US universities’ business models ‘unsustainable’, planners warn

Almost half of financial planning staff at US universities believe that the current business model at their institution is “not sustainable for the next five to 10 years”, according to new research.

A survey of 183 US higher education professionals who are involved in the financial planning and budgeting process at their institution found that 47 per cent of respondents thought that their business model was unsustainable.

This figure rises to more than 50 per cent when just based on respondents from two-year community colleges and for-profit universities, and drops to about 45 per cent for respondents from both public and non-profit private four-year universities, according to Tony Ard, vice-president of higher education software at Chicago-based management consulting firm Kaufman Hall, which conducted the study.

Meanwhile, two-thirds of respondents (66 per cent) said that they are not able to respond quickly to changing financial circumstances or are unsure if they could, based on existing tools and processes at their institution. A similar proportion (64 per cent) believed that higher education was behind most other industries in terms of “adopting modern financial planning practices and tools”.

More than two-fifths of respondents (43 per cent) said that the current length of the budget cycle limits their ability to make informed decisions and react to changing circumstances; 82 per cent of respondents said that their budgeting cycle takes more than three months to complete from initial rollout to board presentation, while 34 per cent said that it takes more than six months.

The survey was conducted in August and September 2017.

Mr Ard said that the findings confirm that there is a “growing recognition from people within higher education, and specifically in finance offices, that at the micro-level we probably can’t grow our way out of these financial challenges”.

He said that the unsustainability of universities’ business models was because of “flat demographic trends around high school graduates”, a drop in state appropriation to public universities and the “challenges with growing tuition revenue”.

“There has been a lot of scrutiny on published tuition rates” and there have been questions over the “average family’s ability and willingness to pay what it perceives as a high tuition rate”, Mr Ard said.

He added that it is “not that easy” for universities to “influence their costs in the short run because it’s pretty much tied up in people and facilities”.

Mr Ard said that while institutions with “very strong brand names will be fine”, there are risks that more universities will close or merge as a result of their financial challenges.

ellie.bothwell@timeshighereducation.com