The financial outlook for institutes of higher education remains mixed as revenue remains stagnant but costs continue to rise. There are certainly short-term obstacles, but a college education remains a necessity for many jobs. However, that did not prevent Moody’s Investors Service, a leading credit rating service, from downgrading the education sector as a whole. It seems obvious that the financial stability of universities and colleges will not improve significantly until the economy improves, or until they find ways to increase revenue or reduce costs without negatively affecting their reputation.
Enrollment and Revenue
In order to maintain steady enrollment numbers, most universities and colleges have had to avoid increasing tuition, which has limited revenue growth. Other sources of income have also taken hits due to poor economic conditions.
Public universities, which used to be able to count on about 75% of their revenue from their states, are seeing that portion drop to only account for about half of their income. And in private institutions, that rely largely on donations and returns on financial investments, there is even greater instability threatening these sources. One positive is a recent reduction in student loan rates, making it easier for students to afford to go to college.
Many institutions increased spending in the pre-recession era, which they are now struggling to reign in as revenue has flat-lined. However, tenured faculty, building maintenance, and ongoing construction projects are not costs that can quickly be reduced.
The shift from tenured faculty to more part-time adjunct faculty members is one way to reduce costs and increase the ability to adjust to fluctuating enrollment, but this can also lead to a drop in quality of education over the long-term. And incomplete construction projects or unmaintained buildings lead to a negative perception of the university in the eyes of potential enrollees, which can lead to dwindling tuition revenue.
Perhaps the best news for this sector lies in the lack of an alternative to a college degree. For careers most people want, a degree is a requirement, so there will be a fairly steady demand. Elite universities seem to be in a good position, as their reputation will keep them more competitive as cost-saving measures are implemented.
A new trend involves more colleges looking into online education as an alternative since overhead is drastically reduced, class sizes can be larger, and can dynamic adapt to the needs of their students. Another advantage is the ability to reach people for which a traditional college experience isn’t an option.
Stability from Necessity
While individual institutes of higher education remain somewhat unstable, the sector remains a necessity, as there is no substitute for a college degree. What can be expected is a thinning of the heard, as institutes that lack the resources and flexibility to withstand the current difficult economic times begin to fail. However, it is through such adversity that institutions are able to become stronger.
About the Author
Karen works as the Online Ambassador for Liberty University Online. During the evening hours her interests lie in freelance writing, the occasional road trip for a Krystal slider, and finding opportunities to better her vegetable and fruit garden.