Due to the nature of my work, I have many, in-depth conversations with people in universities, on boards, within accreditation and professional organizations, recruiters, higher education vendor-partners, publishers, investors, regulators and others that provide a very deep and broad view into the realities of higher education today.
Although more institutions of higher education (IHEs), particularly private institutions, are finally coming around to the realization that something is going on, and it’s not good, there is a remarkable shrugging of shoulders about what is, for many schools, an existential crisis. Even using overly conservative predictions based on current closure rates that will almost certainly get worse based on the declining demographic and economic realities facing IHEs, at least two to three hundred colleges and universities will fail in the next ten years. And that number does not include the many more “walking dead,” that will technically be open, but insolvent. While the student debt crisis gets most of the media attention, institutional debt has increased by nearly 65% in the last five years and now exceeds two hundred billion dollars—and the impact will get much worse as institutions must divert more and more precious cash to debt service in the face of declining enrollments and revenue.
It seems that institutions of higher education are unique in their collective powers of denial. Only a few years ago, nearly 800 colleges and universities were suddenly at risk of closure when their accreditor was sanctioned by the U.S. Department of Education. The sanction provided for roughly 18 months before the accreditor would be shut down and its accredited institutions would no longer qualify for federal financial aid. A few months into the crisis, I spoke with 23 member institutions and only one had any kind of actionable plan for moving to another accreditor—and they all knew with certainly both the timeline and the outcome! The only reason many of those institutions are still operating today is because there was a court stay against the closure.
Similarly, I was recently working with a private university and after reviewing financial statements (balance sheet, P&L, and cash flow) with their CFO, it became clear that not only were they in the fourth year of a substantial revenue decline, but that on any given day they had only a few weeks of operating cash on hand. In subsequent conversations with board trustees, it became clear that they did not fully understand the situation, and as a result, the board level priorities and planning were completely disconnected from the reality faced by the university. This disconnect is a painfully common situation in higher education.
All of the institutions that have reorganized, merged, and closed in the last several years offer a harsh reality check of what happens when senior administration and/or boards either don’t know what is going on, or know what’s going on, but don’t have a plan. It is inevitable that some substantial number of colleges and universities will not survive the current contraction and that number is at least in the hundreds if not much higher. One thing that will set apart those who will survive and thrive from those who will struggle and fail is the simple fact of having a plan!
I have written previous articles describing what we already know about schools that are thriving now. The model is not a mystery, but execution is key—and having something to execute is even more fundamental. Part of my consulting work is partnering directly with institutions to determine the delta between what needs to be true vs. what is actually true in those institutions in terms of surviving and thriving going forward–and this includes both operational strategies and organizational culture and behaviors that support success in ambiguous, complex, high-change environments. Unfortunately, as with the accreditation crisis mentioned previously in this article, the vast majority of IHEs either do not fully understand the current existential reality and/or they do not have any actionable plan to deal with it. Some simply misconstrue a “need to grow enrollment” or “cost cutting” as a plan. It is not. On the other hand, for those colleges and universities that are enlightened and do have a plan, that simple fact alone is a huge competitive advantage going forward.