It is no use waiting for external salvation

As recently as the last decade, environmental concerns or the green campus dominated discussions about institutional sustainability in the public and private non-profit tertiary sectors in the United States.

Conserving an institution’s scarce resources and reducing its carbon footprint were and continue to be laudable goals. Unfortunately, one scarce resource – the government subsidies required to sustain the operating budgets of many institutions – was overlooked.

Both public and private non-profit institutions had long assumed that governmental largesse was a secure revenue source.

With recent independent assessments by Bain and Company and Moody’s Investors Service suggesting that as many as a third of the nation’s tuition-dependent institutions are at financial risk, the focus of the sustainability discussion has rapidly changed. At many institutions the green campus goal has been trumped by institutional survival concerns.

Institutional leaders and faculties have been conditioned to rely on a combination of subsidies and tuition fee escalations moderated by enrolment increases to provide the requisite income to balance their operating budgets.

But it does not appear that reliable government subsidies sufficient to sustain many of the tuition-dependent institutions are on the foreseeable horizon. So US institutions continue to rely on tuition increases.

The College Board reports that 2013’s average 2.9% fee increase, although the smallest in decades, suggests continuing dependence. While historically moderate, this one-year increase does not foretell a trend towards dramatically lower tuition charges without external prodding.

Two states act

In the last two years two states, Florida and Texas, have provided that stimulus. Florida and Texas governors have challenged their public tertiary institutions to develop and deliver US$10,000 degree programmes. At roughly a quarter of the nation’s average public university fees, these initiatives drew prompt media attention.

Unfortunately, the programmes' substance does not complement their initial hype for three reasons.

One, these attractive tuition programmes are not driven by lower operating costs.

Two, relatively few degree majors have been announced at the targeted price. The cynic might speculate that the goal of drawing enrolment to under-subscribed majors while maintaining revenue flow to the more popular programmes contributed to the selection decisions.

Three, higher admission standards restrict broad accessibility. Here again the cynic might posit a desire to contain revenue lost. Further, I suspect that when they are implemented the cost of delivering these boutique programmes will marginally increase institutional operating costs in the institutions.

Florida’s response is manifested at about two dozen community colleges authorised to offer a number of baccalaureates in addition to the familiar associate degree. To date no Florida public university has responded to the governor’s challenge for a discounted degree.

Those community colleges that have responded have yet to meet their modest initial enrolment goals. These programmes are characterised by relatively high admissions standards relative to their other baccalaureate majors.

Again, the cynic might note that the selection was more of a marketing ploy to bolster low enrolment programmes. Employing tuition waivers to meet the tuition target, these discount degrees are in reality more akin to selective scholarships with costs shifted to other accounts within the institutions.

In Texas, none of the state’s major public universities have responded to the challenge.

The amenable regional universities have announced an array of individually tailored responses. So they too are more accurately labelled cost-shifting schemes paired with selective scholarship.

Some institutions recognise community college and even selected secondary school course work. While the beneficiaries are guaranteed a fixed price that is artificially lower than that charged to their peers, the difference has to be made up some way. The resulting revenue to actual cost difference must be charged to other accounts or written off.

In sum, none of these alternative responses provide a generalisable template that leads to a uniform lower tuition fee charged to all baccalaureate students enrolled at the institution without the institution's sustainability being endangered.

A uniform tuition reduction applying to all students enrolled in all baccalaureate programmes would lead to financial disaster without operating cost reductions being offset.

Conclusions

With federal and state subsidies unlikely to rebound in the near-term, coupled with the public’s growing intolerance of annual tuition fee increases, tuition-dependent institutions have only one viable option in aligning revenues with operating expenses.

If they cannot increase revenues, they must stem the annual growth of the array of operating costs they must bear. Whether driven by the academy’s long-standing norms and-or contractual obligations, curtailing growth in the short term will be difficult, if not impossible.

Many of these costs – such as salaries, benefits and debt service – are fixed in the short term and may require years to de-escalate.

Without a mid- to long-term cost curtailment plan, institutions will sooner or later be forced to take draconian actions that will be viewed as assaults on academic freedom and shared governance.

With 'many oxen to be gored' it will be essential to secure buy-in from the institutions' array of internal and external stakeholders.

Waiting for external salvation is not an option.

* William Patrick Leonard is vice dean of SolBridge International School of Business in Daejeon, Republic of Korea.