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Forum Focuses on Pivotal Times

From "Business Briefs" department in July-August 2010 issue of Business Officer

The economic downturn and subsequent nascent recovery have presented unique challenges and opportunities for small and midsize independent colleges and universities. At NACUBO’s recent forum, “The Economics of Higher Education in Pivotal Times,” in late April in Chicago, nearly 50 chief financial officers and other staff—at primarily independent institutions—learned about current financial and economic trends and issues, and shared strategies for strengthening their campuses despite the challenging environment. The conference, developed by NACUBO’s Small Institutions Council with support from KPMG, featured Larry Goldstein, founder, Campus Strategies; Kenneth Redd, director of research and policy analysis, NACUBO; and James Doti, president, Chapman University, Orange, California.

Communicate, Educate

Goldstein set the context for the forum by pointing out the greatest financial challenges facing colleges and universities: rising expenses in the face of shrinking revenues; more measures of accountability from policymakers; stiff competition for new students; and calls for improved graduation rates.

The first step in finding solutions to these challenges is communication, said Goldstein. “You and your president need to be on the same page,” he explained, “and you need to educate and inform not only the president, but other members of your campus community of the problems and possible solutions, especially if people are not financial professionals.” Goldstein advised that CFOs and other business office staff use tools such as the Composite Financial Index and Robert Dickeson’s recent work on prioritizing academic programs to recommend areas of growth and improvement to their presidents, students, faculty, and staff.

Recognize Revenue Variables

Another key challenge for all higher education institutions, particularly independent colleges and universities, has been the increasing number of students and families who are unable or unwilling to pay tuition because of their diminished finances. NACUBO’s most recent Tuition Discounting Study illustrates those trends. As Redd pointed out, after nearly 10 years of stability the tuition discount rates (i.e., the institutional grant aid to undergraduates as a percentage of tuition and fee revenue) at private colleges and universities have grown sharply. The discount rates for full-time freshmen at four-year private, nonprofit colleges and universities jumped from 39 percent in 2007 to an estimated 42 percent in 2009, and the share of full-time freshmen with an institutional grant increased from 79 percent to 82 percent.

As a result, independent institutions reported a loss of 2.5 percent in net tuition revenue from 2007 to 2008. “It is clear,” Redd concluded, “that the poor economy of 2008 and 2009, combined with increased pressure to enroll more students, has contributed to these trends.”

Predict and Plan

With these issues in mind, Doti shared the Chapman Economic Forecast, which uses national gross domestic product, housing starts, and other data to estimate economic and demographic changes at colleges and universities. Doti indicated that he believes we are in a “weak [economic] recovery” that will feature low inflation and slowly rising interest rates. The one piece of good news for higher education, he said, is that improving stock market conditions may lead to a rise in charitable giving in the future. Doti estimates that the “12 percent increase in the [New York Stock Exchange] index between July 1, 2009, and March 1, 2010, may lead to a 6 percent increase in gifts to higher education in the 2010–11 period.” (At press time, however, market volatility continued to be dramatic.)

Doti also addressed the issue of decreasing enrollments on the horizon. Higher education, he explained, is facing a demographic shift, with the number of new high school graduates expected to decline from a total of more than 3 million in 2009 to fewer than 2.9 million in 2014. “The stiff competiton for new students among colleges and universities will become even more fierce,” Doti said.

Group Takeaways

“The stiff competiton for new students among colleges and universities will become even more fierce,”

James Doti, Chapman University

The final segment of the forum allowed attendees to meet in small roundtable groups to discuss tuition discounting, institutional long-term financial health, accounting and auditing, and other issues. These sessions allowed meeting participants to share their successes and their needs for additional resources. Many participants recommended using services and outside vendors to help with refining tuition discounting and enrollment management strategies, activities that can help to better define their “markets” for students.

Institution leaders also reported that using faculty and staff brown-bag luncheons helped to improve communications during the height of the financial crisis, and that they are continuing to use these sessions to keep their communities informed of ongoing financial issues.

Roundtable groups identified several tools that would help them better manage their instituions:

  • More resources to benchmark performance against peer groups.
  • A process to prioritize academic programs.
  • The possibiity of outsourcing more auxiliary functions.
  • A way to better align current budgeting with future revenue forecasting.

NACUBO CONTACT Kenneth E. Redd, director, research and policy analysis, 202.861.2527