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By Stephen M. Gross

Consider this: colleges and universities are confronting declining enrollments and escalating costs while national student debt is staggering and many are questioning whether college is worth it. Are college and university board members appropriately engaged in this potential industry crisis? They should be. Those who sit on a higher education institution's board have a legal duty to uphold the mission of providing a quality education, and to make sure they are fully informed about both the state of higher education and their institution. One important way to be proactive in fulfilling this responsibility is to be independently informed by discovering how the individuals in the trenches – the college and university business officers – view the financial stability of their institutions.

What do college and university business officers think?

The Inside Higher Ed’s Fourth Annual Survey of College and Business Officers1 contains a number of findings regarding how the business officers responsible for making sure the mission is being met view their institutions. Fully two thirds of the business officers surveyed believe that higher education is in the midst of a financial crisis as suggested by the media. Even more alarming, but perhaps not surprising, was the finding that less than 25 percent of the business officers strongly agreed that their institution’s financial model is sustainable for the next five years and only 13 percent strongly agreed that their college’s or university’s model is sustainable for 10 years. Drilling down on the findings, however, reveals substantial variation in their confidence of sustainability. While most do not strongly agree that their models are sustainable, 62 percent are “confident” that their institution’s model will last five years. However, this confidence drops over a longer timeline as only 40 percent have confidence that their model will last for the next decade. The results also vary by the type of institution; business officers at community colleges expressed greater confidence in a 10-year survival than did those at four-year institutions.

It is also important to note how business officers perceive the various factions that control their institutions. In other words, are they paying attention and getting the message. Seventy-five percent of the business officers agreed that senior administrators are realistic about the financial challenges faced by their institution and 67 percent agreed that trustees are realistic about finances, although only 18 percent of business officers at public colleges and universities strongly agreed that trustees were realistic about financial issues as opposed to 35 percent at private colleges and universities. However, a mere 22 percent agreed that their faculty members, who exercise significant control at most institutions, are realistic about the financial challenges their institutions face.

Maintaining enrollment

So, what are the business officers doing to address these dire straights? Given that other leaders in higher education polled in the KPMG Higher Education Survey2 identified maintaining enrollment as the major issue of concern, it is not surprising that the vast majority (89 percent), of the business officers are spending more time on enrollment management. Seventy-seven percent stated that they are more focused on increasing net tuition, with business officers at private nonprofit institutions even more focused on this. However, fully 80 percent of the business officers agreed that the market limits their ability to increase fees. An upper limit on fees, especially when coupled with declines in governmental support, would seem to indicate that to increase enrollment colleges and universities should implement strategies to both improve the quality of their product or cut costs to make their existing degrees more affordable.

Staggering tuition increases

This is where things seem to break down. Since 1978, tuition has increased 1,045 percent, almost double the 597 percent increase in healthcare costs.3 While people need healthcare, the assumption that one needs a college education is now being questioned, and even employers, such as Google, have expressed a belief that a college degree, in and of itself, does not add value or make one job candidate better than another. To increase or maintain enrollment, prospective students must believe that the degrees one can receive from an institution will signify that the holder of the degree has a skill or the ability to learn that an employer is seeking. Despite being focused on enrollment, and although 63 percent of the business officers responded that their institutions are devoting more attention on the profitability of academic programs than they did before, business officers indicated that institutions were least focused on teaching load issues. Among 15 possible revenue producing or cost cutting strategies, more efficient and productive teaching received scant institutional support. For example, only 37 percent of the respondents indicated that their institution would be eliminating underperforming academic programs; a mere 23 percent stated that their institution would shift undergraduate teaching to senior faculty members with a nominal two percent strongly agreeing; a paltry 35 percent advised that their institution would shift undergraduate teaching to part-time or non-tenured faculty; and only 30 percent agreed that their college or university would implement increased teaching loads, with a scant six percent strongly agreeing. Revising tenure or promoting early retirement for faculty was being pursued at almost no colleges or universities.

A labor intensive business

Notwithstanding advances in technology, higher education is still essentially labor intensive and education costs continue to make up about 75 percent of college budgets with the cost of faculty comprising 35 to 50 percent of the budget.4 Higher education’s best, if not primary, resource for education is its faculty and this resource is used increasingly inefficiently. The percentage of full-time faulty teaching a “full week” has declined from 63 percent in 1989 to 56 percent in 2001 to only 44 percent carrying a full weekly schedule in 2010. While this decline is alarming, it might not be shocking. However, it is shocking when one realizes that a “full week” is a whopping nine hours per week based upon what the American Association of University Professors promulgates as a “standard” teaching load.5 Not surprisingly, students’ time per week spent working on their college education has fallen over the years as well, from 40 hours per week in 1961 to 27 hours per week in 2004.6

Intuitively, with talented faculty teaching less and students spending less time on what they are taught, it is no surprise that people have begun to question whether colleges and universities are failing in their missions to teach the skills and critical thinking needed by modern employers, which leads families and employers to question whether degrees are worth it. It would seem that undertaking strategies to increase class time can be accomplished without increasing costs simply by faculty having reasonable teaching loads or by outsourcing. This would improve the product while at the same time, expenses could be reduced by voluntary early retirement for faculty that are burned out or no longer want to teach, and by eliminating the self-serving rules at institutions that enable non-teaching time to count as teaching time.

Shared services

Getting back to the business officers, whose survey responses may indicate a recognition that they lack the institutional power to make these sorts of changes, it is interesting to note that while a majority are now using or will be using a shared services model of operations to increase efficiency and reduce costs, the shared services are definitely not supported by the faculty, with only eight percent strongly agreeing and 24 percent agreeing that faculty support shared services at their institutions.

Cut costs?

The business officers’ responses also yielded some interesting results in regard to cost cutting to make their institution’s programs more affordable, which would presumably support both increased enrollment and sustainability. Almost half (49 percent) of the business officers disagreed that their institution “can make additional spending cuts without hurting quality” (although “quality” was not defined, one would hope that it referred to the education) and only 30 percent agreed that further cuts could be made without impacting quality. Among various categories of expenses, business officers believe that their respective institutions spend less than other institutions, although, for some categories (academic programs, faculty student services and technology), over 25 percent agreed that their institution spends more than others. This apparent perception among business officers that their institutions spend less than others and cannot cut many expenses while maintaining quality is surprising.

What about administrative costs?

While the cost of college has soared over the years, the one expense that greatly outpaced the increase in other expenses and disproportionally contributes to the rise in tuition is administrative costs. College administration costs increased over 62 percent from 1993 to 2007. This vastly outpaced the increase in the cost of instruction (39 percent), and the cost of research and services (38 percent).7

In 1975, universities had one administrator for every 84 students and one professional staffer (admissions, IT, etc.) for every 50 students. Despite the increases in technology, in 2005 the ratio was one administrator for every 68 students and one professional staff person for every 21 students. While compliance with the Byzantine governmental regulations imposed on higher education has required increasing administrative attention, it does not account for this bloat.

Despite what has become a widely recognized problem in higher education, only 37 percent of the business officers agreed that their institutions would reduce administrative positions, and a meager 28 percent agreed that their institutions would out source administrative functions in the next academic year. It is also interesting that only 38 percent of the business officers agreed that their institutions even had the data and information it needs to make informed decisions about the performance of each individual unit on campus, while only 40 percent agreed that their institution has the data to make informed decisions about the performance of administrative technology. It is important to note that the survey inquired about what the institutions are doing, not what the business officers believe they should or could do, although a majority did evidence a belief that cuts would impair quality. So despite administrative costs being the fastest rising expense component of tuition, itself the fastest rising cost in the economy, a majority of colleges and universities lack the tools to make informed decisions about administrative costs and performance, and are not planning to reduce positions or out-source administrative functions.

Healthcare and other benefits

So, what is occupying the time of the business officers in higher education? They are spending more time trying to contain costs in various areas where they can, such as healthcare insurance and benefits (76 percent), costs of providing retirement benefits (53 percent), and risk management (71 percent). Unfortunately, while these cost components are significant and have also risen over time, they pale in comparison to cost of the administrative bureaucracy which, like under-worked faculty, has become an entrenched culture at many institutions. Perhaps the efforts of the beleaguered business officers  are directed at reducing items other than administrative expenses, because it is a rare bureaucracy that will support cuts to itself. Maybe this is why, regardless of the impending financial crisis and the need to maintain revenue, 71 percent of business officers find themselves spending more time on improving maintenance of the campus infrastructure. In other words, more buildings.

Although their business officers believe that higher education is in a financial crisis and express concern for their institution’s ability to sustain itself when the market limits tuition increases, colleges and universities are not focusing more effort on improving teaching efficiencies and reducing the fastest growing cost component – administrative costs – which could be a highly viable means to increase or maintain enrollment.

Message to board members

In view of their legal obligations to their institution’s missions to provide a quality education, board members and their presidents have a duty to explore potentially useful strategies and, where beneficial, see that they are implemented. Given the culture at many institutions, neither the faculty nor the administration are likely to make the hard decisions that may be needed without leadership and support of the Board. The Board has the legal duty that requires it to acknowledge “the time is now” to take measures to ensure the sustainability of their institution’s ability to serve its mission.

For more information, please contact:

Stephen M. Gross
248.220.1337
sgross@mcdonaldhopkins.com

 __________________________

1 Scott Jaschik and Doug Lederman, ED., the 2014 Inside Higher Ed Survey of College and University Business Officers (conducted by Gallup, 2014),

2 KPMG Higher Education Outlook Survey: College And University Leaders Increasingly Concerned About Maintaining Student Enrollment

3 Iosue, Robert V. and Mussano, Frank, College Tuition: Four Decades of Financial Deception (Blue River Press 2014) page 87

4 ID., at 17-18

5 ID., at 26

6 Babcock, Philip and Mark Minduy, The Falling Time Cost of College: Evidence From Half a Century of Data, National Bureau of Economic Research, http://www.nber.org/papers/w15954 (2010)

7 College Tuition, Supra at 46-47

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