LEANING INTO TURBULENT TIMESAn Overview of the Impact of the Changing Economy on Higher

Education

Joy E. Brathwaite, B.Sc., M.S.A., E.M.B.A.

Vice President for Finance & Business Affairs

North Central University

Minneapolis, Minnesota

Overview

Pre-2008 Higher Education Model

2008 Economic Crisis

Post-2008

Changes in Market

Industry challenges

Institutions’ response

HERS Project

Reasons I stay in Higher Education

Higher Education – Pre - 2008

◦ Colleges were price setters

◦ Endowment funded budgets

◦ Streams of predictable donations/contributions

◦ Assumed perception of value

◦ College degree considered worth the price

Higher Education – Pre - 2008

◦ College degree leads to jobs & improved life

◦ Parents’ willingness to use equity and assets to

fund college

◦ Parents’ ability to use equity and assets to fund

college

◦ Adult students employers’ able & willing to pay

◦ State funding slow but some growth

2008 – 2010

WINDS OF CHANGE• FINANCIAL FALL OUT

• REGULATORY CHANGES

• IMPACT ON FAMILIES

• IMPACT ON UNIVERSITIES

Too Global to Fail? Lehmans et al

Sub prime mortgage/derivative storm

Lehman et al

Fed decision not to be lender of last resort this time

Rejection by Bank of America & Barclays

Undercut by Merrill Lynch

Underestimated world wide damage

REGULATORY CHANGES

The Dodd-Frank Wall Street Reform

and Consumer Protection Act (2010)

Financial Stability Oversight Council

and Orderly Liquidation Authority

Consumer Financial Protection Bureau

(CFPB)

Volcker Rulehttp://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-

bill.asp

2008 Effect on Higher Education (HE)

FINANCIAL RESOURCES & RELATIONSHIPS

• 500 bank failures (¼ small local banks vanished)

• Moody’s negative outlook on HE

• Terms and Opportunity for Debt worsened

• Low Investment & Endowment earnings

• Donor challenges

• State/Federal fundinghttps://ilsr.org/vanishing-community-banks-national-crisis/

State Funding & Appropriations

Change in National State Funding

(only 1.3% Increase in 7 years)

FY07 State Funding = $75.3B

FY14 State Funding = $76.3B

Intense pressure on public institutions

Adjusted for inflation, 48 states are spending less or the same in FY14 than before recession (Alaska and North Dakota two exceptions).

Most states are trying to reverse this trend, but 8 states reduced their spending in FY14 (WY, WV,LA, WI, NC, KS,AR, PA).

FEDERAL PROGRAM CHANGE IN REAL

DOLLARS

Increase of $425

from 2009 to 2015

Increase of

$981 from

2003 to 2009

Table Talk

Where were you in Fall 2008 to Summer

2010?

Share an example of one of your university’s

challenges that came to light during your

interview with the Chief Financial Officer or

any other senior officer?

Do you think this challenge started before

the economic crisis or as a result of the

crisis?

Where was I in 2008 – 2010?

Challenges

• Endowment lost 46%

• 35% budget reductions

• Layoffs

• Retirement losses

• Raises stalled

• Health care revamped

Recovery?

• Slow but steady

Where was College A in 2008 – 2012?

Challenges

$2 million loss in 2009 (50%)

Broken bank covenant

Recovery

• Careful savings

• Fundraising

• Refinance (2011)

• New facilities

Where was College X in 2008 – 2012?

Challenges $3 million loss in 2009 (20%)

Broken bank covenant

Recovery?

• Slow• Broken bank covenant 2013 and 2014

• New Enrollment Emphasis

• Change in Programs

• New Fundraising Emphasis

• Refinance Asset Based Lender (2015)

What was the Market’s Response?

• Families’ ability to pay (39% real

income decline 2008 – 2010)

What was the Market’s Response?

• Public perception of the value of

higher education degree

Debt Scare

• Institute for College Access and Success

• (only 4% at $100,000 or more)

• (71 % of 2012 college graduates with

average debt load of $29,400)

• Price of a new car!

(Stamats White Paper ‘Top of Mind Review on Major Challenges and

Issues Facing Higher Education’, 2014)

http://www.cic.edu/Research-and-Data/Research-

Studies/Pages/Student-Debt.aspx

Increased Focus on Outcomes:

Changes in College Ranking

• US News and World Report (30 years)

• New Rubric Graduation Rate 2012

• Forbes Top Colleges (Financial Grades)

• Endowment per student

• Education to Career Report (new)

http://www.forbes.com/sites/ccap/2014/09/11/u-s-news-vs-forbes-college-rankings/

http://www.forbes.com/sites/schifrin/2013/07/24/is-your-college-going-broke/

NEW : Education to Career Report

Employability

Earnings after college

Differs from US W&N and Forbes

◦ Ivy Leagues at bottom of list

◦ Large well functioning flag ship publics at top of list

UNC, Chapel Hill #1

Value and Cost

• Parents/Employers are unwilling to pay without ‘guaranteed outcomes’

• Trusteeship Spring 2013 Article (reading)

• College too expensive

• Moody’s downgrade of Higher Education

• Colleges need to move from containing costs to balance budget to OUTCOMES

• Need for market demand programs

• Culture shift

Pressures on Institutions Decreasing enrollment Attracting & retaining Attracting & retaining ethnic students

Lower state funding 48 states reduced or flat funding

Inability to raise tuition price Average 5% pre 2008 Low point –(0.44%) 2012

Delayed faculty retirements Demographic changes

Weathering the Storm-Chronicle-Aug 2014

Demographic Changes: Ethnicity

1995- 2025 ***2015

http://www.dol.gov/dol/aboutdol/history/herman/reports/futurework/execsum.htm

Demographic Change: High Schoolers

2012-2027 -<1%

Excerpt from NAICUO Presentation Fall 2010, Source: Western Interstate Commission on Higher

Education

Pressures on Institutions (Cont’d) Inability to plan carefully Projections based on past become inefficient High cost of accurate data for decision making Extensive cost reductions Increased tuition discounting 42 to 48.8% NACUBO Fall 2008 to Fall 2014

discount rate Lower net revenue & margins Annual # of closed private◦ Doubled in 2009-2013

Annual # of merged private universities◦ Tripled in 2010-2013

http://www.bloomberg.com/news/articles/2014-04-14/small-u-s-colleges-battle-death-spiral-as-enrollment-drops

Weathering the Storm-Chronicle-Aug 2014

INABILITY TO RAISE PRICES $

HARD LESSON

Selling on discount not value leads to Lower Net Revenue per student

Lower Number of students

Lower Net Tuition Revenue

Attempting the same business with lower revenue & resources

High Cash Burn

VALUE IS KEY

Weathering the Storm-Chronicle-Aug 2014

Table Talk

Does it seem that your institution is

affected by this perception of value vs.

cost?

If yes, what are some ways that this might

be countered?

If no, what unique features of your

programs or your institutions insulates

you from this issue?

Administration

Main foci – Balance Budget & Reserves

◦ All revenue streams (predictable as possible)

◦ Controlled spending

◦ Margins for investment (Income statement)

◦ Assets growth (Balance Sheet)

◦ Longevity through financial health

◦ Health rubric/ratio scores

◦ Risk management

◦ Regulatory compliance

◦ IT assessment/data accuracy

◦ Capacity for long term planning

◦ Stamina to work the plan

StrategiesPrivate (4 year smaller)

Increased enrollment

More full pay students

Small increase of frozen tuition

New market driven programs

Distinct/unique program

Increased focus on fund-raising

Expand/new online

Public (4 year)

Increased enrollment

Small increase or frozen tuition

New market driven programs

Distinct/unique program

Expand/new online

Strategies (Cont’d)

Private (4 year smaller)

Data driven decision

making

Increased faculty load

Cost cutting

Facility use year long

Delayed spending on

plant

Public (4 year)

Data driven decision

making

Cost Cutting

Facility use year long

Delayed spending on

plant

How do we respond?

Chronicle “Weathering the Storm”

◦ Careful research & planning

◦ Normalize enrollment (main source of revenue)

◦ Control expenses (ensure you can afford to be

yourself)

◦ Invest in the future at the right time

◦ Strengthen non-tuition forms of revenue

◦ Ensure that the community understands its

strengths and is able to use them as leverage

How do we respond?

Re-look at Business Model

◦ Data baseline

Where are we right now?

What are the revenue sources?

What are the patterns for revenue?

What will affect our revenue?

Environmental (we cannot change)

Internal (we can change)

◦ Leadership team

Who are the correct stakeholders?

◦ Action and Communication Plan

How do we respond?

Re-look at Business Model

◦ Trusteeship Spring 2013

Return on Investment

Outcomes

Market Demand

Death of the “Build it and they will come” model

3 Examples

◦ Public 4 year

◦ Private 4 year

◦ Public community college

Chronicle: Weathering the Storm

Chronicle: Weathering the Storm

Chronicle “Weathering the Storm”

Table Talk

What strategies did or does your

institution try to reduce expenses/increase

revenue?

Share one positive outcome.

Share one negative outcome.

Spring ’13 Trusteeship 3 Examples

StrategiesExternal: Perception of Value

Connect with future students

Present College as an investment

Educate parents on specific College’s DNA

Find students who fit and persevere to keep them

Provide Spiritual Formation

Provide Intellectual Formation

Provide Leadership Formation

Offer hard skills education

Offer soft skills education

Produce global citizens

Offer a few distinct/unique programs

Increase focus on fund-raising

Expand market

Internal: Willingness to Accept

Truth

Financial resources are reduced

Tough decisions are necessary

Prioritization is necessary

Programs are top recruitment

tool

Courage to choose a plan

Courage to keep it simple

Ability to choose a plan

Ability to execute

Support from boards and

donors

The need to be great at your

core offerings

Stamats ABACC 2016 Presentation

Poll

In your opinion, did your CFO feel that

this was the ‘new normal’ or that things

would return to the norm ‘some day’?

University X Project Example

Peak Enrollment 2009

Tuition discount increase 7%, 18%

Enrollment drop 2,600 to 2,000

Debt refinance (twice)

Faculty support

◦ Cost Containment

◦ Program closure

◦ New programs

Cost reductions

Enrollment and Marketing Emphasis

University X Project - Revelation

Reaction

◦ Athletics

◦ Faculty

◦ Board

◦ Community

Grief

◦ Jarring transparency

◦ Colleagues departing

◦ Cost reductions

Commitment to Change

HERS Project Supported Strategy

Transparency to community◦ 4 year model

◦ Retention

Strategic plan

Project HERS

◦ 5 year model for budgeting

◦ Program Launch/Implementation Task Force

◦ Market Driven Programs Online opportunities

Time driven opportunities

◦ Across campus involvement

TRADITIONAL UNDERGRAD PRELIMINARY PROJECTIONS & RETENTION STATS

A B C D E F G H I

NotesStudents

(FFTE)2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020

1 Retention Freshmen 376 410 416 422 431 416 416

2 70% Sophomore 317 263 287 291 296 302 291

3 82% Junior 253 261 217 237 240 244 249

4 93% Senior 321 235 243 202 220 224 227

5 Total 1,267 1,170 1,164 1,152 1,187 1,185 1,183

6 Fall 1,267 1,170 1,164 1,152 1,187 1,185 1,183

7 91% Spring 1,153 1,065 1,059 1,049 1,080 1,079 1,077

8

Number FFTE 1,210 1,117 1,111 1,101 1,134 1,132 1,130

Malone

Strategy Map

September 14, 2013

Mission “an education based on biblical faith in order to develop men and women

in intellectual maturity, wisdom, and Christian faith”

Visible Building Our Reputation

Viable Improving Our

Margins

Vibrant Transforming Our

Students

Student Stakeholders

Increase Awareness

Diversify & Increase Revenue

Advance Learning

Outcomes

Financial Resources

Invest in Marketing Expertise

Optimize Return on

Investment

Align Resources with Priorities

Internal Processes

Develop Marketing Focus

Strengthen Infrastructure

Maximize Data- Driven Decisions

Organizational Capacity

Clarify Brand Promise

Build Strategic Financial

Understanding

Develop a Student-Centered

Culture

Foundational Principles

University X

Table Talk

Share one idea that one of these four

examples evokes that may benefit your

campus community.

OR

Share an idea that you want to champion

that may benefit your campus community.

Summary of Responses

• Identify the challenge

Identify how it affects the mission

Identify the stakeholders

Perform SWOT at all appropriate levels

Identify the programs

Use your CAO as your CMO

Choose the decision makers

Choose the strengths to enhance

Communicate with the community

Work the plan

Assess and communicate

Why do I Stay in Higher Education?

Capacity of Higher Education in a new

landscape

2nd best predictor of wealth stability

Community transformation and commitment

to hope

◦ Developing global citizens

◦ Supporting and training a generation determined

to make a difference

Capacity in a New Landscape

‘A stronger nation through education’

“For the nation to sustain, not just economic security, but social justice and cohesion, college success must expand dramatically”

Jamine P. Menistosis, President/CEO

Lumina Foundation

Capacity – HE in a New Landscape

Lumina Foundation Year of 2025

Job market needs 60-65% population with college degree

2008 37%

2014 40%

STEM US Rank (27/64 Sci) (35/64 Math)**

Adults

2008-2014 $2.8 million adult degree completions

High quality post high school programs**Drew DeSilver, Feb 2, 2015, PewResearch Center, FactTank, US Students improving in math and science, but still lagging internationally, www.pewresearch.org

My Journey

Barbados

Trinidad

New York

◦ Brooklyn

◦ Wall Street

Springfield, Missouri

Virginia Beach, VA

Canton, OH

Minneapolis, MN

Joy – Music -Finance –Education– Food - Travel

HERS 2013

Moral compass

◦ Five year plan

Reframing

Networking

◦ Fun

◦ Career support

Project

Re-center as a leader

HERS ALUMNA 2013

Just thankful…