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Market Contraction in the Higher Ed Industry

An Inside Higher Ed/Gallup survey from December 2017 shows that 71 percent of college and university chief business officers (CBOs) believe higher education is experiencing a financial crisis. [1] 

For decades, colleges and universities had soaring enrollments which led to a reliance on enrollment-based revenue models. The resulting dependency on unsustainable enrollment growth as a method for achieving economic stability has created a dire situation for some schools. Enrollments have drastically tapered off: 34 percent of schools failed to hit their enrollment targets in Fall 2017. The first institutional reactions have been to cut costs and offer tuition discounts. Neither of these responses is sustainable. 

History teaches us that industries have, and will, experience ups and downs–and in some instances, fail. The retail industry is one contemporary example: 6,300 stores closed in 2017 as a result of new technologies and shifting consumer habits that have driven the growth of online retail while simultaneously depressing growth at traditional stores. 

Market contraction and re-consolidation are the new realities of the higher education industry. Colleges and universities who cannot adapt or innovate fast enough will not survive. At the extreme, some have predicted that as many as half of all colleges and universities in the United States will be forced to close [2] in the coming years, while others have argued that institutional closings will be far lower but that all schools will face severe enrollment challenges over the next decade [3]. The hardest hit institutions, and most susceptible to closure, will be the small liberal arts colleges and the smaller for-profits, whose low enrollments and limited financial reserves have left them ill-suited to weather prolonged financial hardships. However, public institutions that must already deal with state budgetary issues may also find themselves in difficult circumstances as tuition discounting becomes unfeasible and students seek out competitive educational alternatives. 

Closures since 2017 include Saint Joseph’s College, St. Gregory’s University, the Memphis College of Art, Concordia University-Alabama, and Atlantic Union College. Others like Mt. Ida College in Massachusetts and Grace University in Nebraska closed at the end of the spring 2018 term despite their long legacies of service to their communities and students. 

What can be learned from these closures?

A letter from the Grace University board chair regarding the university’s decision to close aptly captures the state of affairs throughout the higher education industry and highlights the fundamental issues that are impacting the higher education business model. “The economic difficulties Grace has encountered over the past several years were due mainly to declining enrollment while initiatives to grow enrollment were unsuccessful. The financial impact of those issues reached a level whereby the amount of cash required to continue operations beyond the current year could not be reasonably attained without putting the university at significant risk,” wrote Carlon Tschetter.

Many leadership teams and boards of trustees at colleges and universities across the country are confronting the difficult decision of not if they should close, but when they must do so. Many more are engaging in critically important dialogues about how to restore some measure of financial stability to their institutions. Over the next five to ten years, closures will continue as the higher education marketplace contracts and reorganizes itself around new delivery models (e.g. digital and online learning) and new consumer trends. 

Recent closures also point the way toward economic stability: those institutions hoping to survive must immediately identify their revenue gaps, structural inefficiencies (i.e. internal and programmatic), and opportunities to innovate (e.g. P3s, transformational fundraising, etc.), and work concertedly to develop strategies, solutions, and new initiatives to ensure their short-term survival and long-term financial prosperity. 

If you’re interested in learning how AGBIS can assist your institution as it navigates the challenging higher-education landscape, please call us at 202-776-0868 or email info@agbis.org.  

[1] Gallup Blog Dec. 27, 2017
[2] https://www.insidehighered.com/digital-learning/article/2017/04/28/clay-christensen-sticks-predictions-massive-college-closures
[3] https://www.insidehighered.com/admissions/article/2018/01/08/new-book-argues-most-colleges-are-about-face-significant-decline