2019

Sustainability: The Ongoing Challenge in Higher Education

By: Dr. John Donohue

1201 S. Alma School Rd, Suite 9500, Mesa, AZ 85210www.synergiseducation.com

Copyright ©2019

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Sustainability: The Ongoing Challenge in Higher Education

[A] common refrain heard throughout higher education is that hundreds of colleges and universities

are at risk of going out of business. The reality, of course, is that few have closed…lulling many

academic leaders into believing that they are somewhat immune from the disruptive forces of change

sweeping the economy…It would be a mistake, however, for college and university officials to think

that this period of financial distress and the public’s unease about the value of a degree is in any

way temporary.

--Parthenon-EY

Overview

While higher education has not witnessed the dire impact of disruptive innovation that has long

been predicted,i recent closings, mergers, as well as partnerships in the sector are an indicator that

colleges and universities continue to search for

pathways to sustainability, with mixed results.

Regulatory pressures have significantly impacted

the for-profit educational sector.

• In the last few years more than 50 have

closed, merged or consolidated.

• And career-oriented institutions are struggling as well. In 2016 ACICS accredited 250

colleges. Since then, 62 of these have closed and another 100 have found a new accreditor. ii

The trend in more traditional non-profit institutions, while not as severe, is troubling as well.

• Between 2016 and 2018 twenty non-profits closed.iii While not as dramatic as the for-profit

sector, closings are predicted to be double the average rate between 2002 and 2014.iv

• An analysis identified 800 small colleges as vulnerable to “critical strategic challenges”v

• Important factors include those commonly experienced in small non-profit colleges:

“It would be a mistake for college and

university officials to think that this

period of financial distress and the

public’s unease about the value of a

degree is in any way temporary.”

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o tuition discount rates above 35%

o dependence on endowment for more than 85% of revenue. vi

When we focus on these two elements, it’s easy to see why there is a problem:

• In 2017, NACUBO research revealed that the average institutional tuition discount rate for

full-time, first-time freshmen reached approximately 49.9 percent, which is the highest

level recorded in NACUBO’s research history.vii

• The American Council on Education indicates that most public colleges and universities

have no substantial endowments, 54 percent of private institutions have endowments of

less than $10 million, and the median endowment at private colleges and universities is

roughly $7.9 million. viii

The condition of the market spurred Fitch Ratings to issue a negative outlook for higher

education in 2019, noting the impact of “… operating and revenue pressures, which stem from

increasing constraints on tuition growth and more challenging demographic and competitive

markets than seen in prior years.”ix

The Search for Sustainability

For smaller colleges, and particularly those without

programs in growth areas such as healthcare and

computer technologies, the challenge is particularly

acute. We note these important issues:

• Demographic trends – a cyclical decline in

college-aged students that drives up student acquisition costs in areas like tuition discount

rates.

• Market trends – low unemployment, combined with market demand for graduates of

programs typically not well-represented (or valued) at smaller Liberal Arts campuses.

• Systemic inefficiencies –processes in higher education are typically not nimble and make

it difficult to be responsive to market demands and non-profit institutions as a whole are

not typically designed for creating a return on investment.

These challenges continue to fuel ongoing searches for sustainability. There appears to be a

consensus that size and scope are important factors for success, and whether through

partnerships, mergers, or strategic initiatives, colleges and universities are pursuing these

strategies. Each strategy is a rational response to conditions. Yet each strategy poses challenges.

2019 will see…” operating and

revenue pressures, which stem from

increasing constraints on tuition

growth and more challenging

demographic and competitive markets

than seen in prior years.”

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Diversification

Whether through internal development, collaboration, merger or acquisition, institutions are

stressing niche/high demand programs that offer growth potential.

Here are the challenges:

• Competition—Demographic and market trends suggest that smaller institutions will

struggle to remain visible in a competitive (and crowded) market sector.

• Costs—Expansion (whether through partnerships, mergers or internal actions) entails

costs that a resource-poor institution may be incapable of making.

• Skills deficit—New approaches and new programs may require expertise and

experience that does not exist within an institution’s toolkit.

Efficiency

Institutions acknowledge the need for greater efficiency. They look to enrollment growth,

better and more creative utilization of facilities, as well as new delivery models with the

potential to expand the institutional “footprint” while minimizing traditional overhead costs

as ways to promote fiscal stability.

Here are the challenges:

• Reality Disconnect—Higher Education is

notoriously inefficient, and its operational

models are typically aspirational on nature

and not reflective of fiscal reality. Colleges

often operate with practices, workloads and policies designed “as if” their

endowments were far larger than their financial statements indicate.

o One study of New England colleges with annual expenses less than $100

million shows that they are dependent on tuition to cover 70% of operational

expenses. They look to elite institutions as their models, but this is clearly not

realistic—an institution like Harvard uses tuition to cover only 21% of its

expenses.x

• Change Averse—Colleges are operationally conservative, feature a strong ideological

commitment to the status quo and these deeply entrenched systems are highly

resistant to change—especially because higher education’s status as Federally

subsidized market buffers it from more direct market forces.

• Low Margins—Efficiency alone is not enough: given the low levels of endowment

resources typical of smaller institutions, it is highly improbable that reform of college

operating systems alone has the potential to solve their financial woes.

Diversification, efficiency and

expansion are all rational responses.

Yet each strategy poses challenges.

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Expansion

“The Amazon Model” for growth acknowledges

the low margins that exist in the industry but

hopes to offset them through sheer enrollment

volume. The Amazon Model shares many of

the same challenges as Diversification and

Efficiency strategies—crowded and competitive

markets, a shortage of talent and capital—but

one major issue stands out:

• A growth strategy modeled on Amazon

may not yield revenue scale and profit

margins at needed levels or in time to

assist struggling intuitions.xi

Moving Forward

How then do institutions intent on crafting strategies for sustainability move forward? In my

experience, what holds them back is not a lack of vision, or creativity, or willingness to work

hard. What typically handicaps smaller, under-capitalized colleges and universities are two

factors:

• A strong fidelity to their traditional role and an associated fear that new approaches

may undermine institutional mission.

• A real shortage of resources to be committed to new initiatives. These include:

o Fiscal Resources – capital that can be invested over multiple years to support

program development, marketing and enrollment activities.

o Personnel Resources–the staff positions needed to undergird the interrelated

systems and activities absolutely necessary to compete.

o Expertise–knowledge of and experience with the design, launch and

management of systems and programs.

At Synergis, our success is based on a proven strategy to address these issues. We summarize our

approach to assisting colleges as “Targeted Innovation.” It’s a way to address concerns about

institutional identity and simultaneously support collaborative innovation through our capital,

expertise and efficient systems.

The Question of Mission

Synergis prides itself on creating solutions crafted to fit the needs of our partners. We make it

clear from the outset that we think that the challenge in higher education today is not how to

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redesign the academy, but rather how to engage in innovation while staying true to academic

values of our partner institutions. In this regard, we emphasize the importance of having any

potential program closely aligned with an institution’s strategic vision. Echoing our approach

to course and curriculum design, we stress a process that focuses on objectives to be achieved

and then work backwards to create pathways to reach those objectives. New initiatives are

conceived of as part of an academic portfolio of programs, each element possessing distinctive

features that contribute in differing ways to institutional strategic plans.

Resources

Synergis has the capital needed for long-term investment in new initiatives. It provides front-

loaded financial support that is essential to establish and grow new programs. We make

substantial commitments for ongoing support during the life of our partnerships as well.

In addition, the expertise of our staff in terms of systems, marketing, enrollment and

instructional design puts greatly enhanced resources to work for our partners. This greatly

shortens the time needed to launch new initiatives–a key factor in a fast moving and

competitive market environment. The structure of our partnerships yokes Synergis with the

fortunes of the institutions it serves, providing an organizational culture that is results

oriented and committed to

continuous improvement. And the

decades of collective experience we

have in designing, launching and

growing programs provides partners

with a blueprint for success.

Contemporary higher education faces any number of challenges. Responsiveness to market and

demographic factors, efficient systems, and creative program design and delivery can all assist in

charting a path toward sustainability. It’s a complex endeavor, however, and many institutions

are coming to see the benefits inherent in strategic partnerships. Synergis has uniquely positioned

itself to provide support and expertise for colleges and universities. Our approach to Targeted

Innovation can provide real assistance in the critical search for sustainability in higher education

today.

The Author

John J. Donohue is a higher educational professional with over thirty years’ experience in higher

education teaching, administration and leadership. He has served as tenured professor, dean, vice

president, provost and acting president. He is an expert on curricular design and program

development and currently serves as Chief Academic and Development Officer for Synergis

Education.

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i Warner, John. 2017. Disruptive Innovation? More Like Destructive Innovation. Inside Higher Ed.

November 21, 2017. https://www.insidehighered.com/blogs/just-visiting/disruptive-innovation-more-

destructive-innovation

ii Flores, Antoinette. 2018. The 85 Colleges That Only ACICS Would Accredit. Center for American

Progress. July 3, 2018. https://www.americanprogress.org/issues/education-

postsecondary/news/2018/07/03/453079/85-colleges-acics-accredit/

iii Lederman, Doug. 2018. For-Profit Free Fall Continues, U.S. Data Show. Inside Higher Ed.

June 6, 2018. https://www.insidehighered.com/quicktakes/2018/06/06/profit-free-fall-continues-us-data-

show

iv Seltzer, Rick. 2018. Moody's: Private-College Closures at 11 Per Year. Inside Higher Ed.

July 25, 2018. https://www.insidehighered.com/quicktakes/2018/07/25/moodys-private-college-closures-

11-year

v Parthenon-EY Education Practice. 2016. Strength in Numbers: Strategies for collaborating in a new era

for higher education. https://cdn.ey.com/parthenon/pdf/perspectives/P-EY_Strength-in-Numbers-

Collaboration-Strategies_Paper_Final_082016.pdf

vi Busta, Hallie. 2019. How many colleges and universities have closed since 2016?

Education Dive. January 29, 2019. https://www.educationdive.com/news/how-many-colleges-and-

universities-have-closed-since-2016/539379/

vii NACUBO. 2018. NACUBO Releases the 2017 NACUBO Tuition Discounting Study. NACUBO. April 30,

2018. https://www.nacubo.org/News/2018/4/NACUBO-Releases-the-2017-NACUBO-Tuition-

Discounting-Study.

viii American Council on Education. 2014. Understanding College and University Endowments.

Washington DC: American Council on Education. Retrieved from http://www.acenet.edu/news-

room/Documents/Understanding-Endowments-White-Paper.pdf

ix Fitch Ratings. 2018. Fitch Ratings Revises U.S. Higher Education Sector Outlook to Negative for 2019.

New York: Fitch Ratings Inc. https://www.fitchratings.com/site/pr/10054235

x Krantz, Laura. 2018. Small colleges are struggling financially, and they can’t raise tuition high enough to

fix it. Boston Globe. August 11, 2018. https://www.bostonglobe.com/metro/2018/08/11/new-england-

smallest-colleges-are-struggling/v60cnP1oEhBX1MEOMb9oSP/story.html

xi Del Rey, Jason. 2018. Amazon has posted a profit for 11 straight quarters — including a record $1.9

billion during the holidays. Recode. February 1, 2018.

https://www.recode.net/2018/2/1/16961598/amazon-jeff-bezos-record-profit-11-quarter-q4-2017-earnings