College CFOs Increasingly Concerned about Sustainable Operations

The 2013 Inside Higher ED Survey of College and University Business Officers surveyed 457 chief financial officers at universities and found less certainty about the sustainable future of higher education. The numbers aren’t dismal but do move into the realm of raising eyebrows and thinking of solutions. In particular, a lower percentage of CFO’s believe their organizations are financially sustainable and a higher percent are taking on debt to run operations. 

-27% strongly agree that they are confident about the sustainability of their institutions financial model.

-21% believe for-profit education (lower page of report) is sustainable while 51% believe elite schools are sustainable.

-49% of polled officers have experienced increases in healthcare premiums.

-92% say that retaining current students is a large part of their strategy.

-45% believe that technology is or will help them reduce operating costs.

-59% stated they were well informed about their jobs before taking them.

-3% believe their institutions should take on more debt and 21% strongly agree that their institutions have taken on more debt to finance operations.

-Few business officers believe faculty are realistic about financial challenges. 

The vast majority of the colleges polled were traditional universities. In order to overcome some of these challenges 37% indicated that they would recruit more international students. The report does not indicate this, but such colleges are limited by legislation on doing so to any great extent. However, online colleges can better offer virtual coursework in other countries through the Internet. There may be some legislative hurdles in these countries but these are not impossible to overcome. Online universities have greater opportunities to expand their markets overseas and create global universities of the future.

The report does highlight the growing concern with the financial sustainability of future traditional education.  Executives appear to be nervous about finding new sources of revenue. Some have opted for fundraising while others have decided that using technology is their best approach. Yet the numbers are particularly low indicating there is no concise strategy in meeting these challenges. It would appear decision makers are still unsure of what is the best approach.

More frightening is the increasing use of debt to fund operations.  When needed this can be a successful short-term strategy but when it becomes chronic there is an inherent problem with cash availability and profitable operations. It is often beneficial to use this strategy during times of transition and restructuring  and not necessarily as an ongoing practice. Doing so indicates that an established entity  is paying interest on monies it should already have available or does not have enough flexibility at the end of the budget year to build a cushion for times when revenue is not coming in (i.e. during semesters). They are paying a premium for operational costs. 

You may obtain your own copy of the report HERE

OECD Reports on Canadian and U.S. Higher Education

According to a report by the Organization for Economic Co-operation and Development (OECD) Canada ranks first in percentage of educated citizens followed by the United States. Fifty percent of Canadians, forty-two percent Americans, and twenty-nine percent of the British have degrees. The Canadian population is one of the most educated among the 34 OECD and the nation s but at a higher cost.  

Canada’s post-graduate degrees such as master’s degree or doctoral degrees lag behind Korea and Japan. Younger Korean and Japanese citizens are earning higher grades which mark a fundamental shift in where higher education is being centered. With young Asians pushing hard to achieve their goals they will become new sources of discovery and revenue. There is little doubt as to the association of education with economic activity. 

The system found that those with higher degrees had about a 5% unemployment rate while those who didn’t had an 11.7%. This helps highlight the idea that education may reduce unemployment due to the variability of skills. It is these skills and general understandings that afford people the opportunity to find meaningful work. 

It may also be an indication that manufacturing and other physical labor positions are on the decline in first world nations. Cost competitiveness of manual labor is lower in developing countries such as China and India where North American companies would need to automate their operations to achieve parity. 

The report further indicated that 6.6 percent of Canadian GNP went into education from kindergarten to college while 7.3% of U.S. GNP went into education. The difference being that the majority of educational monies went to higher income student populations than in Canada. Even with higher U.S. monies American students ranked lower on international tests. 

American primary education was less developed than other nations. The key years in a child’s education, which determines in many ways their chosen paths in life, was lacking. It is possible that the declining amount of students choosing higher education and overall competitiveness upon graduation may be part of a general decline in national educational achievement. 

Fewer foreigners were coming to the U.S . for education than in the past. They were opting to stay within their countries or other places where the educational system more matches their needs. Europe was the most popular place to get a higher education. The U.S. received only 21% of the total foreign population when compared to Europe receiving 48%. 

The report should act as food for thought for higher education decision makers. The traditional educational system needs reform in order to make it more effective. From early childhood development to graduate school the system should be focused more on teaching methods that actually enhance learning. It could consider the advantages of using virtual higher educational platforms to reach out and recruit international students who can study without having to leave their home countries. 

OECD

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Washington Post

Ottawa Citizen