By Joseph Russell, CPA, Partner
Recent reductions in government grants and ongoing discussions about policy changes have raised significant concerns about the future of higher education institutions. For example, threats of lost funding have already led several institutions to reduce or eliminate offers to PhD students, as the funds to support their research activities will no longer be available. While not all colleges and universities will see these cuts, any further lost revenue comes at a time when many are still struggling, trying to replace revenue from the Coronavirus Aid, Relief and Economic Security (CARES) Act funding.
The Impact of Federal Funding Cuts and Enrollment Declines on Higher Education
Many institutions rely on the federal government for a significant portion of support (e.g., Pell grants, Supplemental Educational Opportunity Grants and various other forms of assistance). Additionally, according to the Institute of Education Sciences 2023 report, undergraduate enrollment decreased by 15% from 2010 to 2021 (from 18.1 million students to 15.4 million), with 42% (1.1 million) occurring during the pandemic. Thus, enrollment dependent institutions must seek new sources of revenue to cover ever increasing operating costs.
We’re sharing what we believe will be four key management strategies as institutions are faced with the challenges ahead.
Four Key Management Strategies
We see the following four areas as being key management strategies for institutions as increased competition for a decreasing pool of students and resources presents significant challenges:
Revenue Diversification – Revenue diversification will be a key initiative for all colleges and universities in the years to come. A recent 2024 National Association of College and University Business Officers (NACUBO) Commonfund Study of Endowments reported an increase in gifts to endowments of 21% from prior year levels in 2024. Thus, mobilizing your institutional advancement initiatives in the area of private gifts, alumni donations, affinity programs and various other fundraising activities may bear significant results if this trend continues. Also, utilizing institutional resources, such as real estate, to its full revenue generating potential can provide a significant additional source of revenue.
Workforce Development Programs – While there is no doubt a college degree enhances one’s economic potential, many are calling for increased accountability in the job placement of graduates. As a result, colleges and universities are looking to develop certificate programs and boot camps that enhance one’s opportunities for employment. These programs, sometimes offered in collaboration with other organizations, provide individuals with the opportunity of entering the workforce upon completion of their chosen program. As online learning has expanded the student universe, institutions may find these programs to be a significant revenue source, expanding their student population while addressing current workforce needs.
Tuition Discounting – With tuition discounts exceeding 50% for incoming and continuing students in not-for-profit colleges and universities, it has never been more important to understand your institution’s net tuition business model and instructional costs per student. Developing metrics to measure and understand these costs incurred during each year of a student’s academic life will enable institutional leaders to evaluate strategies that will help achieve long-term success.
Student Retention – While a great deal of attention is placed on attracting students to your institution, of equal (if not greater) importance is student retention. As escalating costs continue to burden the student population, retention programs must be developed and monitored to ensure that students achieve graduation. Competition for students is at all levels and retaining students at your institution from acceptance to graduation is of utmost importance. The rate at which students earn a degree within the first six years of attendance has improved over the past several years. Retaining those students within your institution will be the key to success in the future.
Be Proactive
Recent events have only come to remind us of the challenging landscape for the higher education industry. Decreased student population has led to a decline in enrollment, thereby leading to increased activity in mergers and consolidation of colleges and universities. Evaluation of alternative revenue sources and increased understanding of your institution’s costs have never been more important.
Contact Us
Should your organization wish to discuss projects and initiatives in the areas discussed above, please contact a member of the PKF O’Connor Davies Higher Education service team or:
Joseph Russell, CPA
Partner
jrussell@pkfod.com | 551.249.1155
Mark Bednarz, CPA, CISA, CFE
Partner
mbendarz@pkfod.com | 646.449.6376
Lori Edelbach
Director
ledelbach@pkfod.com | 551.249.1151
Jessica Mendoza
Director
jmendoza@pkfod.com | 201.639.5752
Kayla Watt
Supervisor
kwatt@pkfod.com | 908.272.6200