The Summer Seminar Report: Day Two (2008)


The Summer Seminar Report: Day Two (2008)
by Alan Berks

Link to Original Article

Embracing the New Market Pressures

Jon McGee, vice president for enrollment, planning and public affairs at the College of Saint Benedict (St. Joseph, Minnesota) and Saint John’s University (Collegeville, Minnesota) began the day with a desperate attempt to remain upbeat by changing the title of his presentation from “It’s About Economics, Not Demographics” to “How I Learned to Stop Worrying and Love the Market.”

According to McGee, five trends are creating pressure on enrollment in higher education institutions.

First, the demographic profile of the market is changing drastically. From 1996 to 2006, the number of high school graduates rose by approximately one million students. However, this year marks a peak in graduation numbers. In addition, after 2010, 60 percent of all graduates will live in the South and West regions of the country, helping to aggravate regional differences among colleges. Also in 2010, 42 percent of all high school graduates will be students of color who may have different levels of financial and academic preparation for college than previous classes.

Second, public opinion of higher education is negatively affected by increased expectations. While more people than ever believe that college is necessary for success in life, 67 percent also believe that opportunities do not exist for everyone who is qualified to go to college. Plus, a majority of the public does not believe that price increases lead to greater value.

Third, fueled in part by this growing public disappointment, legislators have grown more concerned about higher education pricing. McGee predicted that there will be more regulation in the future in an attempt to institute greater accountability.

Fourth, the pressure of the current economy on the middle class combined with the lack of savings in the average American household means that the financial aid business will continue to grow and change. While it is not necessarily possible or desirable for every institution, McGee believes Harvard’s plan indicates a shift in thinking on financial aid that will have a ripple effect throughout the industry: First, Harvard redefined the middle class. Second, Harvard acknowledged that the middle class cannot afford private colleges like Harvard. And, lastly, it confirmed that the current needs analysis formula does not work.

The final trend that McGee blamed for increased market pressure on higher education institutions is a consequence of most institutions’ basic assumption that “the way to better is through more.” He urged institutions to reward sacrifice from administration and academic departments, since expense management may be more effective than constantly seeking to grow revenue. Also, rather than competing with every similar college or university in every area, institutions might differentiate their offerings or even collaborate where appropriate. McGee challenged Seminar participants to reconsider the widely held belief that “there are endless ways to spend money in support of students.” In certain circumstances, he said, focus can be more valuable than good intentions.

“We have lived in a seller’s market for the last 15 years,” said McGee. “We will soon live in a buyer’s market.” But knowing the truth, he thinks, can help you to “love” it, too.

Rethinking Student Aid

Looking in more detail at the regulatory and financial aid pressures McGee outlined, Michael McPherson of the Spencer Foundation and Sandy Baum of the College Board, co-chairs of the Rethinking Student Aid Study Group, provided a glimpse into the group’s deliberations in crafting recommendations for reforming the federal financial aid process. Their visit was to provide what they called “deep background,” so their comments were necessarily broad and speculative.

With the directive to “shape a student aid system which would sustain more effective education,” the group limited its scope to the federal undergraduate financial aid agenda and identified its purpose as finding changes that could be realistically accomplished. According to McPherson, that meant finding ideas somewhere between the status quo and the absolute ideal, with recommendations that benefited as many people as possible (with more benefit for the most needy) in order to capture the broadest possible support.

Over the course of two years of meetings, the group first identified principles that the system should support, such as efficiency, equity, simplicity and predictability. Then group members analyzed how well the current system conforms or does not conform to those principles. After recognizing areas for improvement, the group began formulating recommendations that are purposefully designed to focus on long-term planning, rather than current events such as the credit crisis or the Harvard initiative, among other things.

Some possible recommendations that Baum and McPherson previewed included shortening or eliminating the complex FAFSA form; creating a table that informs people of their expected Pell Grant as charted by their current income every year; and consolidating all other grant programs into the Pell Grant. (Worth noting: The audience broke in to applause at this suggestion.) They pointedly said that they probably weren’t going to propose eliminating tax credits because they felt it would undermine support for their other proposals. They did, however, make reference to changing education deductions to tax credits. They also mentioned modifying the student loan repayment structure.

Other areas of conversation included 529 Savings Plans (how to keep them from benefitting only higher-income families) and the problem of increased enrollments without a concurrent concern for increased graduation.

McPherson ended the session with a plea to the attendees. Because “any change will affect too many people,” no proposal will please everyone in every particular. Rather than “kill what you don’t like,” he asked for attendees to enter into a constructive dialogue so that some reform of a broken system may actually occur.

Increasing Enrollment Through Strategic Investment

Is your organization’s endowment growing, debt shrinking and tuition not increasing while your facilities age and enrollment growth stops? If yes, then your school has the “too conservative” syndrome, according to Carol Campbell, executive vice president and chief financial officer of Arizona State University (Tempe).

The result? Your institution is stagnating, losing competitiveness, operating at less than its best and, ultimately, devaluing its position in the market. Campbell joined Harold Hewitt, executive vice president and chief operating officer of Chapman University (Orange, California), to look at how financial management of an institution’s resources can avoid such stagnation and instead foster growth and increased enrollment.

Campbell’s recommended cure involves a “changing of the guard” in the risk- and debt-averse leadership, renewed vision and planning, appropriate tuition pricing, and more strategic investment in the campus. ASU has leveraged partnerships and borrowed wisely to build an entirely new downtown campus—and remained fiscally competitive.

Following Campbell’s overview of general improvement strategies, Hewitt provided a detailed case study from his experience as CFO at Occidental College (Los Angeles, California) from 1996 to 2006. When he arrived, Occidental suffered declining enrollment, shrinking debt, stagnant endowment and aging facilities. Through debt management, they invested in a new student center and new dining facilities and provided $750,000 more for admissions to update staff, publications and the web site.

Over the next 10 years, first-year applications increased 183 percent. After five years of underperformance in 1990-1995, the admission office has hit its enrollment goals seven times in the last 11 years. In three of the other four years, enrollment surpassed goals. Ultimately, over an 11-year period, Occidental saw an increase in every metric—including a $21 million increase in net revenue.

Can other institutions do what Arizona State and Occidental have done? As though to avoid runaway optimism, Campbell and Hewitt ended their presentation with an honest assessment of the current market. They predict serious macro-driven inflation for the next three to five years and a purchasing recession. There will be an even bigger divide between “winners and losers”; i.e., affluent and less affluent institutions. Plus, the peak in high school graduates combined with the struggling middle-class economy will increase competitiveness. Finally, the economic downturn has limited the access to capital markets that is required to make the kind of strategic investment they described. Institutions with lesser credit ratings will “have to pay a lot more for debt and work harder to get it.”

Reflections from a Retiring President

“We all know that nobody likes a crank,” said St. Lawrence President Daniel Sullivan in preface to his remarks, “so I’ve been trying to ‘tune up’ my attitude for you. ... On the other hand, I’m impatient that near the end of a long career in private higher education at wonderful institutions so much remains to be fixed about how access to higher education is distributed in America.”

Sullivan shared reflections about the past, present and future state of higher education—with some surprising, counterintuitive revelations.

First, he asserted that “a liberal education is the best preparation for students in the 21st century.” In contrast to the lack of coherent guidance in the Spellings Commission report, Sullivan advocates for the kind of student described in the Association of American Colleges & Universities (AACU) report “Great Expectations: A New Vision for Learning as a Nation Goes to College,” which calls for all students to become “intentional learners who can adapt to new environments, integrate knowledge from different sources and continue learning throughout their lives,” among other things. This vision of the student is one shared by American business leaders, according to another 2006 AACU study.

The irony, according to Sullivan, is that there are some hidden practices among higher education institutions that inhibit access to all Americans who could benefit from higher education. Surprisingly, the wealthiest colleges and universities enroll the smallest percentage of low-income students. At the same time, low public sector tuition actually decreases access to public institutions when higherincome students, who often have better credentials, take advantage of the price break they receive from public institutions and “push lowerincome students out of flagship public institutions—the very institutions established to ensure access.” In every state where research has been conducted, the average family income of undergraduates in public institutions is higher than that of students in the same state’s independent colleges and universities.

While acknowledging that ending the public subsidies that lower public school tuitions is most likely a political impossibility, Sullivan hoped that elite private institutions “will find ways to enroll more low-income students.”

Sullivan predicted that eventually the wealthiest institutions will adopt “negative tuition,” where they will actually pay stipends to attract the best students. Once the “price umbrella” of the wealthiest institutions disappears, competition will explode and higher quality, wealthier schools will be able to charge less while lower quality schools will have to charge more. Tragically, he pointed out, the wealthiest students may become the first students not to pay tuition since the wealthiest institutions enroll the lowest percentage of low-income students. In addition, this type of competition also creates a disincentive for top colleges to increase access through enrollment growth since tuition subsidies become less valuable per additional student.

With such unjustifiable inequity on the horizon, will Congress act to revoke higher education’s tax-exempt status? “Why should a university continue to be tax-exempt if its primary—or possibly in the future, its nearly only—beneficiaries are students from America’s highest income families, members of Congress increasingly ask?”

Finally, Sullivan touched on an area where he believes private colleges and universities can find some advantage in the current mess. In reality, he insisted, those institutions with high graduation rates and high retention rates may actually be more efficient and therefore less expensive than public institutions. “ ‘Expensive,’ highly selective colleges are actually, I believe, among the least costly institutions in America,” he concluded. “If I am even only partially right in this analysis, it would give us a whole new set of things to talk about in our marketing going forward.”

Journeys to Success: Tales from Two Presidents

Although at decidedly different institutions, Wendy Libby, president of Stephens College (Columbia, Missouri), and Jim Collins, president of Loras College (Dubuque, Iowa), have shared similar success during their tenures: Each has been able to increase enrollment and alumni giving—and to balance budgets in turbulent markets. In the last four years, Loras College saw annual improvements in 17 financial indicators used by the Iowa Association of Independent Colleges. At Stephens, Libby was able to reverse a steady decline in enrollment, bringing a student body of 439 undergraduates up to more than 700 students. Sharing their own experiences and decidedly best practices with the Summer Seminar attendees, Collins and Libby presented an energizing portrait of two very different colleges on the path to success.

Collins advised private colleges and universities to find the delicate balance between the ideals of the mission and the market realities, stressing that “pricing is critical.” Additionally, partnerships can be useful: Local or state governments may help with expansion, and institutions with similar missions may be able to help add value and eliminate redundancies.

Collins insisted that a chief focus for small private colleges ought to be toward using alumni fund raising as a tool to keep the burden of costs off incoming students, but he also recommended finding ways to increase revenue through auxiliary enterprises like summer programs and saving resources by outsourcing needs like marketing and data analysis where possible. Finally, Collins urged everyone to calculate and manage enrollment and admission carefully while remembering that there is no silver bullet.

Libby echoed this advice, especially in regard to partnerships and auxiliary income. In a year when Stephens didn’t meet its enrollment goals, for example, they were able to make up the revenue through graduate and continuing studies programs. They also increased their rental income from $60,000 in 2003-2004 to $700,000 in 2007-2008.

Both Collins and Libby emphasized the need to integrate enrollment managers in discussions with faculty during curriculum development. “What you learn in the marketplace,” said Libby, “informs our faculty about what they need to be doing.” Libby attributed her success at Stephens College to a renewed focus on strengthening and marketing the parts of the institution that were most associated with the product in the past, like fashion design and the equestrian program.

Looking forward, Libby challenged senior administrative staff to be willing to broaden their own responsibilities in order to be part of a truly visionary, and not “parochial,” leadership team. Plus, she said, “Master the data! We as an industry do too much by the seat of the pants.” Finally, she encouraged everyone to “be positive about where we’re going ... As you get further up in your career, your risk tolerance has to go up, so just find joy in the small pleasures.”



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