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Innovative Solutions in Difficult Times

By Joseph Peplin, on November 23rd, 2020

Our way of life has changed dramatically since the start of the COVID-19 pandemic. While all industries have been affected, higher education has faced challenges that are unique and sometimes seem to be insurmountable. At the start of the pandemic, many institutions implemented cost-cutting measures in response to the lost revenue relating, in part, to room and board refunds. Some of the cost reductions were a direct result of the pandemic, as travel relating to athletics, recruiting, and conferences was halted. Other cost reductions came with a significant amount of pain. The unfortunate reality is that personnel costs are often the easiest and most effective reduction to make. As a result, most institutions implemented a variety of employee expense reductions including furloughs, salary reduction arrangements, and reductions in employer contributions to employee benefit plans. As the pandemic has continued, with no end in sight, some institutions have been forced to permanently lay off employees.

The cost-cutting measures discussed in the previous paragraph are short- term solutions. We all know that it is not sustainable to ask employees to work harder and longer for less compensation. Even when a vaccine is deemed to be safe and effective, it is likely that it will not be widely distributed until later in 2021, and even then students will likely be among the last to receive it, as they are generally considered to be at lower risk for serious illness. Therefore, it is probable that institutions will be facing the reality of declining enrollment, more students living off-campus, possible campus closures, and mounting pressure to increase the discount rate to attract students. It will be critical for institutions to look at new ways to generate revenue and reduce expenses that are sustainable and effective. Through discussions with our clients and contacts in the industry, we have identified several initiatives that institutions are considering and/or implementing in response to the crisis:

  • Increasing Retention and Graduation Rates, Particularly for Minority and/or Low-Income Students – It is an unfortunate reality that many minority and/or low-income students do not graduate. While the focus has traditionally been on getting students to initially enroll, keeping these students enrolled in your institution (and succeeding academically) is just as important. A focus on providing the proper amount of support for minority and/or low-income students not only makes a difference in the lives of these students but also helps increase the bottom line by improving retention.
  • Diversification of Revenue Streams – Many institutions are looking at other opportunities to help offset the anticipated decline in traditional undergraduate enrollment. Although traditional undergraduate enrollment is expected to continue to decline, particularly in the northeast, some institutions are finding success in expanding into the adult education market, both by creating new undergraduate programs that are designed to appeal to adults and by increasing graduate program offerings.
  • Review of Current Program Offerings – It is likely that adding new programs and diversifying revenue is not enough. Most institutions have programs that do not have sufficient enrollment to remain financially viable. This is a difficult conversation and the institutions that have the most success with program reviews rely on collaboration between administration and the faculty. It may well be that certain majors are so critical to the mission that it is acceptable to consider them as “loss leaders”. Until an institution performs a detailed program review, however, it is impossible to truly know which programs require increased scrutiny (although it is likely that you have a pretty good idea already).
  • Collaboration with Local Employers – There may be an opportunity to collaborate with local employers to establish a pipeline of graduates that mutually benefits both the institution and employer. One of the industries that has been most successful in such workforce development programs is healthcare.
  • Increasing the Endowment Draw – This is a very controversial strategy that often pits the business affairs department against the President and/or Board of Trustees. Those of us with financial acumen know the long-term effect of “raiding the endowment” and know that increasing the endowment draw may have a negative impact on the long-term financial health of an institution. Investment return and new giving may not keep up with these higher draws. Some institutions have had success with special draws, however, that are targeted specifically for advertising campaigns, program expansion, and other enrollment initiatives. If a special draw results in improving the overall fiscal health of an institution, then it is clearly a worthwhile undertaking. Institutions that simply increase their overall percentage draw, however, run the risk of not using these additional dollars in an effective manner.

These are just a few of the innovative ideas that we have seen our clients and colleagues implement. While they may not be applicable or practical for all institutions, we strongly encourage every institution to think outside the box to find the solutions that work for you. We are all tired of the phrase “the new normal” at this point, and certainly no institution that is facing flat or declining enrollment, cuts in state funding, reduced giving, increased discount rates, etc. wants to remain with this status quo.

If you have any questions, do not hesitate to reach out to our higher education experts at The Bonadio Group.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute an accountant-client relationship.

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