To Change the Financial Model, Look to Academics

“The current financial model for higher ed doesn’t work,” says … everyone. This has been a recurring theme in the higher education media for more than a decade: numerous headlines have underscored the necessity of finding a new financial strategy that goes beyond the simplistic, time-honored model of revenue in, expenses out.

Higher education institutions have already gone through the phase of revenue diversification, e.g., supplementing undergraduate tuition with revenue from adult education, continuing education and graduate programs, as well as from summer camps and online offerings. Meanwhile, the pressure on chief financial officers has built.

I would argue the CFO cannot change the basic model. It is the academic approach that needs to change. Too many colleges have too many majors and too many elective courses for too few students. Faculty are clever at designing offshoot majors (e.g., nonprofit accounting as a special version of basic accounting) that appeal to a small subset of students, and marketers are equally clever at selling the idea that more majors means a better choice of college for you.

It is, I contend, not the CFO, but the chief academic officer who is in the best position to bring meaningful change to the financial model. It is the academic side of the house that drives most expenses, and that is where changes in budget-balancing strategies must take root.

Basic exercises aimed at pruning course and program offerings can make significant differences to the institutional bottom line. At one small public college where I was president, we were able to squeeze 30 to 40 percent out of the adjunct budget by only offering two electives per major per semester instead of four or five and eliminating courses with fewer than eight students; courses required for graduation were exceptions. The result was almost $1 million in realized savings annually. This successful shift aligns with recent research documenting that students do not really value or want too many choices.

Next, an academic and administrative prioritization process enables institutions to eliminate financially unsustainable majors and programs while also trimming little-used administrative operations (e.g., you might find a full-time videography staff that produces very little usable content, or a full-time pastor with few programmatic responsibilities or student advisees). While not popular, these kinds of academic and administrative prioritization processes, as we’ve seen recently employed at West Virginia University, have the potential to bring significant savings.

Rightsizing the overall curriculum offers another budget-saving strategy. A reduction in the annual course schedule offerings can be achieved by:

• Giving each unit/department a set number of credits to deliver each semester for both general education and majors.
• Allowing each department to determine what they offer within the credit-allocation limit.

There will always be exceptions needed to meet student needs. But these basic strategies will yield annual savings and maintain solid curricular offerings to address student requirements and many desires. They will also provide motivation for departments to rethink requirements and potentially lessen advising errors and course substitutions.

Finally, a comprehensive review of credits offered by the majors should result in the establishment of a range of limits on the total number of credits required for each major as there is a tendency for credits to increase over time. Again, there may be exceptions, especially for majors in health care and engineering that must comply with programmatic accreditation requirements. But once again, this exercise can reduce costs.

Having worked through these exercises, you will have rightsized administrative and academic programs. Now you have a budget the CFO can work with to manage the institution’s finances.

Remember: it is the academic model that drives most expenses, and only the CAO can reshape the model to adjust to the fiscal realities of the college. Although there are other steps that can be taken, such as outsourcing and renegotiating contracts, if you follow the exercises above you’ll be off to a good beginning.