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Business Briefs

Short news articles based on research surveys and peers’ business experiences that can benefit institutions

Higher Ed Support in FY10

$83.7B

Total state and local support (not including federal funds) for higher education in FY10.

11.6M

Number of full-time equivalent (FTE) students enrolled in state and locally supported colleges and universities.

-5.9%

Percentage change in state and local support for higher education per FTE student from FY09 to FY10.

$50.2B

Total net tuition and fee revenue for state and locally funded higher education institutions.

+4.8%

Percentage change in net tuition revenue per FTE student from FY09 to FY10.

Source: State Higher Education Finance FY 2010 (State Higher Education Executive Officers, 2011) available at www.sheeo.org/finance/shef_fy10.pdf

CAMPUS OPERATIONS
Shared Services Model Helps Sprout New Community College

As the only major U.S. city without a community college, our nation's capital had a crucial need for a two-year institution. In the absence of such a college, the University of the District of Columbia (UDC), Washington, D.C., was responsible for the dual functions of a university and a community college. UDC's leadership saw a companion institution as a way to enhance academic achievement and access.

A major challenge was to create an entirely new community college while repositioning the university, using existing and limited resources. UDC implemented new academic standards and is still undergoing a transformation to become a stronger academic public institution. The community college emphasizes open access and affordable programs to fulfill UDC's legislatively mandated mission of social equity and access.

Using a strategic resource-allocation and budgeting process, UDC was able to launch the Community College of the District of Columbia (CCDC) in 2009. A major component of the plan was a shared support services business model, which has had a significant positive budgetary impact. Meanwhile, the structural change in adding a two-year institution not only allows UDC to better serve a wider student base, but helps upgrade the university and provide greater public service to the District of Columbia.

Incubating an Institution

To jump-start the community college, the university hired a core administrative team and decided to house CCDC on the UDC campus starting in FY09, in preparation for the FY10 launch. The one-year incubation period allowed the community college to get off the ground quickly, with a minimal amount of direct expenses and administrative requirements. Initially, an approximately $6 million annual budget was allocated to directly support the new institution, which had an anticipated enrollment of 1,000 students in the first semester.  

The university shared with CCDC its administrative services-such as those related to finance, human resources, and information technology. A chief executive officer and deputy director were appointed to manage the launch and subsequent development and growth. An initial budget covered professors and adjunct faculty who transferred over from the university's academic affairs department.  

Finances. During FY11, we established a separate direct budget for the community college, with three primary functional components: administration, academic affairs, and workforce development and lifelong learning. (See figure, "Costs and Allocations.") Each function had its own distinct budget, with support for the overall budget coming mainly from District of Columbia appropriations, tuition and fees, grants, and private fundraising. The community college has also acquired a number of grants to help fund its ongoing development and is continually seeking additional partnerships and grant support. Core university administrative services (student affairs, finance, IT, legal, campus services, and procurement) are shared with the community college.

Facilities. New headquarters rebuilt to our design specifications were leased and opened in fall 2010, providing the community college with stand-alone headquarters in the center of the city. Rapid enrollment, which grew from 1,779 students in fall 2009 to 2,706 students in spring 2011, exceeded initial projections. In the same spirit of sharing services and resources, the D.C. government has been providing buildings throughout the city to support the expanding college. There are three main locations, along with small additional sites elsewhere to support specific classes.

Shouldering Costs

The shared support services program, whereby UDC provides the community college with certain administrative and student services, is currently in place. With the addition of the two-year college, administrative departments—which already included the university's associate and workforce development programs embedded within the academic affairs department—reorganized their staff and workload to support the community college.

Most administrative departments, such as academic support, finance, human resources, legal, and so forth, were able to reorganize their workloads to adjust for the new business model without hiring additional staff. For example, the budget office used to have two full-time analysts assigned to academic affairs; now, one of the analysts is dedicated to the community college and the other is responsible for the remainder of the academic affairs department's budget.

In another example, the university's IT department set up a network to support both the university and the community college, so that the server and university data management systems, such as Banner and Blackboard, can be shared at no additional cost. The new Banner system will also help automate processes and reduce a significant amount of work. 

However, for a few departments, such as academic affairs, student services, and facilities—which are more labor-intensive and may require face-to-face service—we've had to add staff and budgetary resources to support additional teaching, planning, campus services, and student services staff.

The community college has hired more teachers and staff to handle growing enrollment and facilities. This funding has come from university resources, including reserves, and additional community college grants. While additional funding has been necessary for the community college, the costs of additional staff and direct nonpersonnel resources have been relatively minimal in relation to the overall amount of services provided.

Under this business model, the university avoided the cost of duplicating administrative departments and realized a significant amount of savings through efficiencies and economies of scale. The estimated cost of services provided to CCDC is about $25 million, or 35 percent of the total university administrative cost. It costs significantly less to support the community college using this model than it would to run an independent institution.

Mutual Benefits and Challenges

The biggest benefit of the shared services model is the ability to support both the community college and the four-year university on a limited budget. In addition, other positive outcomes of sharing services and resources include:

  • Strong linkage between the university and CCDC. The two institutions cooperate on postsecondary education options for residents of D.C. and elsewhere, providing a pathway for the community college to transition interested students into a four-year degree program.  
  • Increased ability for UDC to focus on developing into a premier institution. The separation of UDC and the community college allows us to focus and invest our energy on developing the four-year research university.  

Key challenges in sharing services include the following:

  • The financial pressures and additional work of supporting a new entity. Providing expanded facilities (headquarters and additional locations) involved significant renovation and operational costs paid for by the university.
  • Issues surrounding the ways to fairly and appropriately share certain resources, such as the learning resources division (library) and athletic facilities. In addition, certain functions—such as student accounts, counseling, and financial aid functions—need on-campus support, resulting in greater need for management and communication oversight.

Overarching these specific challenges is the continuous management and adjustment of our relationship. The shared support services model will continue to evolve as CCDC forges its own identity and finds other opportunities for revenue and resources—and UDC makes continuous improvements to the university while supporting the community college.

SUBMITTED BY Steven Graubart, managing director of finance, and Karen Wong, business associate, performance management and finance, University of the District of Columbia, Washington, D.C.

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SPOTLIGHT: COMMUNITY COLLEGES
Group Procurement, Significant Energy Savings

In Ohio, as in many states, consumers were finally given a choice in selecting the company that generates their electricity. After a series of legislative changes, in May 2009 an auction was held to set market rates for electricity, and major electrical providers competed for business for the first time. Cuyahoga Community College (Tri-C), Cleveland, Ohio's first and largest community college, saw this as an opportunity to realize significant savings through a group purchase of electricity.

As the nation's 10th largest community college, serving more than 55,000 credit and noncredit students annually, Tri-C uses approximately 40 million kWh of electricity every year. Tri-C leaders studied the purchasing issue to see how significant savings could be realized. In deciding to undertake a venture with the Sourcing Office, a nonprofit Ohio-based Council of Governments with which Tri-C had successfully worked on past projects, the college ultimately saved more than $600,000 in electricity costs in less than 18 months.

Piggybacking on an Opportunity

After completing its research, the college's leadership concluded that purchasing electricity in conjunction with other local institutions through a group-purchasing agreement was the most effective way to establish leverage with suppliers to drive down pricing. But, the state allowed a very short window of time in which to find interested institutions and partners.

Ultimately, we partnered with the Sourcing Office, which specializes in establishing group purchasing and service programs for its public organization members and had assisted us in achieving savings on office-supply purchases. Three senior leaders from Tri-C met with the Sourcing Office to develop and optimize program characteristics, recruit other organizations to participate in the group purchase, and select the best electricity supplier for the participants in the program.

As timing was essential to obtain the best electrical pricing, Tri-C quickly recruited participants within 10 weeks. An electricity steering committee gave each program participant equal representation. The committee was a forum allowing participants a voice to shape the procurement process.

Procurement Perks and Problems

The college was able to pursue this opportunity with no additional outlay of personnel or budget dollars. This was in part because the Sourcing Office provided experts, such as energy market consultants and attorneys specializing in energy laws and regulations, that may have otherwise been cost-prohibitive had we pursued this option on our own.

Other benefits of this approach included avoiding the minutiae of an individual electricity procurement process and saving significant dollars for each institution in consulting, legal, and advertising fees. By working with the Sourcing Office—and 18 local governments, higher education institutions, and nonprofits—Tri-C was able to reduce its energy costs by more than $643,000 from August 2009 through December 2010. Unintended benefits resulted, with the community college becoming acquainted with these local institutions and having the ability to form long-lasting partnerships to work on other issues of mutual concern.

The process also presented significant challenges, most notably that of satisfying each unique institution as it grappled with its own competing priorities. Additionally, as some group participants did not represent higher education, deeper, mission-based challenges had to be overcome. In the end, however, the benefits of pooling resources and leveraging spend allowed the Sourcing Office and the Cuyahoga Community College to procure significant electricity savings. Institutions large and small can benefit from this type of group purchasing innovation to achieve savings in a variety of areas.

SUBMITTED BY Craig Foltin, executive vice president, administration and finance, and Mark M. Polatajko, vice president, administration and finance, Cuyahoga Community College, Cleveland

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RESEARCH
Student Loan Delinquencies Near 41 Percent

Every year, the U.S. Department of Education (ED) reports the percentage of federal student loan borrowers who default on their repayment obligations. Such defaults occur when borrowers fail to make repayments on their loans for 270 days or more (federal student loan borrowers are considered to be in delinquency when they do not make a monthly payment 60 days or more past the payment-due date). The most recent report, "Official Cohort Default Rate for Schools," found that the national default rate grew from 4.6 percent in FY05 to 7 percent in FY08.

However, these annual default rates have two major weaknesses: (1) they include only borrowers in their first two years of repayment (that is, the 2008 rates are based on students who entered repayment in 2007 and then defaulted in 2007 or 2008); and (2) they do not provide any information on borrowers who are continually delinquent on their loans but do not actually default. Because of these factors, the Department of Education's data may underestimate the nature and risks of default within the federal student loan program.

Rates May Be Understated

A new report from the Institute for Higher Education Policy (IHEP) seeks to bridge this knowledge gap by measuring both default- and delinquency-status levels of borrowers during a five-year repayment period. The analysis, "Delinquency: The Untold Story of Student Loan Borrowing" (IHEP, 2001), suggests that loan default rates are substantially higher than the data suggested by ED, and rates might be even higher if some portion of the delinquent borrowers experience difficulties in the future.

The IHEP report is based on data provided by five of the nation's largest federal student loan guaranty agencies. The data set includes more than 8.7 million student borrowers with nearly 27.5 million individual loans, who entered repayment between 2004 and 2009. Collectively, these borrowers received $148 billion in federal student loans.

Fifty-nine percent of undergraduate borrowers who left without a credential experienced a delinquency or defaulted.

The focus of the study is on the roughly 1.8 million borrowers who entered repayment in 2005. More than 712,000, or 41 percent, of these borrowers experienced a substantial difficulty in repaying their student loans during the 2005–2009 time period. About 26 percent were delinquent on their repayment obligations at least once during this period but did not default, while 15 percent experienced a delinquency that led to a default.

In contrast, only 37 percent of borrowers were repaying their loans without having any noticeable difficulties, while 23 percent temporarily delayed their loan repayment without reaching delinquency. (Under federal law, borrowers are eligible for forbearance, which is a temporary suspension of loan repayment obligations for those who experience an economic hardship or other difficulty that may adversely affect their ability to repay. Borrowers who return to any accredited college or university may have their loan repayments deferred until they fall below half-time attendance status.)

Delinquency status varies greatly by students' degree/certificate completion status and institutional sector. Overall, 42 percent of the undergraduate borrowers who entered repayment in 2005 had graduated with a degree, certificate, or other program completion credential. Of these, 38 percent experienced at least one delinquency or defaulted.

Conversely, 59 percent of undergraduate borrowers who left without a credential experienced a delinquency or defaulted. Additionally, one third or fewer of the borrowers who last attended a four-year public or private nonprofit college or university experienced a delinquency or defaulted on their loans, versus more than half of those at two-year public (community) colleges and private for-profit (proprietary) schools.

Lack of Awareness a Possibility

The report suggests that lack of knowledge about payment provisions may be a key reason for the higher default and delinquency rates for borrowers from proprietary institutions. That is, some share of the borrowers at these schools who experienced a delinquency may have avoided this status had they known about their possible eligibility for a temporary suspension of their repayment obligations.

According to IHEP's analysis, only 5 percent of borrowers from two-year proprietary institutions used a deferment or forbearance, compared with 16 percent at community colleges. Borrowers who last attended community colleges and experienced delinquencies were more likely than their counterparts from for-profit institutions to have used deferments and forbearances.

IHEP cautions that its data analysis includes borrowers who entered repayment prior to the economic recession that began in 2008. The loan repayment experiences of these students have yet to be analyzed.

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

RESOURCE LINK A copy of the IHEP report is available at no charge at www.ihep.org/assets/files/publications/a-f/Delinquency-The_Untold_Story_FINAL_March_2011.pdf.

 

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