Evolving Higher Education Business Models

Evolving Higher Education Business Models
budget dollars based on enrollment, many are using budget models that reward institutions
for degree outcomes. Experts say this trend is expected to continue as the number
of states proposing to tie funds to performance grows each year (National Association of
State Budget Officers 2013). Last and certainly not least is attention to access and student
success by the federal government. The Obama administration, for example, has put forth
various efforts to incentivize institutions to contain costs and keep prices down while
also demonstrating the benefits students realize through their educational programs. The
momentum for performance accountability at the federal level enjoys bipartisan support
and is unlikely to subside in its pressure on institutions to be more productive and efficient.
Beyond catering to a growing student market and meeting the performance expectations
of policymakers, colleges and universities are still expected to continue other
mission-related functions; for example, research and development growth or workforce
and economic development. In this environment, institutions themselves are the arbiters
of contending expectations among students, their families, governments, taxpayers,
voters, donors, corporations, academic associations, faculty, and staff, and the viability
and success of the institution itself as an enterprise. Colleges and universities are rightly
expected to serve multiple and diverse missions, including ensuring learning and progress
for underrepresented students or returning adults. In the context of these various
aims, colleges and universities make decisions—actively or passively—about how their
operations fund, cross-subsidize, and produce their institution’s specific mix of outcomes.
By extension, they decide the distribution of the benefits of those outcomes across a range
of stakeholders. These decisions are easier to make in periods of revenue expansion when
all stakeholders can become at least a little bit better off. But with declining revenues—as
has been the case in recent years—institutions are forced to make choices that require
unpopular tradeoffs.
Shrinking Revenues
The Great Recession dramatically curtailed the growth of government funding for higher
education. From 2006 to 2011, the vast majority of states decreased per-student spending
in real dollars. While federal funds offset some of that loss, little remains, and institutions
have sought out other creative sources to “refill” the revenues (Tobenkin 2013). The
Center on Budget and Policy Priorities reports that states are funding higher education 20
percent less today per student than they did in the 2007–08 academic year (Mitchell and
Leachman 2015).
Declining public appropriations per student are not a new trend. Over the past three
decades, college enrollment has continued to rise while the public funds per student for
higher education have not kept pace in real dollars (see Figure 1). A series of Moody’s
Investors Service analyses (Gephardt 2015; Ortiz 2015; Osborn 2015; Sharma 2015) suggest
that despite seeing general improvements in the financial health of the 500 Moody’s-rated
universities, certain institutions will continue to face financial challenges. Analogous to
the phrase “the rich get richer while the poor get poorer,” the rated universities that have
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