Posted by: bluesyemre | December 30, 2020

Higher education’s $50 billion problem

At a time when society needs it more than ever, higher education in the United States is in crisis.

Costs to students and their families continue to rise, states are questioning their level of investment, quality is eroding, racial attainment gaps are increasing, operating deficits at the institution level are accelerating, schools are closing, and the nagging crack in the reputation of the post-high school education system widening.

Even before the pandemic, higher education faced growing scrutiny about its cost, its elusive value proposition, and its role in contributing to severe societal equity gaps. None of the pandemic’s disproportionate impacts on postsecondary education should be a surprise, but the events of 2020 have accelerated those problems while also worsening them. We are at a critical moment in the trajectory of post-high school education.

After World War II, increasing demand for education beyond high school invited higher education capacity to grow at an astounding pace. The resulting growth helped the country overall and millions of people who gained access to middle-class success.

But recent shifts in demographics and consumer skepticism have slowed this demand trend, and institutions have been slow to respond. In just the last 10 years higher education capacity has grown 26% while demand (i.e., enrollment) has only grown by 3%. As a result, higher education overall is only functioning at 75% capacity – leaving as many as 5 million empty classroom seats each year.

In simple terms, underutilization—from empty classrooms to vacant labs to unused dorms—leaves fixed costs to be shared by fewer students. That translates to high costs for students and causes colleges and universities to engage in market share wars that are punishing our overall system and draining the hope and energy from college experiences.

The growing mismatch between supply and demand and the sector’s inability to react to the challenge is a quiet, simmering risk to the future of higher education. A recent study completed by EY Parthenon estimates that pre-pandemic excess capacity was costing students, institutions, and states as much as $50 billion annually.

Given this magnitude and pandemic’s acceleration of the challenge, it’s difficult to imagine a path to addressing affordability, institutional health, and quality challenges until the issue of capacity is addressed, and we must address this supply-demand imbalance immediately. This means that institutions whose enrollments are flat or decreasing must adapt to the reality of today’s demographics –and stop doing in things “just in case” numbers rise. They need to stop acquiring land, building more dorms, hiring new faculty, and stop constructing rock walls for the 2% of students who might find them interesting. To address the core supply-demand issue we must first flatten the supply curve. We can’t let $50 billion of annual excess infrastructure and programming become $100 billion.

Importantly, institutions must also rethink who they serve, what they provide, how they deliver, and if they should even continue to be:

Diversify who and what. At a time when our country needs more talent, and many more people need education and training for the work of the future, higher education is without question central to economic recovery, and higher education institutions must diversify who they serve (i.e., adults) and what they provide (i.e., employment-aligned credentials). Ninety million working-age adults have no credential beyond a high school diploma, and more than one-third of them have earned some college credits but hold no credential.

In general, those with less education face much more economic hardship than those who have a college degree, and it’s an impact that’s been even more harshly felt by people of color. Higher education institutions must reinvent themselves to be more relevant and accessible to adults and those who have not been served well or at all. The good news is there is plenty of unused capacity in the system to do just that and serve millions more. Adults can be better served (often in collaboration with the corporate sector or government) by removing barriers to re-entry and completion and by leveraging existing assets and applying them in the non-degree credential market. Opportunities on the demand side are not as elusive as they may seem but realizing these opportunities will take work.

Collaborate, partner or merge. On average, schools with fewer than a thousand students are down to 59% utilization. The rising costs to keep these institutions alive are a burden to the system and place them at high risk of closure. To reduce costs and increase efficiencies in supply, many schools must consider collaborations and partnerships. Consortia, or shared service agreements between schools, would help reduce administrative overhead and increase efficiency without limiting student support. Smaller institutions or schools close to one another can benefit from sharing infrastructure. In some instances, institutions would be wise to look for merger or consolidation opportunities that would help to further increase efficiencies while still serving their student base.

Close. Given the enormous unused capacity in the system, some schools will not survive. When institutions continue to face unused capacity, and partnerships and mergers are not an option, they should consider full or partial closures. Though these are tough and emotional decisions, at the end of the day it may be the right thing to do to improve the health of the system and the financial burden of students.

Today’s higher education system is supported by a massive infrastructure load that requires constant care and feeding and is now out of balance with demand. In order to meet societal and individual needs it can no longer ask students, institutions and states to absorb massive excess capacity costs annually – $50 billion that would be better spent helping more adults and more students of color get credentials they need. The events of 2020 have provided a unique opportunity to shine a light on this topic and help shape a sustainable future for higher education. As the country recovers from its challenges around race, education, and economic recession, let’s not settle for returning to normal. “Normal” hasn’t been good enough for a long time.


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