what you’ve done. A huge amount of goodwill can come from that.”

What institutions should not do is assume rebranding alone will make them more competitive in the changing marketplace. “You can’t communicate your way out of this problem,” said Rick A. Hesel of the Art & Science Group, LLC. “It’s all about leadership.”

Fixing Fixed Costs

Located just a dozen miles from each other in New York state’s rural north country, The State University of New York’s (SUNY) Canton and Potsdam campuses both serve the same growing population of recent veterans. Until recently, neither could afford a veteran-affairs staffer. But following conversations between leaders on the two campuses, a single staffer now serves about 200 military veterans and their families attending both schools; the two campuses have also consolidated police and environmental health and safety roles.

Such cost-sharing arrangements are nothing new, particularly among public institutions that are part of statewide networks. But in New York, they’ve accelerated as part of a $100 million shared-services initiative that seeks to funnel savings into student-success initiatives. “Based on budget cuts and the situation with our students’ own economic condition, we put together a concerted effort,” said Brian G. Hutzley, SUNY’s vice chancellor for financial services and chief financial officer.

Along with cost-saving programs in areas such as information technology (IT) and procurement, the initiative has brought together SUNY campuses to create new student-centered programs, such as an online tutoring program launched by SUNY Cortland that now serves 12 campuses across the state. Other collaborative SUNY ventures include the Smart Track campaign, which focuses on demystifying the financial aid process for students, and will be rolled out across the system’s 64 colleges and universities this fall. Initially intended to save $100 million over three years when launched in 2011, “we now believe we can save $100 million a year,” said Hutzley.

Other state systems, including the University of California, are looking at similar, more campus-centric approaches to cost savings, according to Wellman. “In the old days, it would have been done by the central administration handling things like purchasing or payroll,” she said. “Now it’s being done more on a lead-campus basis, seeing which among the institutions has the greatest capacity to do it on a fee-for-service basis. It’s a different kind of centralization.”

Hutzley agreed. “A big part of what SUNY is doing is facilitating conversations and bringing campuses together,” he said, noting that the system’s focus has largely been on enabling collaboration. “The more flexible we can be, the greater the success.”

Community colleges face particular challenges, Wellman said, because of their historical legacy of local control. “Lots of community colleges are in multi-campus districts but still have their own personnel offices,” she said. “I think they should be doing much more to look at cross-institutional ways to consolidate services and save money.”

Overall, public institutions are increasingly recognizing that “the ‘new normal’ means they can’t get where they need to be by paying attention to new money and allocations or increases in state funds,” Wellman said. “The assumption is that the new money is going to come out of old money. They have free up resources that are not going to the academic program.”

Focusing Philanthropy

Like many institutions, Ohio Wesleyan University (OWU) sought new avenues for fundraising to offset falling revenue during the Great Recession, launching a capital campaign and creating a President’s Circle composed of individuals who gave at least $10,000 a year.

But in both cases, the new money dovetailed with the components of a new strategic plan that focused on the institution’s historic reputation of “practical idealism” through programs that connected theory and practice, enhancing students’ global perspective, and improving student residences, said President Rock Jones.

President’s Circle donations, totaling $850,000 over four years, helped fund student grants connected to practical applications of classroom learning and a faculty initiative to revamp curriculum to bring it into alignment with the strategic plan.

Even the capital campaign, which has helped raise $25 million for residential facilities in recent years, includes an endowment to permanently support these initiatives. Another $8 million gift announced this summer will allow OWU to reopen an 1873-era building mothballed for three decades as a center for undergraduate research, internships, and international study opportunities. “The philanthropic support helped us restore a much-beloved building that fulfills a long dream,” said Jones, “but in a way that serves the strategic initiatives.”

Aligning new fundraising efforts with strategic goals pays off, according to Jones. “Donors want to know their philanthropic investment has the opportunity to have significant impact, where they can see the impact on individual students is part of a larger institutional strategy and not an isolated one-off experience,” he said.

At Drexel too, efforts to expand the donor pool through the creation of a parents’ council and groups that tap future board members, community leaders, and experts in areas such as real estate and energy have done more than increase philanthropy, according to Fry. They have helped “create a giant brain trust,” he said, as the university’s 50-person board is now supported by more than 200 additional people serving in wide-ranging advisory roles.

“I now have a much larger group of people at the core of the institution with some sort of deep knowledge of what is happening at Drexel,” Fry said. “That’s opened all sorts of doors and created all sorts of opportunities. The more knowledgeable and capable people in leadership, the better off we’ll be, whether in leadership or in dollars.”

Looking Ahead

As president of Centenary College, Hoyt recalls introducing online programs to a skeptical faculty. “They went from treating them as a red-headed stepchild to realizing it was nice to have students that were this highly motivated,” he said. From a financial standpoint, there was equally good news: “No financial aid, no climbing wall,” Hoyt quipped.

Hoyt argues that all but the best-endowed liberal arts institutions face another challenge: shifting demographics mean that the pool of 18- to 21-year-olds who make up most institutions’ traditional student population will continue to shrink in the years ahead. “I don’t think [most] independent institutions . . . can survive unless they run both a highly successful traditional program and figure out how to successfully serve nontraditional learners,” he said. “If you’re going to survive financially as an institution, you need to reach out to them.”

Drexel’s Fry agreed, arguing that scale is what will allow institutions to provide the wide array of hybrid learning opportunities future students will expect. “We talk about the path forward being enabled by what we call the ‘Drexel network,’ using hybrid learning to make the brand ubiquitous in the region,” he said. “We view ourselves as a kind of a network-based university that also has a particular core competency in creating partnerships that enable us to gain greater presence in the market.”

Across all segments of higher education, new experiments are bringing with them the potential for significant change. Among these is an idea proposed by students and given the nod by Oregon’s state legislature: A commission is studying the idea of a “no-money-down” tuition program for students who attend four-year state universities and agree to pay back 3 percent of their income over 24 years. Another innovation being pursued at Drexel and other institutions is a partnership with American Campus Communities to build residential housing at little cost to the college.

While traditionally “the tendency has been towards emulation instead of differentiation,” Strauss said that more colleges are realizing that they must “take a different vantage point—to take into account things institutions have not taken into account in the past.”

Drexel’s Fry agreed: “Most institutions invest incrementally, but we think those dollars are running out,” he said. “We think there’s a way to accelerate our progress.”

 

Mark Toner is a freelance writer based in the Washington, DC area.

 


 

Table of Contents

 
Features
Columns