Key insights
- The higher education industry has undergone significant shifts in recent years, primarily influenced by a series of economic and social factors.
- Challenges include reduced revenues and enrollments along with increased inflation and need for mental health services.
- The current trends highlight the need for a reimagined approach to funding, student support, and operation management.
Is your college struggling to increase revenue?
The higher education industry has undergone significant shifts in recent years, primarily influenced by a series of economic and social factors. Many of these shifts are having a dramatic effect on operating budgets. These challenges require adaptability and resilience.
Explore trends we are seeing in the industry and consider how you can chart a course forward.
Trends challenging colleges and universities
Constrained operating revenue growth
One of the most pressing challenges in higher education is limited operating revenue growth. Nearly all public colleges and universities and private institutions rely on tuition revenue. With declining enrollments, institutions are finding it increasingly difficult to secure funds to maintain operations, let alone expand or innovate. This has led to decreased spending, sometimes impacting education quality and services offered.
Inflation outpacing operating growth
Even as colleges and universities struggle with revenues, they face another financial hurdle — inflation, which is outpacing many institutions’ revenue growth. This cuts colleges’ purchasing power, further exacerbating financial constraints.
Labor market challenges
The tight labor market poses another challenge. Recruiting and retaining top-tier faculty and staff have become increasingly competitive and costly. The scarcity of qualified professionals — coupled with high demand in both academic and non-academic sectors — means institutions must offer competitive packages to attract talent, further straining budgets.
Economic turbulence
The broader economic landscape is fraught with uncertainties, including high inflation and interest rates. These factors contribute to rising services costs, more expensive financing, and making operational expenses for institutions even more challenging to oversee.
Rising costs of education
While institutions look to increase tuition and struggle to reduce expenses, students are concerned with the ever-increasing education costs. Tuition has increased significantly over the last decade, hindering the chances for some students to earn a college degree. The debt burden on recent graduates has never been higher. Combined with stagnant wages, the return on investment of a college degree worries some students.
Mental health concerns
The stressors of academic life along with high student loan debt have exacerbated mental health issues for some students. In addition, the pandemic led to many students being underprepared for college. Institutions are grappling with how to provide adequate support services while handling tight budgets.
End of pandemic aid
Federal pandemic funding was a lifeline for many institutions. With the end of this aid, colleges and universities are left to navigate financial challenges on their own. This issue has pushed many institutions to seek innovative revenue streams, from online course offerings to relationships with private entities. Some colleges have downsized their campus, selling land, or leasing available space.
How could trends shift in the future?
It’s anticipated these trends could continue in 2024. While the outlook can appear bearish, there are reasons to remain bullish in the higher education industry.
Inverse relationship between enrollment and economic performance
Typically, when the economy is doing well, enrollment in higher education tends to decrease, and when the economy is struggling, enrollment tends to increase. This is because during economic downturns, people may have difficulty finding jobs or feel uncertain about their job security. The job market has slowed in 2023, and according to some economists, the trend will continue into 2024. Prospective students may choose to go back to school to gain new skills and improve their chances of finding employment when the economy improves.
Stabilizing interest rates
Expected stabilizing interest rates in 2024 will bring predictability and potentially lower borrowing costs for prospective college students. Students can better plan their finances and estimate loan repayments with stable interest rates. Lower rates can make higher education more affordable, reducing the burden of student loan debt.
The staying power of a degree
A college degree has significant staying power in today's ever-changing job market. It can open doors to various career opportunities and provide long-term benefits. A college education equips individuals with knowledge, skills, and critical thinking abilities highly sought by employers. Studies consistently show individuals with a college degree earn higher salaries and experience lower unemployment rates than those without a degree.
Strategies to consider
The challenges facing higher education are multifaceted and interconnected. The current trends highlight the need for a reimagined approach to funding, student support, and operation management.
Watch CLA’s 2024 Higher Education Virtual Conference to hear from peers and other higher education professionals on current challenges, changes, and outcomes.
How can colleges and universities address financial and operational challenges in response to these trends? Consider these opportunities:
- Diversify revenue — Look beyond tuition and traditional funding sources by building business partnerships, creating continuing education programs for adults, and exploring federal grant programs.
- Embrace technology — Develop online courses and degrees to increase accessibility and reduce student costs. Use technology to enhance classroom learning and administrative efficiency.
- Enhance student support services — Provide robust career counseling, mental health services, and academic advising to improve student retention and outcomes.
- Strengthen industry partnerships — Develop programs in collaboration with industry partners to better align curricula with current job market needs.
- Improve operational efficiency — Audit and streamline administrative processes to reduce overhead costs and allocate resources more effectively.
- Strengthen alumni networks — Engage alums in mentoring, networking, and development activities to foster a strong community and culture of giving back.
How we can help
Adaptability and innovation will be critical for institutions to navigate this uncertain future. Working with experienced professionals also can be beneficial. No matter your institution's size or mission, our higher education professionals use their deep industry knowledge to help you address your institution's specific business challenges. Contact us to find out how we could help you.