Higher Education – Mid-year Update

As the majority of colleges and universities end the fiscal year, we are checking in on recent industry developments and updating you on the top issues facing higher education in the coming months.

The Wealth Effect

As the national economy continues to improve, charitable giving is on the rise. This sudden influx of revenue and cash is a welcome occurrence after years of depleted reserves, sagging endowments and declining government support. But what is an administrator to do with this sudden wealth?

Many boards are now looking to re-energize strategic and capital construction plans. But concerns still exist, and credit markets continue to be wary of overly ambitious plans. Institutions must remain relevant and provide academic programs that attract students, while being mindful that costly amenities come at a price.

Peaking Enrollment

In 2008, the number of students enrolled at community and public colleges rose as displaced workers tried to learn new skills. This trend was mirrored at private colleges and universities, although price sensitivity muted the uptrend. The growing number of students allowed some schools to easily fill their classes, while others increased selectivity.

That trend may have peaked in 2012: a recent report from the National Center for Educational Statistics shows declining enrollments last year, and several reports indicate a number of schools missing their fall 2013 enrollment targets. Schools that are heavily tuition dependent will begin to see increasing pressure to build their classes. Those with limited reserves or endowments will find it tough to compete on price, and we’ll once again see downward pressure on net tuition revenue.

Cost Pressures

For now, it appears the debate in Washington regarding student loan interest rates is over. However, it won’t be long before the focus turns to the cost of higher education.

During the recession, institutions began to take a critical look at their costs. They were faced with tough decisions, and many froze new hiring, trimmed benefits and reduced headcounts. The federal sequestration also had a chilling effect on many large research enterprises, with schools closing labs and scaling back institutional funding.

Currently, there’s a growing sentiment that higher education is bloated with layers of administrators and inefficiencies. This means there will continue to be a premium placed on those providers who can deliver a quality education—not for the lowest price, but for its perceived value.

Competency-based Education

Recent developments surrounding competency-based education will likely allow more schools to expand their programs. The U.S. Department of Education’s decision to allow federal financial aid to be offered to students in competency-based programs opens these programs up to a whole new segment of the student population.

Time will tell how these evolve, especially in light of improving economic conditions and the disincentive for workers to obtain new skills. Second careers or simply the desire to learn for the sake of learning will attract more retirees to programs that recognize their prior accomplishments. Institutions that can satisfy the needs of “second-degree” learners will benefit from a broader alumni base.

MOOCs: The Trend Continues

What began as an experiment has become mainstream. “MOOC” (Massive Open Online Courses) is now a buzzword in higher education, and increasing numbers of institutions are signing up with platforms such as edX and Coursera. While some institutions are considering how to monetize their MOOC ventures, others are up in arms about the ramifications surrounding online offerings, including rights faculty have to develop and sell their courses online, and the institution’s belief that they own the content.

These are interesting times for higher education. With pressures being exerted both inward and outward, campus leaders will need to stay nimble in order to recognize the trends and make critical decisions to lead, follow or get out of the way.

What trending issues are top of mind for your institution? Leave us a note in the “comment” section or contact Tom Gorman directly at tgorman@bdo.com.

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Tom Gorman is an assurance director in BDO’s Nonprofit & Education practice and is responsible for the practice’s Northeast higher education market. He is a regular contributor to the Nonprofit Standard newsletter and blog. We invite you to read his past posts, “What’s Ahead for Higher Ed?” and “Internal Audits: Do Higher Ed Institutions Really Need Another Audit?“

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