Manage declines in college enrollment and revenue

This article considers how institutions can address the very real challenge of declines in student enrollment. It is part of our series featuring insights from Dr. Robert A. Scott, President Emeritus of Adelphi University and Ramapo College of New Jersey, and senior advisor to the Grant Thornton Higher Education practice.

Dennis Morrone

National Managing Partner
Not-for-Profit and Higher Education Practices

Colleges and universities are places of discovery, development and debate. They are designed to advance student knowledge, honing skills and abilities such as writing, speaking, listening and analysis, while promoting values such as respect for others. They are historic institutions that often serve as cultural and economic anchors in their communities.

The goal of higher education is not only to educate students but also to graduate them. When students leave early, they have more trouble repaying loans and their colleges suffer tuition shortfalls.

Growing pressure

The State Higher Education Executive Officers Association (SHEEO) studied 467 higher education institutions that closed between 2004 and 2020, and found that private for-profit institutions accounted for the highest percentage:

Since 2020, the pandemic has added further financial pressures and enrollment declines. Smaller institutions often have limited endowments and fewer than 1,000 students, making them especially vulnerable. These colleges and universities can feel even more pressure if they are in less-populated areas and have little name recognition beyond their communities.

In response, some institutions have adopted more aggressive recruitment practices, including tuition discounts that they call “scholarships.” Students and families like the recognition of scholarships; they are viewed as a reward for academic, athletic, or service accomplishments. They bring “bragging rights” in the community.

However, tuition discounts can mean a reduction in the net revenue needed to cover basic expenses such as compensation, debt service and maintenance. The theory is that increased “scholarship” aid will entice students to enroll, but the combination of reduced net tuition and enrollment declines means there is less net revenue to sustain an institution of its current size.

Tuition is set according to institutional needs, the income levels of those in the applicant pool, political pressures from local, state and national actors, regional competitors and the campus mission. If an institution’s net tuition revenue declines, the institution needs to adapt.

Organizational models

Institutional leaders have started to examine their business models, with a focus on costs as well as revenue, to maximize net tuition income. They must consider external forces such as:

Accreditation standards, especially regarding governance, leadership turnover, academic programs, administrative costs, and student success
Credit ratings
Audit firm findings
Alumni
State Higher Education Office academic program reviews
Federal Department of Postsecondary Education compliance reports

Ideally, the impetus for change would come from the president and board monitoring enrollment, retention, finances, and graduation rates. This would lead to an analysis of net tuition revenue and a recognition of the lack of alignment between mission, goals, strategies, resource allocation and results.

Strategic options

The strategies employed by colleges to maintain or strengthen stability must start with an analysis of strengths, weaknesses, opportunities, and threats. This includes the overall cost structure as well as for each administrative department and academic program. Campuses should determine which programs and services are essential to the mission, which have sufficient enrollment and net revenue to be viable, which can be combined for efficiency and perhaps effectiveness, and which can be eliminated to reallocate resources to higher priority endeavors.

Attention should be given to administrative costs such as the net cost to enroll a student, to raise a dollar in gifts, and to maintain an athletic team.

It is essential in this exercise to adopt a bottom-up rather than a top-down philosophy of change, manage rather than mandate actions, and listen to lead strategically. When reimagining the curriculum, campus leaders should acknowledge the campus heritage, its traditional culture and its historic mission, as well as its current challenges.

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Strategies include:

Downsizing total or program enrollment to reduce expenses and improve effectiveness
Reducing the number of departments by consolidating or eliminating those that are not viable
Changing the focus of a department from several majors to a minor and certificates
Merging stand-alone majors into one major with multiple concentrations
Changing major and general education degree requirements to reduce credit hour requirements for students and faculty without sacrificing the commitment to mission
Closing a site for instruction, such as a satellite campus or extension
Changing the mission to co-ed from single sex
Seeking new populations to enroll on campus or virtually, such as students with college credits but no degree
Launching a focused campaign for funds to innovate, transition or change direction. Every dollar of endowment income for scholarships can reduce the tuition discount rate and increase net tuition.
Creating new programs or services known to attract students
Seeking to acquire an institution or set of programs that are compatible and will add enrollment and net tuition revenue without adding to debt, debt service, loan defaults or a credit rating downgrade
Selling assets such as the President’s House to raise cash and reduce debt

Managing net tuition is not only about money. It is also about adherence to mission and heritage. As leaders weigh their strategic options, they must remain committed to the institution’s historic mission and values.