OnCourse - Westmont College€¦ · The 2011 Inside Higher Ed Survey of College & University Business Officers, p. 17, 2011. 2 Baum, Sandy; and Ma, Jennifer. Trends in College Pricing

OnCourseBusiness insights and trends for trustees and higher education administrators December 2011

Top 10 imperatives facing higher education institutions in 2012 Larry Ladd, Director, National Higher Education Practice

Now more than ever, higher education officials must think strategically about the future of their institutions; today’s economic and regulatory landscape is changing rapidly. The professionals at Grant Thornton LLP closely monitor emerging trends that influence the financial outlook at colleges and universities. Following are what we believe to be the top 10 business imperatives in higher education.

10. Staying abreast of the changing regulatory environment Legal and regulatory requirements affecting higher education institutions are constantly in flux. Colleges and universities need to have reliable and consistent processes in place for identifying and complying with applicable laws and regulations. Most audit committees now see monitoring compliance as a key responsibility. One way to stay current is to read Grant Thornton’s publications, especially our regulatory alerts and accounting updates, which are delivered electronically.

9. Anticipating demographic shiftsIf colleges and universities are to attract sufficient enrollment, they need to anticipate the radical demographic changes that are occurring now and will accelerate over the next several decades. Relying on the same locales and high schools for student applications will result in sharp drops in qualified applicants. According to the College Board’s Higher Education Landscape report, the number of high school graduates in the Northeast and South is expected to increase only slightly in the coming few decades; the number is actually declining in some parts of the Northeast. The number of high school graduates is growing fastest in the Southwest, Midwest and West.

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In this issue

1 Top 10 imperatives facing higher education institutions in 2012

5 Higher education board committee best practices: Integrated governance strategies

2 OnCourse – December 2011

The Higher Education Landscape report notes that students of White, non-Hispanic European descent will soon be in the minority; in the last 10 years, their enrollment has risen by only 12 percent. By contrast, Hispanic enrollment grew by 70 percent, Black enrollment by 50 percent, Asian enrollment by 40 percent and American Indian enrollment by 31 percent. To deal with these changes in a positive manner, colleges must make their cultures more welcoming and responsive to prospective students in a wider demographic — and must shift their recruiting efforts accordingly.

8. Improving governance and accountability Originally sparked by the Sarbanes-Oxley Act, the need to improve governance and accountability remains a high priority for colleges and universities. Institutions must be prudent managers of the assets entrusted to them by donors, the government and students. While colleges and universities have largely adopted the formal rubrics of good governance, such as conflict-of-interest policies and codes of ethics, there is often a gap between policy and behavior. Boards of trustees and audit committees are increasingly focused on embedding good governance practices, especially those involved in communicating expectations, within the cultures of their institutions. In addition, closer attention is being paid to coordination among the trustee committees (audit, finance, investment, development) that address resource management and the oversight of internal controls.

While audit committees are continuing to perform assessments of business risk, we believe that enterprise risk management, which involves looking at the institution’s overall risk profile, will become an increasingly common practice among audit committees. Many audit committees aren’t there yet, but we think they will be soon.

7. Using assets strategically Given today’s competitive environment, colleges and universities need to think about how their financial and physical assets can best be aligned to achieve the institution’s strategy. Institutions need to integrate and align their management of operations, capital investments, debt and endowments to maintain appropriate liquidity levels and mitigate risk. Increasingly, colleges and universities are looking at new budget models to replace incremental budgeting, which works in times of stability but not in times of radical change. When overall revenue is essentially flat, program initiatives can no longer be funded from new revenues but must be funded by eliminating some other program or cost that has a lower priority. Inside Higher Ed’s recent survey of more than 600 chief business officers showed that 9 percent of institutions have shifted to zero-based budgeting, 4 percent to revenue center management and 7.4 percent to performance-based budgeting.1 Each of these budgeting tools essentially creates a budgeting by substitution model, which is the likely future in higher education.

Top 10 imperatives facing higher education institutions in 2012 (continued)

6. Decreasing governmental commitmentColleges and universities can no longer rely on the partnership with government that has characterized higher education since the end of World War II. We are experiencing a loss of confidence in institutions that have played key roles in the past half-century: government, organized religion, unions and even higher education. At the state level, median appropriations for higher education declined from just above $10 to slightly more than $6 (exclusive of federal stimulus funds) per $1,000 of personal income during the period from 1989–90 through 2009–10, according to the College Board’s Trends in College Pricing 2010.2 Public universities have watched their state appropriations shrink dramatically, and private colleges and universities have seen state commitment to student aid drop. Among business officers surveyed by Inside Higher Ed, potential cuts to federal student aid programs were the third most commonly cited financial issue confronting institutions over the next two to three years.3 Indeed, in the current negotiations over deficit reduction, both federal student aid and the charitable deduction are on the table, and it is likely that these important subsidies to higher education will be reduced.

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1 Green, Kenneth C.; Jaschik, Scott; and Lederman, Doug. The 2011 Inside Higher Ed Survey of College & University Business Officers, p. 17, 2011.2 Baum, Sandy; and Ma, Jennifer. Trends in College Pricing 2010 (College Board Advocacy & Policy Center), p. 19, 2010.3 Green, Kenneth C.; Jaschik, Scott; and Lederman, Doug. The 2011 Inside Higher Ed Survey of College & University Business Officers, p. 22, 2011.


5. Going globalHigher education institutions are continuing to go global, with an increased presence outside the United States and rising numbers of international students and faculty on U.S. campuses. Many colleges and universities that are currently considered to be U.S. institutions will become multinational in character. Institutions are establishing branch campuses on every continent, as well as contracting with other nations to plan and administer programs overseas. Much of this activity is opportunistic at the moment, but globalization is fast becoming an integrated part of university strategy. To continue attracting the very best faculty and students, colleges and universities must reach far beyond their borders. Campuses will increasingly become multicultural, with all the governance and service challenges this change represents. In response to the need to manage their programs internationally, rising numbers of universities are establishing a little “state department” to serve as a central office for oversight of their more far-flung programs.

4. Understanding and controlling costs To stay competitive, universities are prone to adding new programs, facilities and services. Yet to avoid conflict, institutions resist closing down existing programs and services. And remarkably, students continue to enroll at institutions even as the price of attendance skyrockets (see 2., at right).

Although most colleges and universities haven’t focused on systematic cost reduction, there is a growing consensus that the cost spiral in higher education isn’t sustainable; in order to remain competitive, institutions will need to reduce their internal costs. And trustees, presidents and chief business officers see that need: according to Inside Higher Ed’s survey, 26 percent of respondents at public institutions believed that their institution was in fair or poor financial health, while 37 percent of those at private institutions felt that their institution was in fair, poor or failing (0.7 percent) health.4 At the same time, almost 40 percent of all respondents said that their institution could make additional budget cuts without hurting quality.5

In response to cost concerns, institutions are increasingly aligning their strategy with their budget and adopting metrics to gauge the success of the strategy. Moody’s 2011 Outlook for U.S. Higher Education says that institutions with the best prospects have either the strongest reputations or the lowest costs.6 We believe that an institution’s reputation can be improved by lowering costs selectively and reinvesting savings strategically.


3. Sustaining adequate net tuition revenue For most colleges and universities, net tuition is the primary source of revenue, and sustaining that revenue is critical. Higher education institutions continue to worry about the discount rate, and with good reason: according to the National Association of College and University Business Officers 2010 Tuition Discounting Study Report, the average discount percentage for entering freshmen increased from 37.3 percent in 2000 to a record high of 42.4 percent in 2010.7 The discount percentage for those receiving institutional grants rose from 77.5 percent to 87.5 percent during the same period.8 However, net tuition (tuition less the discount rate) for entering freshmen grew from $12,000 in 2000 to $17,000 in 2010, rising at an average annual rate of 4.3 percent until the recession hit.9 Net tuition increased by less than 2 percent in 2009 and by just under 3 percent in 2010.10 While this trend isn’t good for affordability (see 2., below), it demonstrates that even with rising discount rates, colleges and universities continue to see growth in revenue per student.

2. Making education affordableA college education is increasingly unaffordable for many students and their parents. The annual cost of a private college has grown from under 80 percent of per capita income to 112 percent since 1980, and the cost of a public college has risen from less than 40 percent to 49 percent.11 Average student debt per borrower at a private college was $22,300 in 1999–2000, as compared with $26,100 in 2008–09 (the most recent academic year for which statistics were available), according to the Federal Reserve.

continued >4 Ibid., p. 5.5 Ibid., p. 8.6 Moody’s Investors Service. 2011 Outlook for U.S. Higher Education, January 2011.7 National Association of College and University Business Officers. 2010 Tuition Discounting Study Report, p. 8, 2010.8 Ibid., p. 10.9 Ibid.10 Ibid.11 Ricketts, Lowell R. “Is a College Cap and Gown a Financial Ball and Chain?” Liber8® Economic Information Newsletter (Research Library of the Federal Reserve Bank of St. Louis), August 2011.


The federal government provides the bulk of undergraduate student aid through loans (43 percent), Pell grants (18 percent), grant programs other than Pell (8%), education and tax credits (4 percent), and work-study (1 percent). Of all undergraduate student aid, 6 percent comprises state grants.12 As mentioned earlier, these aid programs are prime targets in the deficit reduction talks and are unlikely to survive at their present levels, putting more pressure on affordability. Calls for government regulation of educational costs have escalated over the past decade, but we believe that self-regulation of prices by colleges themselves is the best solution (see 4., on the previous page).

1. Going digital The biggest changes in higher education will be technological. Technology continues to transform how students learn and how institutions are managed. In 10 years, the university will be a dramatically different place from the one it is now. In fact, it may not really be a place — at least not a physical place — at all. Here are some ways in which we believe the educational landscape will change:

• Distanceeducationwillbecometypical rather than supplemental. Fewer students will see the need to be in a physical classroom, and universities will recognize that they can deliver better and cheaper education through online and conference call pedagogies. Current research shows that distance education, if done right, can be just as effective as, if not more effective than, a traditional classroom education.

• Cloud-based computing will become the norm for both academic and administrative IT functions. Cloud technology has already been adopted for email and other low-risk functions, but as security improves and products mature, universities will rely on the cloud for enterprise resource planning services, as well.

• Informationwillbecomemoreaccessible, especially on mobile devices. “Open courseware,” by which universities are putting course content online and available to anyone, will allow more students to access the best faculty from any location.Digitallibrarieswillmakeinformation more readily available. Social media will mean that everyone can be connected to everyone else.

Growth in higher education will rely on colleges and universities reaching out to students where they are located rather than expecting students to reside on campuses. And in order to survive and thrive, higher education institutions will need to understand and embrace the new technologies.

Are we experiencing one of the really big shifts in higher education?There have been moments in the history of higher education when seismic shifts occurred in response to significant demographic, economic and sometimes religious changes. Colleges in what is now the United States were started almost immediately after European immigrants arrived, looking to preserve religious identity and institutions. At that time, colleges prepared students to enter the guilds of ministry and


teaching. The next shift came with the Industrial Revolution, when universities were created as engines of research to provide the fundamental science and engineering knowledge essential to the economy. New universities emerged, and then as now, most colleges that stayed successful adapted radically and quickly. The advent of the Cold War was the third major shift, when massive federal investment in research and student aid transformed colleges and universities into instruments of the national purpose. Today, the information age brings with it new opportunities and new challenges; one commentator has pointed to the newspaper industry’s struggles as a precursor of what most colleges will go through.13 Another commentator has predicted disruptions in higher education similar to those that are happening now in the book and music industries.14 Dotheseupheavals signal the beginning of the next seismic shift, in which real-time access to knowledge will become universal, fixed locations will become irrelevant, and a truly free market will lower prices? •

12 Baum, Sandy; Payea, Kathleen; and Cardenas-Elliott, Diane. Trends in Student Aid 2010 (College Board Advocacy & Policy Center), p. 11, 2010.13 Carey, Kevin. “What Colleges Should Learn From Newspapers’ Decline,” The Chronicle of Higher Education, April 3, 2009.14 Keller, Bill. “The University of Wherever,” The New York Times, Oct. 2, 2011.

For more information• AssociationofGoverningBoardsofUniversitiesand

Colleges. Statement on Board Responsibility for Institutional Governance, Jan. 22, 2010.

• Cantor,Nancy;Howard,MurielA.;Miles,DavidW.;Woolsey, Suzanne H.; and Yudof, Mark G. “Responding to Today’s Challenges: Is Governance Up to the Task?” Trusteeship, Volume 19, Number 4, July–August 2011.

• Green,KennethC.2011National Survey of Information Technology in U.S. Higher Education (Campus Computing Project), 2011.

• Hignite, Karla; Katz, Richard N.; and Yanosky, Ronald. Shaping the Higher Education Cloud (EDUCAUSE/NACUBO white paper), May 2010.

• Moody’s Investors Service. Governance and Management: The Underpinning of University Credit Ratings, Nov. 18, 2010.


Michael J. Monahan, Managing Director,National Not-for-Profit and Higher Education Compensation and Benefits Practice Leader

IntroductionThe evolving responsibilities of boards of trustees within the higher education community place a new onus on board members to be educated about the critical nature of their role in school governance and institutional success. A dynamic board engaged in the decision-making process across all areas of governance will help ensure positive results for the school, its faculty, its students and its many stakeholders. This happens when members of the board are well-versed in best practices and regulatory requirements, and join executive leadership as partners in the success of the institution. Below are some prudent action steps that a higher education institution should consider taking periodically as part of its regular due diligence.

1. Completing an evaluation of board committee structures (e.g., the number of committees, the charter for each committee, and composition and membership requirements)

Higher education board committee best practices: Integrated governance strategies

2. Conducting an assessment of committee reporting requirements and board membership protocols (e.g., the nominating and appointment processes, trustee development, and succession planning for board and committee leadership and membership)

3. Actively seeking opportunities for integrated board committee

decision-making

4. Regularly assessing the skills and interests of individual board members, along with their commitment to best practices in governance

This article will outline specific opportunities for facilitating integrated decision-making among the different committees of the board, with particular emphasis on the audit, compensation and finance committees. These concepts can be applied across the many board committees that may exist within an entity. Atypical situations make the need for integrated governance particularly timely. Such situations can occur when an organization comprises an institution of higher education and a related health care entity, and must therefore navigate the ever-changing landscape of health care reform from the standpoint of a provider as well as an employer. This would be coupled with the growing expectation within the higher education community that new vehicles must be sought for learning and new revenue streams.

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The board committee structure: Aligning member roles with responsibilitiesA clear and formal statement of purpose, responsibility and authority is an essential element of the decision-making process for every board committee. Draftsmanshipaside,everyoneintheinstitution should understand the reality of why a committee has been formed, what responsibility it has in relation to the success of the organization, and what authority the committee and its members have in order to make and implement decisions and fulfill the organization’s purpose. Below is a sample formal statement of purpose for a compensation/HR committee.

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Higher education board committee best practices: Integrated governance strategies (continued)

A sample formal statement

The compensation/HR committee (the committee) of Prestigious University (Prestigious) is a critical component of the overall governance role that the board of trustees has in relation to the ongoing leadership, decision-making and success of Prestigious. This committee will consist of five members of the board of trustees, each of whom is experienced in supporting complex, effective and compliant compensation, benefits, HR and/or succession planning programs in higher education or a similar environment. Each member receives a three-year appointment to the committee by the chairman of the board of trustees.

The committee is responsible for the oversight, administration and design of the various total compensation programs offered by Prestigious to its employee constituencies; serves as an adviser and partners with senior HR leadership in developing optimal HR strategies; oversees the administration of performance management programs; and evaluates, on at least an annual basis, the total compensation provided to the executive leadership team of Prestigious by comparing the institution’s total compensation offerings with those of similar institutions in a manner that is consistent with federal regulations. In addition, the committee is responsible for administering the performance evaluation process for the president of Prestigious and for establishing an effective succession planning program across the institution’s leadership.

The committee has the authority to hire advisers in relation to its responsibilities and is specifically charged with setting annual performance metrics for the president and the other members of the institution’s leadership team. Those positions may vary from year to year and time to time, but the leadership team will typically include a provost, a CFO, a general counsel, a chief investment officer, a chief technology officer, an athletic director, a dean of the medical school, a dean of the law school and a dean of undergraduate studies. The committee will also have the authority to establish compensation levels, benefit offerings, and employment conditions (e.g., terms of employment contracts, severance programs and deferred compensation arrangements) for the president and the other members of the leadership team on an annual basis, subject to the ability of the full board to be informed of any decisions that are made regarding the conditions of employment and/or tenure of the president of Prestigious.

The committee in its sole discretion may from time to time delegate its responsibilities to a subcommittee or special committee of the board, provided that authority for decision-making remains with the full committee. Examples of subcommittees are a president’s compensation committee, a physician compensation committee and a faculty compensation committee.

Committee members should be familiar with the committee’s formal statement of purpose, or charter, but most importantly, the members of the committee should be experienced enough to handle the issues that they will face during their tenure. This alignment of individual skills and talents with the stated purpose, role and mission of the committee will provide for optimal performance.

Form 990 Schedule J. This exercise helps the committee predict the implications of different scenarios and benefit design options over the next five to seven years (or some other time period) prior to finalizing any compensation decisions. Preparing sample disclosures before making final decisions allows the compensation/HR committee to contemplate potential stakeholder reactions to the programs being developed or considered. Providing the audit committee with these projections will allow the members of that committee to also discuss potential stakeholder reactions. Another excellent opportunity for enhanced communication between board committees might involve the compensation/HR and finance committees. If the compensation/HR committee is thinking about offering a nonqualified deferred compensation arrangement for the leadership team and is contemplating various funding designs (e.g., a rabbi trust versus an unfunded liability versus a springing trust), this committee may be in discussions with legal counsel regarding technical design issues. The committee may also be talking with an external consultant about compliance issues pertaining to executive

compensation practices, designs and levels used in a comparable market. In any event, if the compensation/HR committee submits to the finance committee a notice of potential cash flow or budgeting issues prior to finalizing any decisions, the outcome might improve, and the decision-making process might be streamlined. At the same time, the finance committee should consider bringing concerns about areas needing improvement (e.g., financial performance measurement setting) to the attention of the compensation/HR committee. This two-way communication could provide the opportunity for specific compensation features to be integrated into performance management processes, incentive plans or total compensation programs. As one might imagine, there are any number of opportunities for board committees to share information in addition to the reports or other updates they provide at the annual board meeting. While these reports are certainly informative — and important to the overall operations of a board — the collaborative nature of a truly transparent and integrated approach to fiduciary communication involves more than just annual updates. The goal is to streamline decision-making and enhance outcomes.

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Integrated decision-making and enhanced communication opportunities across board committeesWhile the ability to segment roles and responsibilities is important for focusing board and committee members’ attention, stressing their individual talents and optimizing their performance, the evolving nature of committee responsibilities calls for a transparent communication style. For example, audit committee members should be able to discuss with the HR committee any issues related to compensation risk, and HR committee members should have the ability to review with the audit committee appropriate measures of organizational success when those measures pertain to the institution’s financial operations. As the roles and responsibilities of board committees grow more and more complex, the practice of overlapping committee appointments may become increasingly difficult to sustain; therefore, a climate that encourages open communication — whether through joint meetings or through reports outlining decisions with potentially broad implications — will support the overall mission of the institution. One opportunity to optimize communication and integrate information sharing arises when executive compensation levels are being set. As the compensation/HR committee goes through its process of developing an effective compensation program based on comparable market data, it may estimate the total dollar amounts using a sample


About the newsletterOnCourse is published by Grant Thornton’s National Higher Education practice. The people in the independent firms of Grant Thornton International Ltd provide personalized attention and the highest quality service to public and private clients in more than 100 countries. Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd, one of the six global audit, tax and advisory organizations. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity.

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The unique higher education-health care model (the academic medical center and beyond)Turning our attention to the relatively small yet integral community of academic institutions that have a formal relationship with a health care provider, we would like to supplement our previous discussion with a few additional observations. The disparate cultures of these organizations can often challenge a board of trustees. The amount of market variation that must be factored into the cost of recruiting and retaining many types of top talent (e.g., academic deans versus physicians or physician assistants versus faculty) presents substantial difficulties for even the most experienced HR team. Additionally, legal counsel will often state that a separation of boards, board members and board decision-making practices is necessary to satisfy legal concerns regarding risk mitigation. However, we find that the need to recruit and share talent among related legal entities within this setting is becoming ever more commonplace, whether as a cost savings measure (e.g., physicians serving as adjunct professors) or in response to health care reform legislation (e.g., physicians assisting with the development of revised medical school curricula as part of meeting new demands placed on primary care physicians). Therefore, the organization might consider making enhancements

to committee structures similar to the changes discussed previously. For example, a physician compensation committee may be a subcommittee of the compensation/HR committee. In any event, having an integrated communication strategy that permits the full board of trustees to be knowledgeable about the compensation/HR committee’s philosophies, benefit offerings and formal statement of purpose will allow related entities to draw from collective experience and avoid potential pitfalls.

ConclusionThese are challenging times, and the ever-growing burdens being placed on boards of trustees at higher education institutions are creating a clear need for targeted training, focused attention, real transparency and optimal communication practices. Having board committee structures that reflect the need for informed decision-making through formal practices, processes and protocols will assist organizations as they address ongoing concerns, improve performance by enhancing the decision-making process, and mitigate issues related to potentially noncompliant or risky outcomes. The benefits of an integrated communication strategy ultimately accrue not just to the board of trustees, but to the entire institution. •

These are challenging times, and the ever-growing burdens being placed on boards of trustees at higher education institutions are creating a clear need for targeted training, focused attention, real transparency and optimal communication practices.

TOP TEN ISSUES

(I am frequently asked what are the biggest challenges facing Christian higher education. Here is my Top 10 list as of August, 2009. I welcome comments and suggestions. – Paul R. Corts)

1. Main Thing – Keeping the “main thing” or die

Multitudinous pressures of contemporary culture and the tendency observed in history coalesce to lure our institutions from their roots; we must be vigilant and stay focused on Christ.

2. Funding – Financial health and long-term viability

Concern is less with the short-term but more with the long-term. Escalating costs and flat or decreasing non-institutional aid trend lines portend an increasing challenge to remain fiscally viable based on extrapolated historical data projection; changing state/federal aid policy; changing student loan market; potential taxation and loss of exempt status are all concerns.

3. College Costs – Market Forces

Heightened public outcries over costs; increasing pressure on political leadership; growing role of price as factor in where to apply; costs exacerbated by lending constriction; potential price control legislation; market forces/demand; challenges for productivity/efficiency.

4. Culture Wars, Litigation, and Religious Liberty – Maintain institutional identity/integrity

Assaults on institutional rights to adhere to religious principles (e.g. hiring rights and behavioral standards) are growing at local, state, and federal level in administrative and legislative activity as well as court rulings, and threaten institutional ability to maintain Christian distinctives.

5. Environment and Sustainability – Energy consumption and the green revolution Colleges and universities are huge energy consumers facing rising costs, regulations, and constituent demands that will require dramatic, quick and costly responses with long-term gains.

6. Globalization – accompanying challenges of political/legal systems

Increasing influence and economic power of other countries as well as the explosive growth of the church in Southern hemisphere and Pacific Rim lure our institutions to international activity; but most are largely unprepared for huge associated risks from unfriendly or uncertain political and legal systems; need global collaboration among campuses to avoid costly competition.

7. Public Accountability – Citizen outcry intensifies The public perceives that America’s colleges are rich and resources are not used efficiently; “clubby” insiders may not be serving as guardians of the public interest; growing demands for proof (e.g. graduation rate, mission accomplishment, etc.)

8. Technology and Infrastructure –refresh demands; access costs

Increasing pace of improvements and upgrades may overwhelm institutional ability to sustain technology and infrastructure at a competitive level; P2P and copyright liability issues loom.

9. Irrelevance – Demographic and Societal Changes Religious, demographic, economic, political, social, and cultural phenomena are putting significant pressure on our institutions to adapt and change very rapidly or be marginalized as irrelevant; such challenges offer enormous opportunities.

10. Boomers Exiting – Developing new administrators and faculty who “get it”

The exit of boomer leaders challenges our institutions to find new leaders who embrace historic and holistic Christ-centered higher education – relating scholarship and service to biblical truth; who will hold to core values while adapting to cultural and delivery system changes.

Putting College Costs Into Context

Putting College Costs Into Context 1

Foreword

Anyone reading the news these days knows that the price of higher education is once again the subject of widespread discussion and scrutiny. The topic is complex and often conversations about cost suffer from a lack of data. In developing this docu-

ment, we at ACE intend to offer a deeper view inside this complex issue by putting college costs into context.

Whenever I look at the data surrounding college prices, as well as the personal and soci-etal benefits of higher education, I am personally reassured of its value. For many Americans, when student financial aid is factored into the equation, college is, indeed, affordable. But this knowledge is not always enough. “Affordable” does not mean inexpensive. And what about those who, in difficult economic times, find financial aid beyond their reach? This is one of the reasons why colleges and universities are looking for new and innovative ways to make higher education easier to afford, without sacrificing the academic heart of the institution.

As these and other efforts continue, I believe it is valuable to provide clear, factual infor-mation as a resource for policy makers, the media, and the public. I hope that by helping to establish a baseline of data, we can help foster thoughtful and fruitful conversations on this vitally important topic.

The challenge of sustaining affordable higher education cannot be solved overnight. But a common set of facts outlining the challenge and putting it into context is an essential step. I hope this document achieves that objective.

Molly Corbett BroadPresidentAmerican Council on Education

2 American Council on Education

What Does It Cost to Go to College?• Average published tuition for full-time

students enrolled in college (2011–12)1: - 45 percent of all undergraduates attended community colleges, where the average published tuition for a full-time student is $2,963.

- 39 percent attended public four-year col-leges and universities, where the average published tuition for a full-time student is $8,244.

- 16 percent attended private, nonprofit, four-year colleges and universities, where the average published tuition for a full-time student is $28,500.

• There is great variation in tuition prices across institutions. The average published tuition for a full-time community college student is less than $2,500 in one-third of states. Fifty-six percent of full-time stu-dents at public and private nonprofit four-year colleges attend institutions charging less than $12,000 in published tuition (2011–12).

How Much Financial Aid Is Available?• Approximately $112 billion from fed-

eral, state, and institutional sources was awarded in the form of grants and edu-cation tax benefits in 2010–11. When fed-eral student loans are included, the total amount of aid available to students was $216 billion.

• Almost two-thirds of full-time students receive grant aid to help pay for college. Federal aid grew significantly over the past decade, now providing 51 percent of all undergraduate grant aid in 2010, up from 34 percent 10 years earlier. And federal education tax benefits assisted about 12 million taxpayers, six times more than they did at the start of the program in 1998.

How Much Are College Prices Going Up?As published tuition prices rose, financial aid from institutional and federal sources also increased. Therefore, the net tuition actually paid by students did not increase as rapidly as the published tuition. • Over the five years from 2006–07 to 2011–

12, published tuition for public, four-year colleges increased by 22 percent (or $1,800), community colleges by 12 percent ($448), and private, nonprofit four-year colleges by 14 percent ($3,744), adjusted for inflation.

• Over this period, after taking into account grants and education tax benefits, the estimated average net tuition (adjusted for inflation) decreased at community colleges and private, nonprofit four-year colleges by $840 and $550, respectively. The average net tuition increased by just $170 at public, four-year campuses after inflation, compared with the $1,800 increase in published tuition.

Community colleges($2,963)

Public 4-year($8,244)

Private nonprofit 4-year

($28,500)

45%

16%

39%

Distribution of Undergraduate Students and Average Published Tuition by Type of Institution: 2011-12

Source: College Board

1 For-profit institutions excluded due to data limitations.


Why Are College Prices Rising?There are a number of factors that contrib-ute to the increasing cost of a college edu-cation such as the impact of the current recession on state funding for higher edu-cation, the expansion of degree programs, growing investment in institutional aid and, in emerging fields, the need to acquire and deploy state-of-the-art technologies, as well as the increasing number of state and fed-eral regulations and reporting requirements.

State SupportState appropriations support the core oper-ating budgets of public colleges and uni-versities. As most states failed to sustain consistent funding levels to accommodate growing enrollments, financial pressure on higher education institutions has grown substantially.• In 2010, state and local support for general

higher education operations fell to a 25-year low in inflation-adjusted terms, while FTE enrollment increased by 61 percent (see chart below).

Key Terms

Published Tuition is the listed tuition and fees colleges and universities charge full-time students. This is some-times referred to as the “sticker price.”

Net Tuition is the published tuition minus grants and educational tax ben-efits that students receive. Because most students receive grants, tuition dis-counts, or educational tax benefits, net tuition is often much lower than pub-lished tuition.

Grants are financial aid that does not need to be repaid by the student. Sources of grant aid are federal and state governments, colleges and universities, or private sources.

Educational Tax Benefits are the fed-eral tax credits and student loan interest deductions that reduce the tax bills of parents and students paying for postsec-ondary education.

Public FTE Enrollment and Educational Appropriations per FTE, U.S., Fiscal 1985-2010

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

Publ

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rollm

ent (

Mill

ions

)

Dolla

rs p

er FT

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$7,479

$7,993

$7,855

$7,988

$7,869

$7,607

$7,825

$7,171

$6,912

$7,227

$6,994

$7,311

$7,54

7

$7,961

$7,770

$8,035

$8,076

$7,211

$7,775

$6,740

$6,662

$7,195

$6,986

$7,325

$6,951

$6,451

$2,274 $2,434

$2,371

$2,50

1

$2,550

$2,691

$2,608

$2,903

$3,082 $3,271

$3,186

$3,387

$3,419 $3,428

$3,431

$3,337

$3,348

$3,431$3,356

$3,611

$3,760 $4,068

$3,935 $4,116

$4,178

$4,321

Net Tuition Revenue per FTE (constant $) Educational Appropriations per FTE (constant $) Public FTE Enrollment (millions)

1985 19891988 1993 1994 1995 1997 20001996 19991998 2001 2002 2003 2004 2005 20072006 2008 2009 20101986 1987 1990 19921991

Source: State Higher Education Executive O�cers


• Over the decade from 1998–99 to 2008–09, state appropriations as a share of institu-tional revenues per student dropped from 49 percent to 34 percent in public research institutions; 56 percent to 43 percent in state colleges; and 64 percent to 57 per-cent in community colleges.

• As a result of declining state support, the share of total institutional revenue from tuition rose from 25 percent to 32 percent in public research institutions; 33 percent to 43 percent in state colleges; and 22 per-cent to 27 percent in community colleges. The increases were insufficient to offset declining state support.

• Between 2007–08 and 2010–11, state appro-priations for higher education per student declined by 18 percent in real terms, the largest three-year decline in 30 years.

• Community colleges were impacted the most by the early recession in 2009, with declines in revenues per student deeper than in other public institutions.

• In addition to reducing general support, states have also begun to slash student aid funding. As this occurs, public and private colleges and universities must use more of their own funds to fill the gap. This trend

will be exacerbated by the loss of federal dollars that provided matching funds to state student aid programs.

• Colleges and universities saw the value of their endowments drop by an average of 23 percent from 2008 to 2009. Despite some improvements after 2009, endow-ments have yet to return to their pre- recession levels.

• Charitable gifts to colleges and univer-sities fell 12 percent in 2009, the largest recorded decline. Giving is 8 percent lower in 2010 than it was in 2006 in inflation-adjusted dollars.

Technology and Knowledge CreationWith the rapidly changing nature of infor-mation technology, the technological expec-tations and requirement of students, faculty, and staff are rising. • Beyond initial costs for IT infrastructure,

a significant investment of institutional resources goes to the creating and upgrad-ing of technology-enhanced instruction and research media, student services, and faculty and staff training.

• Today’s college students expect institu-tions to provide information and techno-logical resources and services that allow them to access instructional resources and campus services anywhere and anytime. This is evidenced by the rising use of wire-less classrooms, lecture capture and pod-casting, mobile apps, and ePortfolios, for example.

• Knowledge in most scientific disciplines doubles every seven to 10 years. Whole new fields of science—such as nanotech-nology—have emerged from obscure spe-cialties to essential fields of study that can be found at most institutions. Over the past three decades, the annual volume of paper and electronic subscriptions at aca-demic libraries grew sharply from less than 4,700 to more than 25,000.

Knowledge in most scientific disciplines doubles every seven to 10 years. Whole

new fields of science—such as nanotechnology—have

emerged from obscure specialties to essential fields

of study that can be found at most institutions.


Academic InstructionAdditional academic instruction needs have grown and remain high. • Forty percent of all students entering

postsecondary education—60 percent at community colleges—require some remediation.

• Nationwide, remediation is estimated to cost higher education $2.3 billion annually.

Institutional Aid to StudentsColleges and universities are devoting an increasing amount of their own resources to student aid to ensure that low- and middle-income students have the financial resources to begin and complete their education. • Over the past decade alone, campus-

provided financial aid amounts have dou-bled in real terms. In 2010–11, institutions provided $38 billion or 36 percent of all available grant aid. By comparison, in 2010–11, the federal government provided $49 billion or 46 percent of all available grant aid.

Regulatory RequirementsIncreasing regulations contribute to the rising operating costs of colleges and universities.• Colleges and universities are among the

most heavily regulated entities in America. In addition to state and local regulations, higher education is the only industry regu-lated by every federal agency.

• In recent years, the burden imposed on colleges and universities by federal reg-ulation has become increasingly com-plex, onerous, and costly. The Higher Education Opportunity Act of 2008 alone has added over 100 new regulations, and a 2011 Congress mandated study found that 90 percent of senior campus leaders reported the implementation and admin-istration of regulations under the Higher Education Opportunity Act of 2008 were burdensome. (In fact, these administra-tors viewed those regulations as far more

burdensome than any other federal, state, or local regulations.)

• Regulations impose a heavy toll on col-leges and universities in the form of addi-tional staff, increased staff development and training, additional paperwork, cre-ation of computer systems and software to support record-keeping requirements, and higher legal fees. These regulations, in turn, increase operating costs. According to Sen. Lamar Alexander, in 2005 there were more than 7,000 federal regula-tions governing colleges and universi-ties. The number of regulations has grown exponentially.

Work ForceHigher education is dependent on highly educated workers.• Higher education is among the most

labor- and skill-intensive sectors of the economy, with college graduates compris-ing almost 70 percent of its employees. Higher education institutions typically spend 60 percent or more of their budgets on human resource costs. In recent years public institutions had sharp increases in benefit costs that now comprise nearly 25 percent of total human resource costs. Colleges and universities compete with the private sector to hire outstanding indi-viduals—such as engineers, biologists, chemists, doctors, and lawyers—for faculty positions.

• Productivity gains are often hard to come by in any service industry. In higher edu-cation, greater productivity might mean

In recent years, the burden imposed on colleges and

universities by federal regulation has become increasingly complex,

onerous, and costly.


larger classes, fewer seminars, and more part-time faculty, all of which are unpopu-lar with students and parents, and can lead to a decrease in the quality of teaching and research.

How Are Universities Responding? Higher education leaders are increasingly challenged to provide a quality college edu-cation at affordable prices for Americans of all income levels. Colleges and universities have taken a wide range of steps to contain and cut costs as well as help students pay for education:

Layoffs, Pay or Hiring Freezes, and Improving Administrative Efficiency• The State University

of New York (SUNY) system is not replacing retiring college presi-dents. Three presiden-tial appointments will be consolidated with those of three other school leaders, part of a system-wide effort to consolidate administrative expenses to put resources back into classrooms (The Albany Times Union).

• The University of North Carolina (UNC) system cut 3,032 employees due to state budget reductions, including 488 full-time employees. Most of the layoffs were contract or adjunct professors, which means bigger classes and fewer academic choices for the system’s 220,000 students (Newsobserver.com).

• New York University has saved $200 mil-lion per year by cutting 20 percent of its administrative costs through eliminating administrative positions, cutting health care benefits, and outsourcing student ser-vices (NYU Local).

• Ivy Tech Community College in Indiana saved $20 million over three years by cen-tralizing and sharing services across multi-ple campuses (Inside Higher Ed).

Reducing Course Offerings, Enrollments, or Full-time Faculty, and Eliminating Academic Departments• As a result of a $1.2 billion cut over the

past four years, the UNC system has eliminated 9,000 class sections. UNC Greensboro has cut 975 course sec-tions, or about 40,000 student seats (Charlotteobserver.com, 9/9/11).

• At Western Carolina University, the number of classes with more than 50 students has doubled in the past year (Newsobserver.com).

• San Diego State University eliminated or combined classes with 15 students or less and slashed $600,000 from the library budget (The San Diego Union-Tribune).

• The University of Nevada, Reno has elim-inated nearly 200 positions and more than 20 degree programs since 2009 (The Chronicle of Higher Education).

Cutbacks and Reallocated Resources to Pay for Institution Needs• Pepperdine University forfeited 10 percent

of each department budget rather than raise tuition to pay for new strategic pro-grams, hiring faculty, and increasing stu-dent financial aid (The Chronicle of Higher Education).

Helping Students Afford College• SUNY and City University of New York

institutions implemented a tuition plan that not only limited annual tuition increases to $300 for the next five years,

Colleges and universities have taken a wide range of steps to

contain and cut costs as well as help students pay for education.


but also allowed families to anticipate and plan for college expenses (SUNY News).

• Miami Dade College offers two years of free tuition for qualified high school grad-uates, and a substantial portion of tuition revenue increases go to financial aid for working poor students.

• University of Wisconsin System imple-mented tuition freezes at 13 two-year cam-puses for the last four years.

• University of California, Berkeley will offer more than $12 million in financial aid to middle-class students starting in the fall of 2012, with families earning between $80,000 and $140,000 annually expected to devote no more than 15 percent of their annual income (The New York Times).

• While losing 43 percent in state fund-ing per student over the past decade, Michigan State University has raised stu-dent financial aid by 68 percent over the past four years, much more than the 26 percent of tuition increase. Thirty per-cent of revenue from tuition increase goes to financial aid.

• Manchester College adjusted all of its 55 programs into three-year programs called “Fast Forward” to keep its education afford-able. Students take classes during three school years and online classes during the summer for estimated savings of $25,000 (USA Today).

Summary• While published tuition prices are increas-

ing, student financial aid is also increasing. Therefore, net tuition does not rise as rap-idly as published tuition.

• Colleges and universities have acceler-ated their efforts to hold down costs and keep higher education accessible to low- and middle-income students. Campus-provided financial aid has doubled in real terms over the past decade.

• Very few students attend the highest-priced colleges or universities. In 2011–12, more than half of all full-time students at public and private nonprofit four-year col-leges attend institutions charging less than $12,000 in published tuition.

• This is not to suggest that a college educa-tion is not expensive. College officials are sensitive to the fact that, despite increas-ing financial aid, a college education is a significant investment. College prices are increasing and students’ debt levels are also rising. Nevertheless, the accumulated lifetime benefits one can reap from a col-lege education—of personal, social, or eco-nomic values—are still substantial and the demand for higher education remains strong. Colleges and universities will con-tinue to work to find the most effective ways to deliver a quality education at the lowest cost possible.


Data Sources

What Does It Cost to Go to College? How Much Financial Aid Is Available? How Much Are College Prices Going Up?College Board, Trends in College Pricing, 2011.College Board, Trends in Student Aid, 2011.

Why Are College Prices Rising?Advisory Committee on Student Financial Aid, Higher Education Regulations Study, final report, 2011. Archibald, R. and Feldman, D., Why Does College Cost So Much?, Oxford University Press, 2011.College Board, Trends in College Pricing, 2011.College Board, Trends in Student Aid, 2011.Council for Aid to Education’s charitable giving data available at www.cae.org.Delta Cost Project, Trends in College Spending 1999–2009, 2011.National Association of College and University Business Officers, Research News, 11/7/2011; The Chronicle of Higher Education, 1/28/2010 and 1/31/2012 (college endowments).National Governors Association, Return on Investment, briefing paper, 2011(national estimates on remedial education).State Higher Education Executive Officers, State Higher Education Finance FY2010.U.S. Department of Education, Digest of Education Statistics, 2011 (library statistics).

WHAT WILL THE COLLEGE OF 2020 LOOK LIKE?

by Lloyd Armstrong, University Professor and Provost Emeritus at the University of Southern California,

and author of the blog, Changing Higher Education

“Prediction is very difficult, especially about the future.” Niels Bohr

What will the College of 2020 look like? It probably will be similar in at least one way to the College of 2011 -there isn't any one archetypical College of 2011 and there won't be any one archetypical College of 2020 either. US higher education consists of about 4,500 accredited colleges of 2011 with an incredible diversity of sizes, approaches, missions, and resources. I would expect the same to be generally true in 2020, with some important caveats: I think there will be significantly fewer accredited colleges in 2020, and the mix of sizes, approaches, missions, and resources will be quite different from today.

These changes will be driven by two forces that push from different directions, but each leading to increasing fiscal constraints on higher education. On the one side, local and national governments are finding it increasingly difficult to support higher education at traditional levels. There a world-wide movement towards decreasing the role of government in providing social goods, and the US reflects that movement. In addition, other governmental costs such as health care, prisons, and retirements are growing rapidly and squeezing out areas such as education. On the other side, all of higher education utilizes a model whose costs over the last 30 years have steadily grown about 3% a year above CPI increase. In the tuition-dependent private sector, tuition has grown apace, i.e. roughly CPI plus 3% every year for the past three decades. The costs of higher education are reaching a point where government, parents, and students are beginning to question if the product is worth the price. The answer is increasingly "no" for private institutions that have lower brand value, but the "no" likely will move upstream in the value ladder over time as costs increase until only a relatively small number of high brand value private institutions are immune. On the public side, the answer is increasingly, "no, not given our fiscal constraints" no matter what the brand value of the institution.

Thus what we will likely see over the next decade in higher education is an attempt to create models that provide high educational value (often, perhaps, higher than at present) with less cost per student. So to imagine what the future might look like, we need to understand why costs are so high and increase so rapidly, and how that can be changed. Oversimplified, a few reasons for the high costs are:

• In this world in which institutional aspirations are increasingly homogenized around a model set by the richest institutions, there is a continuing "arms race" to upgrade and increase teaching, recreational, living and dining facilities; expand student activities and student services; and broaden curricular options – all very costly "improvements"

• Physical plants are generally are very expensive for the number of students served • Increased bureaucracy is needed to manage the growing fruits of the arms race and ever

increasing government regulations.

• Arms race expansions of the breadth of course offerings lead to lowering the average number of students/class, thereby decreasing teaching productivity (students educated divided by teaching costs).

• Colleges increasingly are being asked to remedy the educational failings of secondary education, and this diversion to a non-core mission adds a costly overlay

• Teaching approaches have varied little over the centuries and consequently there currently is little room for increased productivity in this core function.

• Costs tend to increase faster than CPI in any sector where costs are driven by personnel costs, the personnel are highly skilled, and no productivity increases occur.

Another significant driver of educational cost increases has been attempts by many institutions to move up the brand-value chain by increasing emphasis on faculty research. This results in significant cost shifting from faculty research into undergraduate education e.g.:

• Research faculty command higher salaries than teaching faculty and those higher costs are spread over fewer students because of reduced teaching loads. Thus teaching productivity gets a double blow.

• Research facilities and instrumentation are more expensive than teaching facilities, and research sponsors and donors seldom if ever pay the complete costs of building and maintaining those facilities and purchasing this instrumentation, leaving costs to be covered by unrestricted funds – which are generally primarily tuition income.

• Government regulations and the bureaucracies needed to respond to them go up exponentially as research comes in, and research funding almost never covers these costs completely, again adding pressure on unrestricted funding.

Different institutions will begin to respond to the financial constraints in different ways depending on their particular conditions and missions. One of the most widespread responses, however, is likely to be a stepping back from the increasingly homogenized view of what "quality" means in higher education. Perversely, "quality" is not currently defined by learning outcomes for students, but by costly surrogates such as quality of student services and amenities, quality of physical plant, quality of faculty research – in short, the elements of the arms race which is defined by reference to the richest educational institutions. Lowering overall costs will require in most cases that institutions define their own unique educational niche – stepping back from the rich-institution inspired arms race. This entails sharpening and redefining institutional missions in order to create niches that are both valuable for students and society, and fiscally sustainable. Different institutions will deemphasize components of the present arms race in different ways, and will create some new, less expensive value propositions in their stead. For example, one component of the response of many may be to narrow their curricular focus to a relatively few popular majors, or to focus on pre-professional training. Happily, many will probably decide that a key component of their new value proposition will be an increased focus on learning appropriate to their new sharpened mission, and on demonstrating that effectiveness. Thus the colleges of 2020 may well show a much wider aspirational profile than what we see today, and one which is more focused on demonstrated learning rather than surrogates.

Another response that likely will be widespread is to increase utilization of physical plant. This can be done by admitting more students, possibly moving to year-around operations. Of course, this only is beneficial if savings on plant are not spent on increased instructional costs. For many institutions, this will mean that faculty will be expected to teach more courses and forego summers away from campus- and many students will have the opportunity (and obligation) to break out of the traditional fall-spring academic year. Online learning will also likely play a major role in enabling more students to be taught without increasing plant or instructional costs proportionally.

In fact, one response that will be almost universal is greatly increased use of technology to improve both productivity and learning outcomes. In particular, online (and blended) learning likely will be a central component of cost cutting, increased learning, and increased access. For stronger brand institutions, targeted use of online and/or blended learning will lead to increased learning outcomes, greater student satisfaction, and better utilization of faculty. It will also be used extensively for projecting the brand beyond the current geographic boundaries of the institutions. For weaker brand institutions, the same uses will be found, but with much more aggressive implementation required in order to achieve fiscal sustainability. For example, groups of weaker brand institutions might jointly share an online curriculum, and differentiate themselves through individual tutoring support and student-life amenities.

Online learning of all types and levels of quality will become readily available as colleges and corporations rush into one of the few areas that holds promise to increase productivity in higher education. A number of these programs will involve visible, major scholars working with the best experts in pedagogy, and have demonstrated high learning outcomes. The widespread availability of such programs will provide a major challenge for institutions that provide a "generic" education that can be easily and cheaply replaced by a high quality online program. (In fact, many of these low brand- differentiation institutions already have significant financial problems because they have few competitive advantages.) These low-brand- differentiation institutions will need to change mission and approach in order to create a differentiated niche that provides value and competitive advantage. Many will not be able to respond creatively in a timely fashion, and will not survive.

Lower ranked research universities will find it increasingly difficult to afford their current profiles - research universities are by far the most expensive form of higher education yet invented. In addition, overall research funding is likely to fall significantly over the next decade, thus making many lower ranked programs even less viable. Options will range from completely leaving research and totally changing faculty profile, to intermediate scenarios that involve a larger teaching faculty and significantly smaller research faculty. Overall, the value proposition for this group of institutions likely will shift in the direction of high quality student learning.

All of this is on the cost side- but some additional changes will work on the side of the price students pay to get a degree. Numerous institutions probably will emulate the Western Governors University and move to competency –based evaluations that enable students to move through the system at their own pace. Such approaches allow students to acquire knowledge from many sources, including work or online programs of their choosing, and get credit from the "home" institution by demonstrating competency. Bologna-like approaches will also provide educational outcomes measures that will greatly facilitate transferring of credit from one institution to another, thus providing a diversity of different cost pathways to a degree. As a consequence, many four year institutions may find that their first two years have been "hollowed out" by less expensive two year organizations specializing in quality transferrable core courses. This loss of enrollment in the more profitable core courses will put additional pressure on the budgets of the four year institutions, thus forcing additional mission change.

So for 2020 – increased diversity of institutional missions, greater use of online and blended learning, 12 month academic calendar, fewer research universities, increased transfer opportunities, not all existing institutions will still be around, and student learning will be a key differentiating factor. Now what was it that Bohr said about predictions?

Making the grade 2011A study of the top 10 issues facing higher education institutions

Contents

A transformation in education ...............................2

1. Over budget and underfunded .......................4

2. The rivalry intensifies ......................................8

3. Setting priorities...........................................12

4. Moving at the speed of cyberspace ..............14

5. Rethinking infrastructure ..............................16

6. Linking programs to outcomes .....................18

7. The best and the brightest ...........................20

8. A sustainable future .....................................22

9. Education for all ..........................................24

10. Regulations and reporting ..........................26

Accelerating the learning curve ...........................28

Making the grade 2011 1

“Higher education institutions are in the midst of a perfect storm. Government funding is declining, market conditions have reduced the value of endowments, private backing is on the wane and costs are going up. Yet, these combined challenges create a unique opportunity for transformation. Educational institutions willing to think laterally can position themselves to outperform into the future.”

Louise Upton, Principal and Canadian Higher Education Lead, Deloitte Canada

“For higher education institutions, success involves a large range of activities – from improving student outcomes and maintaining educational excellence to attracting the best faculty and planning for the future. Deteriorating financial conditions put all of these activities at risk.”

Kathy Karich, Principal and U.S. Higher Education Lead, Deloitte United States

Making the grade 20112

A transformation in educationIn today’s uncertain global economy, the continuing

acknowledgment that education is critical to long-term

economic prosperity seems to be the one constant. According

to the Organization of Economic Co-operation and

Development (OECD), “investments in education pay large and

rising dividends for individuals, but also for economies,” with

“educational attainment linked to long-term social outcomes

such as better health, political understanding and

interpersonal trust.”1 This holds particularly true for higher or

tertiary education. Indeed, “the net public return is almost

three times the cost of investing in tertiary education.”2

1 “Investing in the Future,” remarks from Angel Gurría, OECD Secretary-General, for the launch of the 2010 edition of Education at a Glance; Education at a Glance 2009: OECD Indicators, The Organization of Economic Co-operation and Development, 2009.

2 Highlights from Education at a Glance 2010, Centre for Educational Research and Innovation, OECD, 7 September 2010.


Despite the obvious economic benefits, however, spending on higher education is coming under increasing pressure these days. As nations around the world work to recover from the global financial crisis, they are tightening their budgets, leaving fewer funds available to the educational sector. At the same time, market weakness has reduced the value of many of the endowments educational institutions rely on. Economic hardship is also affecting enrolment levels at many institutions, as students opt for less costly educational programs or opt out altogether.

To make matters worse, educational institutions are now finding that they must meet a host of costly demands just to stay competitive. Students are expecting user-friendly, self-service administrative options as well as access to the latest technologies. Deferred maintenance is catching up with campuses with aging infrastructure badly in need of upgrades. The costs of attracting and retaining high-calibre faculty are increasing as staff retires in increasing numbers. And colleges and universities are under ever-more scrutiny and compelled to invest in systems that provide the highest levels of transparency and accountability.

Though institutions of higher education vary in terms of structure and funding from country to country, nearly all are facing these competitive pressures as they confront shrinking resources and increased demands. Clearly, higher education can no longer maintain the status quo. To achieve their mandates and serve their constituencies, they must face up to the unique challenges that the 21st century now presents. This report, produced by Deloitte Canada in consultation with Deloitte education practitioners from around the world,

identifies the top 10 issues that will prove most pressing in the coming year for institutions of higher education and most in need of their attention. The report focuses on public universities and colleges and private non-profit institutions as well as looks at some of the issues facing private and market-funded institutions.

But identifying challenges is only the first step in what will need to be a radical transformation in the way tertiary institutions do business. Not only will they need to overthrow the status quo – no small task in many institutions of higher learning – but also aggressively execute on new approaches and seek out best practices from around the world and perhaps from outside the academic sphere itself. This report provides some essential strategies that institutions should consider as they seek to address their challenges as well as some fresh thinking on key institutional drivers. Drawn from the professional experience of Deloitte practitioners from both inside and outside the industry, these steps may not only help colleges and universities survive current economic hardships, but also reinvent themselves to meet the educational needs of the future.

All who have meditated on the art of governing mankind have been convinced that the fate of empires depends on the education of youth.

Aristotle


Over budget and underfundedAs funding declines, cost management is key

What happens when access to funds drops at the same time costs rise? This is precisely the quandary facing

higher education institutions – and solutions are hard to come by.

When the global financial crisis hit, the education sector was disproportionately affected. Private schools as well as public institutions that rely on private investment, saw the value of their endowment funds fall as declining markets took their toll. This affected many private donors as well, who lost either the ability or will to invest significant sums within the industry. At the same time, regulations limiting tuition fee increases are making it harder for many institutions to establish their own pricing and restricting them from delivering on their mandates.

Most notably, however, government budget challenges are leading to reductions in higher education spending around the world. In the United States, 43 states had enacted or proposed cuts to higher education as of August 2010.3 In the United Kingdom, the amount of money going to higher education is set to decline by as much as 80% over the next four years, although tuition increases will likely soften some of that blow.4 While this will likely work to the benefit of the Russell Group (similar to the U.S. Ivy League), which can attract students at high fees, lower tier institutions will likely struggle and may need to consider strategic mergers as a result. For the past five years, government funding to Australia’s higher education sector has been on the wane. The same is true in Canada, where the proportion of federal funding to the sector fell from 80% of universities’ operating revenues in 1990-91 to 57% in 2007-08.5

3 Center on Budget and Policy Priorities, August 4, 2010. “An Update on State Budget Cuts”, by Nicholas Johnson, Phil Oliff and Erica Williams, accessed at http://www.cbpp.org/cms/?fa=view&id=1214 on November 1, 2010.

4 The Guardian, December 19, 2010. “University funding to be cut before increase in tuition fees”, by Allegra Stratton, accessed at http://www.guardian.co.uk/education/2010/dec/19/university-funding-cut-tuition-fees on December 28, 2010.

5 Times Higher Education, September 11, 2010. “A false economy? Canada counts costs of downsizing decade”, by Sarah Cunnane, accessed at http://www.timeshighereducation.co.uk/story.asp?storycode=413427 on November 1, 2010.


“As funding dries up, some universities are heading into debt for the first time. This is constraining dollars for classroom delivery and research, creating tension among different departments for scarce financial resources and jeopardizing faculty pay and staff increases. As institutions figure out how to leverage their limited resources to attract the best students, researchers and staff, they will learn valuable lessons related to realized losses on their endowment investments and likely begin to increase their investment policy due diligence.”

Brian McKenna, Partner, Deloitte Canada

Beyond simply cutting budget allocations, governments are also taking a more hands-on approach in the funding approval process. Rather than providing funding upon student enrolment, Canadian and Australian governments are examining linking funding to the number of students retained to graduation. The United States (at the state level) is taking a similar tack in an attempt to coax institutions into improving efficiency, reducing program duplication and fostering cross-institutional collaboration as conditions for obtaining funding.

As operating margins shrink, higher education institutions must find new ways to cut costs without sacrificing services. Some are streamlining their business processes and back-end systems in an attempt to improve operating efficiency. Others are exploring new revenue opportunities as a way to enhance profits without raising tuitions. While responses will vary for each institution, it has become eminently clear that a proactive response is necessary to offset the potential for severe financial loss.


Exploring education’s budgetary woesIt is often said that when you are in the eye of a hurricane, a false sense of calm can prevail. On some level, this is how many educational institutions are functioning in the aftermath of the global financial downturn. But organizations that continue to act as though it’s business as usual may end up scrambling for survival when the funding storm hits. And the inevitability of the storm can be seen in areas outside of straight-forward government cuts.

In the United States, for instance, rising loan default rates may act as harbingers of new budgetary woes to come. According to the U.S. Department of Education statistics released in September 2010, overall student loan default rates increased to 7% in fiscal 2008 compared to 6.7% in fiscal 2007. The worst marks went to market-funded colleges, which saw their default rate rise to 11.6%. This is almost twice the 6% default rate found at public institutions and almost three times higher than the 4% rate found at private institutions.6 As default rates rise, the Obama administration is doing more than tightening its lending standards. It may also deem certain schools ineligible for U.S. student aid programs – a move that could vastly limit the flow of funds to some organizations.

While Canada does not face similar default rates, educational funding is now being jeopardized on the research side. As research grant values decline and fewer grants become available, Canadian institutions need to get better at attracting research dollars. To this end, higher education institutions must do more than collaborate with industry to identify research programs capable of delivering a social benefit. They must vastly enhance their ability to track and manage research dollars.

This imperative was brought home when some of Canada’s leading institutions failed the Tri-Council Review of Institutional Policies Dealing with Integrity in Research. To comply with the integrity policy framework, institutions that receive research dollars need to implement reporting mechanisms that promote integrity and ensure allegations of misconduct are properly investigated. Absent the adoption of sufficiently robust processes, research funding for some institutions could be revoked. This is creating added pressure for institutions whose administrative functions are already overburdened.

6 Bloomberg, September 13, 2010. “U.S. Student Loan Defaults Rose to 7% in 2008, Led by For-Profit Colleges”, by John Lauerman as accessed at http://www.bloomberg.com/news/2010-09-13/ u-s-student-loan-defaults-rose-to-7-in-2008-education-management-falls.html on November 3, 2010.


“Educational institutions have budgetary issues so much different than a business. Schools funded by student loans, for instance, had almost come to view budgets as an unlimited resource. As lending tightens and legislatures continue to limit tuition increases, organizations need to learn how to handle potentially unprecedented budget constraints.”

Thomas Mann, Director, Deloitte United States


The rivalry intensifiesCompetition to attract the best students heats up

While India tends to have too many students applying for available spots, the reverse trend appears to prevail in

many other countries. To be sure, top-tier institutions – like America’s Ivy Leagues, France’s Grandes Écoles and the United Kingdom’s Russell Group – rarely have difficulty attracting students. But the same cannot be said of most second- and third-tier schools.

The economic climate is partly to blame, as students shy away from higher-tuition private and market-funded institutions. However, other factors are also at play. Demographic trends in many developed nations have resulted in declining enrolment in elementary schools, which will ultimately affect enrolment levels at higher education institutions. The abolition of Australia’s quota system promises to have a similar result by giving students greater choice than in the past – creating greater competition for the best students. International competition also plays a role by siphoning off the best students of many countries.

As the rivalry intensifies, higher education institutions must find ways to gain a competitive advantage by differentiating themselves in an effort to attract top students as well as research dollars and top faculty. Strategies abound. Some schools are responding by enhancing their curricula as a way to attract students to particular programs, such as science or engineering. Others are gearing their educational programs at specific target groups, such as adult learners or high-school dropouts.

To truly compete effectively, however, higher education institutions must consider two additional strategies. First, they need to foster a greater spirit of cooperation by engaging faculty, students, staff, alumni, employers and the community in an effort to align regional educational offerings and meet the needs of various stakeholder groups. This may lead to greater convergence between higher education institutions and polytechnics or colleges, and may even see the wider adoption of apprenticeship models. Second, organizations must articulate a global strategy to determine both how they plan to attract students from around the world and how they plan to extend their educational offerings to different countries.


“To avoid brand erosion, higher education institutions must get very clear on their strengths and weaknesses. They need to assess if they play on a global, regional, national or local stage. They need to decide if they plan to specialize in specific degrees or student segments. Rather than offering a bit of everything, organizations must identify the key areas of expertise that can best support future growth.”

Loic Jouenne, Partner, Deloitte France


Going globalIn examining the industry’s competitive landscape, higher education institutions are increasingly realizing that not all their competitors are domestic. As universities and colleges around the world extend their international footprints, the incentive to globalize becomes more pronounced. This is particularly true as some North American institutions consider establishing low-cost campuses and development programs in fast-growing regions, such as the United Arab Emirates (UAE).

Before expanding geographically, however, institutions must articulate a clear international strategy. Moving beyond local or regional borders will not make sense for every institution, particularly considering the significant costs. In some cases, it would be better for universities and colleges to strengthen their ability to both attract foreign students and encourage them to stay in the community after graduation. Achieving this aim takes effort enough, requiring institutions to raise their education standards to international levels, hire and retain globally-prominent faculty members and appear favourably on international ratings like the Shanghai Rankings.

Even where globalization is a viable option, it is imperative to lay the strategic foundation. Before entering global partnerships, institutions must identify appropriate partners and determine their cultural fit. They must also understand their motives for expansion, articulate the benefits and determine the right geographic locations for their offerings.

According to a recent report on the internationalization of education published by the International Association of Universities, the rationale for globalization differs from one institution to the next. Worldwide, the top five reasons for going global are to:

• Improvestudentpreparedness • Internationalizethecurriculum• Enhancetheinstitution’sinternationalprofile • Diversifyfacultyandstaff7

• Strengthenresearchandknowledgeproduction

That said, regional variations exist, with universities in North America and Latin America stressing the importance of preparing students for international careers as well as institutions in Europe stressing the importance of both an international curriculum and profile.

Although the benefits of entering international partnerships, offering joint-degree programs and creating global campuses are considerable, risks exist. To prevent the commodification of critical programs, slipping education standards or inappropriate alliances, advance planning is imperative.

7 The Chronicle of Higher Education, October 22, 2010. “Internationalization of Higher Education: the Good, the Bad, and the Unexpected,” by Francisco Marmolejo as accessed at http://chronicle.com/blogs/worldwise/internationalization-of-higher-education-the-good-the-bad-and-the-unexpected/27512 on November 4, 2010.


“Universities and colleges are under considerable pressure to enter global partnerships. Yet this is not a decision to undertake lightly. Organizations need to make sure that they pick the right partner, identify the best fit, structure an appropriate program and define the benefits and risks well in advance.”

Omar Aguilar, Principal, Deloitte United States


Setting prioritiesThe danger of making decisions in the dark

University and college administrations tend to be creatures of habit. That means processes, once established, often follow

historic arcs, rather than paving new ground. This is especially true as institutions grapple with the challenge of setting strategic priorities.

In the area of budgeting, for instance, decisions are often made democratically as opposed to strategically. Programs funded in one year are sometimes not funded the next, to ensure an equitable allocation of resources. Extra money frequently goes to the stakeholders who bring it in, rather than being deployed to the areas of greatest need. Institutions are slow to phase out programs that no longer meet evolving student needs or to introduce new programs that lack a proven track record. High degrees of organizational fragmentation and decentralization also prevent various departments from working together towards common goals or to realize improved operational efficiencies.


“The economic environment can no longer support a culture where everyone asks for their unique wants and the administration strives to provide that. Although cultural change can be painful and slow, institutions must get better at aligning their programs with their strategic priorities.”

Mark Price, Principal, Deloitte United States

This same attitude seems to dominate institutional leadership decisions. Historically, many higher education institutions have demonstrated a strong proclivity towards promoting leading academics to leadership roles rather than identifying (potentially private sector) candidates whose business acumen can help institutions enhance their performance agendas, attract leading researchers and evolve to meet changing student expectations.

To be sure, educational institutions operate in environments that are frequently not conducive to stark business approaches. Tenure mandates create no fly zones for strategic agility and flexibility. Consensus decision-making hampers rapid innovation. Complex governance structures make top-down accountability problematic. And meeting the needs of multiple stakeholders can pull decision-makers in countless conflicting directions.

Despite the challenges, the need to incorporate operational aspects into strategic planning is imperative. To succeed into the future, institutions must invest in data mining, financial analysis and IT systems that can help them identify optimal service delivery models and ensure they align to student needs. They must rationalize redundant programs, evaluate the continued relevance of costly ones and ensure their curricula keep pace with market changes. They must look for ways to enhance their core competencies and outsource the rest – which includes considering the merits of shared services and the consolidation of programs, departments and even institutions. Only in this way can they balance financial and academic priorities.


Moving at the speed of cyberspaceTechnology upgrades are needed across the board

Managing a sprawling campus is akin to managing a small city. While stakeholders across the campus all have

different needs, they expect access to equivalent levels of service. For faculty, this translates into a need to access critical information seamlessly – whether they are full-time staff or visiting professors. For students, it manifests in the growing expectation for integrated services, such as one-stop enrolment, web-based interaction and the ability to access educational support online.

Although higher education institutions understand these requirements, aging technology systems make it exceptionally difficult to deliver on these promises. In many cases, back-office systems used to manage student information, finances and human resources are woefully outdated, hampering organizational ability to streamline the student enrolment process, realize cost efficiencies or hire new or visiting staff. To complicate matters, many departments maintain homegrown IT systems that are almost impossible to upgrade or centralize or maintain parallel systems that cause redundancy and inefficiency. Even schools that have invested in new technology in recent years often are not leveraging its full capacity.


Similar challenges exist with front-facing technology. Students that have grown up using online social networking sites expect certain standards of interaction from their providers, including their schools. Universities and colleges that fail to provide students with intuitive online systems to streamline registration, enrolment, identity management and payment run this risk of increasing churn due to rising user dissatisfaction. Similarly, schools that have not yet embraced online forms of communication – including Facebook and Twitter – are losing a critical opportunity to build student loyalty and cement long-term relationships.

In addition to system upgrades, higher education institutions must also respond to the growing demand for web-based training. To attract a wider range of students and meet the needs of disparate student groups, many organizations are already considering the viability of offering online courses, webinar instruction and other forms of virtual or remote education. Beyond lowering the costs of delivering education, reducing infrastructure demands and offering programs to higher volumes of students, this type of online education has interesting implications for declining enrolment. In some scenarios, it may even help improve student outcomes.

Before universities and colleges can realize any of these benefits, however, they must commit to renewed IT investment and take steps to continue enhancing online security and data privacy. This is critical not only to meet evolving student demands, but also to attract a new generation of IT employees who simply lack the skills to manage many institutions’ legacy applications.

“Today’s students have very high expectations of the technology experience. Higher education institutions that cannot meet these standards by supporting online enrolment, enabling online fee payment or empowering interaction with professors through social media risk losing students.”

Troy Kay, Senior Manager, Deloitte Canada


Rethinking infrastructureA renewed focus on asset optimization

W hen endowments seemed endless and financial security assured, many institutions committed significant

resources to expanding their campuses. The rationale was sound. After all, students today assess schools on criteria beyond their academic offerings, looking at the quality of residences, academic facilities and athletic centres. To meet these expectations, many institutions planned to build new facilities and/or renovate old ones.

Much has changed since the economy shifted. As the value of endowments declined, institutions were forced to scale back on their capital expansion plans or halt them entirely. Harvard’s decision to put its $25 billion Austin campus construction project on hold may have been the most visible example, but other higher education institutions have since followed suit. Schools that already built new facilities are now struggling to pay ongoing operating and maintenance costs. And even those that did not build are grappling with the consequences of deferred maintenance, particularly as their facilities, technology, equipment and campuses continue to age.

In this new world order, asset optimization is becoming increasingly critical. To reduce infrastructure costs, some institutions are now partnering with the private sector to build and/or operate shared facilities, such as community centres that can be used by students and citizens alike. Others are disposing of surplus assets and taking steps to streamline their real estate portfolios.

In a particularly notable trend, numerous campuses are also looking for ways to boost revenues by monetizing their existing assets. Several institutions have partnered with developers to establish multi-use buildings – setting up retirement homes on campus, for instance, or leasing out properties to external stakeholders (for both community and private use). Others are reevaluating fees charged for existing uses, including residence fees and parking lot charges. Still others are exploring strategies for leasing out building space that sits vacant during certain times of the year.

Although each institution must articulate a unique strategy, one thing is clear: a strategic approach to asset optimization is essential if campuses hope to keep costs in line in the coming years.


“In the wake of the global financial crisis, higher education institutions must explore new ways to reduce their infrastructure costs. This involves more than addressing their deferred maintenance fees or converting properties to multiple uses. It requires a wholesale assessment of how they can use their assets more effectively.”

Rod Barrass, Manager, Deloitte Canada


Linking programs to outcomesWhere training and market demand intersect

I n countries around the world, there has long been a distinction between university education and vocational training. Typically,

universities are perceived as offering superior academic and research environments focused on helping students acquire a well-rounded education. For their part, vocational programs are often seen as “lower-tier” offerings designed to provide students with practical, on-the-job training.

Yet, despite their reputational challenges, vocational schools may be trumping universities in one of the most critical performance metrics: post-graduate employment. In the U.S., a recent report found that the employment growth in occupations requiring vocational training is projected to be more than double overall employment growth over the next decade. Similarly, according to the Manpower Demonstration Research Corporation, unlike college degrees, career academies and vocational schools tend to boost student earnings by 11%.8

This may explain some of the challenges being experienced by countries like India that lack a focus on vocational training. With over one billion citizens, India has the second largest higher education system in the world.9 However, the country has exceptionally limited access to people trained in critical vocations. Aside from creating a significant workforce gap, this educational omission may be contributing to the country’s outsized illiteracy rate, which hovers in the range of 35%.10

To meet the growth mandates of developing nations – and the career aspirations of students everywhere – a stronger focus on vocational training is required. This means higher education institutions must take steps to design programs that align with marketplace demands and employer needs. It also means they must engage in more focused research and analysis in an effort to correlate their educational offerings with their students’ ability to secure gainful employment. As students and parents increasingly come to assess degrees based on the economic value they confer, institutions will need a way to demonstrate the practical outcomes of the programs they offer.

8 Harvard Political Review, October 30, 2010. “Beyond the Liberal Arts”, by Luka Oreskovic. Accessed at http://hpronline.org/higher-education/beyond-the-liberal-arts/ on November 10, 2010.

9 National Portal of India, October 25, 2010. Accessed at http://india.gov.in/overseas/study_india/studyinindia.php on November 10, 2010.

10 UNESCO, Education for All Global Monitoring Report 2010. Accessed at http://www.unesco.org/en/efareport/reports/2010-marginalization/ on November 10, 2010.


“Despite the merits of a world-class liberal arts education, there is a danger in supporting a curriculum that is too theoretical. Today’s fast-paced world needs construction crews, hospital workers and people to build cell phone towers. Institutions must respond to these realities by ensuring their educational agendas are in sync with forecast marketplace demands.”

Arsh Maini, Senior Consultant, Deloitte India


The best and the brightestAttracting and retaining talented faculty

Most organizations realize that their performance hinges on the talent of their staff. For universities and colleges,

however, attracting and retaining the right faculty can spell the difference between success and failure. In addition to enticing the best students, high-calibre academic staff often support considerable research dollars and can even help to raise an institution’s public profile.

However, despite the critical role of faculty, many higher education institutions lack a solid strategy for attracting and retaining talent, measuring performance and enhancing teaching quality. This failure to put sufficient emphasis on the human resources function is particularly egregious in light of demographic trends that continue to make it harder for universities and colleges to draw qualified talent.

Like most sectors of the economy, education is not immune to the effects of aging populations. As staff members get older, they risk falling further out of touch with rapidly-evolving student needs and expectations. This situation has been exacerbated by the sector’s typically low retirement rates, which has prevented institutions from hiring some of the industry’s emerging bright lights. Even in cases when schools do try to actively recruit top talent, they often find themselves competing on an international stage where they risk losing top educators to higher-paying or higher-profile jobs both within and outside academia.


“With the continued aging of the population, institutions are finding it hard to replace retiring staff, particularly within the academic ranks. Even in non-academic fields, education providers are often not seen as progressive and aspirational employers – compelling high-quality candidates to choose other careers. Educational institutions need to act immediately and with urgency to implement focused talent management strategies to recruit and retain the best in an increasingly competitive environment.”

Michael Jabour, Director, Deloitte Australia

Given these trends, higher education institutions may find themselves facing a critical talent gap in the near future. To stem the tide, they must do more than invest in new HR technology systems. They must also develop focused talent management strategies designed to help them become employers of choice within the sector at large. They must adopt a performance culture capable of identifying and nurturing top talent. They must bring in new leaders to reinvigorate the workforce. And they must use pending retirement rates as a way to hire a more diverse faculty capable of inspiring and connecting with a new generation of learners.


A sustainable futureEnhancing environmental performance

In industries around the world, younger populations are driving the push towards greater environmental awareness. Notably, as

the breeding ground of these younger populations, higher education institutions are working to lead the pack.

In fact, for many institutions, the commitment to sustainability extends far beyond environmental performance. Institutions building new facilities generally work to adopt energy-efficient systems and remove barriers that can potentially cause environmental illness. IT teams are limiting energy use with technologies like virtualization and blade servers. Even maintenance teams are moving towards green cleaning practices. Yet, as far as campuses have come, there is a long way to go. Public scrutiny, media attention, regulatory mandates and ongoing student demands continue to exert pressure on organizations to improve their environmental performance. This is starkly highlighted by the release of the annual College Sustainability Report Card, published by the Sustainable Endowments Institute. After assessing 322 U.S. and Canadian universities and colleges, the Report Card “grades” each school’s sustainability practices. The

comprehensive report reviews performance across 52 indicators in nine categories: administration, climate change and energy, food and recycling, green building, transportation, student involvement, endowment transparency, investment priorities and shareholder engagement.11

As these categories show, sustainability in a higher education setting crosses organizational lines. Institutions that earn top marks must generally do more than reduce their carbon emissions and improve energy efficiency. They also need to examine a range of non-traditional practices – such as managing a campus garden or farm, introducing trayless dining, composting organic waste, incenting students to reduce water and electricity use, introducing bicycle-sharing programs and constructing green buildings.

11 Sustainable Endowments Institute, October 2010. “The College Sustainability Report Card 2011”. Accessed at http://www.greenreportcard.org/report-card-2011/executive-summary on November 11, 2011.


“Higher education institutions work with a population that is environmentally aware and active. To meet the needs of these stakeholders, schools must be able to demonstrate and account for their environmental performance. They also need to enhance their environment-related programs to provide students with the educational credentials they need to drive this agenda in the community at large.”

Michael Pentland, Associate Partner, Deloitte Canada


Education for allTackling diversity, accessibility and affordability

While very few issues cross social, cultural and geographic lines, access to education is one of them. In

countries around the world, governments and citizens grapple with the challenge of educating hard-to-reach students – particularly those who struggle with income disparity, have an illness or disability, live in remote communities or are members of disenfranchised ethnic groups.

To be sure, the issue has particular relevance at the primary education stage, where roughly 72 million children around the world are still out of school.12

However, higher education institutions are by no means immune.

For instance, the Association of Universities and Colleges of Canada views increased Aboriginal access, participation and success in higher education as a national priority. In the U.S., barely 40% of adults between 25 and 34 hold even a minimum of an associates degree and graduates are still predominantly white. According to the U.S. Department of Education, 60% of white students who attend a four-year college complete a bachelor’s degree within six years, compared to 49% of Hispanic students and 42% of African-Americans.13 Similar challenges prevail in Europe, where institutions are still struggling to democratize their traditionally elite educational systems. South Africa also continues its long process to de-segregate education.

12 United Nations Girls’ Education Initiative, April 2010. “Equity and Inclusion in Education”. Accessed at http://www.unicef.org/education/files/Equity_and_Inclusion_Guide.pdf on November 11, 2011.

13 Complete College America, 2010. Accessed at http://www.completecollege.org/ on November 11, 2010.


“As schools work to cut costs out of their operating structures, they must still make the investments required to meet student demand. That includes devising strategies for attracting atypical students who will likely constitute the growth groups of the future.”

Peter Present, Executive Lead, Deloitte South Africa

In most cases, universities and colleges are not equipped to resolve these issues on their own; government assistance and regulation tend to go a long way towards making education more accessible. That said, many institutions have begun to explore ways to extend their educational offerings to a broader base of students. Online programs, video streaming and other forms of digital education can bring education to remote communities or students struggling with physical disabilities. Financial aid programs that focus on assisting key segments of the population can help to attract students from low-income families. Maintaining a diverse faculty and encouraging cultural diversity can also bring in a wider range of ethnic students.

While simple solutions may not exist, access to education remains a critical issue that should impel institutions to design programs that best meet their unique constituencies.


Regulations and reportingNew responsibilities require better disclosure

Funding constraints and cost containment are not the only legacies of the global financial crisis. In the wake of the international

market meltdown, governments around the world have been stepping up industry oversight by flexing their regulatory muscles. In many cases, the education sector has been caught in the crossfire.

In the U.S., for instance, where funding accountability has become a rallying cry, some market-funded institutions are under scrutiny for holding the industry’s lowest repayment rates on government-backed student loans. In some instances, they are also being accused of misrepresenting post-graduate employment opportunities. As a result, the federal government has tightened student lending standards and is making it harder for schools to qualify for U.S. student aid programs.

Australia, too, is calling for tighter regulations in a bid to enhance national accreditation standards and improve protection of foreign students. In fact, higher education institutions around the world have been working to strengthen their systems in recent years in a bid to better track foreign students in general, to ensure their safety and welfare.

In light of these new responsibilities, many institutions find themselves struggling to comply with an increasingly complex disclosure environment. In addition to meeting the regulatory mandates of several different governing bodies, higher education institutions are under greater scrutiny than in the past. Regulators, students and other stakeholders expect schools to adhere to higher standards of transparency – not only with regard to the allocation of their research dollars but also with regard to their student success rates, commitment to sustainability, program outcomes, teaching standards, comparative rankings and beyond.

To meet these expectations, institutions will need to do more than simply comply with the letter of the law. If they hope to differentiate themselves in an increasingly crowded marketplace, they will need to invest in more sophisticated information systems that allow them to track and report their performance across the criteria of greatest interest to each of their stakeholders.


“Higher education institutions face greater regulatory responsibilities than in the past. In addition to improving financial accountability, they must act as corporate parents to exchange students, report on enrolment statistics and enhance transparency across the board. How many institutions have the information management systems necessary to track and report all these data?”

Julie Mercer, Associate Partner, Deloitte UK


Accelerating the learning curveGiven the wide variety of funding models, geographic reach,

educational focus, student constituency and faculty talent, it’s no

surprise that industry challenges affect every institution differently.

That means each institution must craft strategies of its own in

response to prevailing conditions. That said, there are certain best

practices organizations should consider as they prepare for the future.

Responding to industry challenges

While variations exist, there are essentially four key drivers of educational institution value that colleges and universities can manipulate to improve their performance. Here are some strategies to consider in each of these areas:

Funding and revenue growthIn light of current funding constraints, many higher education institutions are seeking ways to attract additional funding and uncover new sources of revenue. To achieve these aims, institutions should:

• Incorporateanoperationalelementintostrategicplanning to ensure a focus on the highest priority issues

• Streamlinethegovernanceprocesstoempowerstakeholders to quickly make informed budgetary and research allocation decisions

• Clearlydefineroles,responsibilitiesandaccountabilities

• Improveinformationtrackingtobettermeasureand report on program outcomes

• Exploreinnovativepublic-privatepartnershipopportunities

• Enhanceinstitutionalbrandsinanefforttoattract additional private investment

• Leveragesocialmediaandotheronlineformsofongoing communication to establish and maintain relationships with students, parents and alumni

• Improvetrackingofresearchdollars• Considerglobalizationstrategies.


Operating marginsIn addition to pursuing top line growth, higher education institutions must continue reducing their costs to widen operating margins. Here they can:

• Implementand/orleveragetechnologiesdesigned to streamline core business processes, such as student services, research, finance, administration, human resources and procurement

• Engageinmoresophisticatedplanningandforecasting

• Pinpointopportunitiestoshareservicesandoutsource non-core functions

• Eliminateprogramredundanciesandinefficientprocesses.

Asset efficiencyYet another way for higher education institutions to enhance performance includes optimizing the use of existing assets. To succeed in this effort, institutions can:

• Engageintalentmanagementstrategiestoattract and retain the highest calibre faculty

• Streamlineprocurementandsourcingtooptimize the supply chain

• Reviewregionaldeliverymodelstoeliminateprogram duplication and pursue consolidation where it makes sense

• Extendaccesstotheirprogramsthroughinitiatives like distance learning and online education

• Identifyandtargetoptimalstudentpopulations• Engageinsustainabilityinitiativestoimprove

energy utilization, reduce waste and identify ancillary opportunities to cut costs and improve performance

• RationalizeITandrealestateportfolios.

Expectations and strengthsA final critical area of focus includes enhancing institutional brands in a bid to build on existing strengths and lay a solid foundation for the future. Here they can:

• Improveinformationmanagementanddataanalytics to identify areas of competitive differentiation

• Solicitopinionsfromoutsidetheeducationsector

• Leveragetechnologicalinnovationtobetterengage students and improve services

• Revisitexistingstrategiesandprocesseswithaneye towards identifying areas for improvement

• Benchmarkagainstcompetitiveinstitutions• Sharebestpractices.


Taking it to the

next level


To be sure, the strategies and suggestions included in this

report are by no means exhaustive. In truth, innovation in the

higher education sector is limited only by the imagination. As

organizations and administrators begin to imagine new visions

for the future, the education industry is poised to once again

pave new ground.

As one of the most important sources of new ideas and

research in almost any country, institutions of higher learning

must step up and find new ways to meet the changing needs

of their citizenry, despite limited funding. Indeed, it could be

viewed as their civic obligation: to innovate and evolve, to do

more with less and to ensure that individuals continue to

contribute to the global competitiveness of their economy.


“To succeed into the future, higher education institutions must take a good, hard look at their organizing principles. They must assess how well their academic and non-academic functions work together, the caliber of their student experience, their ability to attract the best students and faculty and the strength of their systems and processes. Ultimately, the victors will be those who can support their decision-making with the strongest business case.”

Christina Dorfhuber, Principal, Deloitte United States


Contacts

AustraliaMonish Paul+61 8 9365 [email protected]

CyprusNicos Papakyriacou+357 2 236 [email protected]

FranceLoïc Jouenne+33 1 40 88 43 [email protected]

IndiaK.R. Sekar+91 80 6627 [email protected]

IsraelChaim Ben-David972 2 [email protected]

Middle EastRashid Bashir+971 (0) 2 676 [email protected]

NetherlandsWim Hiddink+31 88 [email protected]

New ZealandBrett Chambers64 3 363 3810 ext [email protected]

SpainMaría Jesús Escobar+ 34 915145000 ext [email protected]

United KingdomJulie Mercer+44 20 7007 [email protected]

North American co-chairsLouise Upton+1 902 721 [email protected]

Kathy Karich+1 917 741 [email protected]

Documents

OnCourse - Westmont College€¦ · The 2011 Inside Higher Ed Survey of College & University Business Officers, p. 17, 2011. 2 Baum, Sandy; and Ma, Jennifer. Trends in College Pricing