Higher Education

Some colleges seek radical solutions to survive

Many schools are trying strategies from the business world to stay afloat

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college enrollment

Willamette University in Oregon acquired a California theological seminary — and, with it, more enrollment and new programs that can help the school lower per-student costs and improve its competitive advantage. Mergers and acquisitions are among the ways colleges are responding to financial and enrollment challenges.

When Steve Thorsett crunched the numbers, things looked grim.

Business was flagging. His flow of customers had fallen to a 10-year low, down more than 20 percent since 2015. By 2016, annual expenses had begun outpacing operating revenues by $14 million.

In an increasingly unforgiving market, Thorsett needed to do more than chip away at the margins of this problem. He could make cuts, but that was complicated in his industry, and would likely only speed the downward spiral. To differentiate himself from his competitors, this chief executive determined that his operation needed to grow bigger, not smaller.

So Thorsett took a classic shortcut to expansion. He found a partner that was on even shakier ground. The resulting acquisition will bring with it several hundred new consumers, allowing efficiencies of scale.

The move has other strategic advantages. Rather than duplicating what he does already, the organization he procured will help Thorsett broaden his offerings in ways that many of his rivals can’t, and at a speed that most can’t match.

Now Thorsett radiates optimism about the future — something rare these days among his counterparts, many of whom face challenges as bad as or worse than his.

Thorsett is the president of Willamette University at a time the higher education sector is grappling with a historic enrollment decline and financial challenges that cry out not for incremental change, but for radical solutions. Colleges and universities that don’t adapt risk joining the average of 11 per year the bond-rating firm Moody’s says have shut down in the last five years.

With low unemployment luring potential students straight into the workforce and a decline in the number of 18-year-olds, among other reasons, enrollment is down by more than 2.9 million since the last peak, in the fall of 2011, according to the National Student Clearinghouse Research Center. More than 400 colleges and universities still had seats available for freshmen and transfer students after the traditional May 1 deadline to enroll for this fall, the National Association for College Admission Counseling reports.

More are likely to go under; Moody’s projects that the pace of college closings will soon reach 15 per year. Yet some campus leaders, asked what steps they’re taking to avoid this fate, responded like the president of one small private liberal arts college in Pennsylvania. His school, he said, would “continue to graduate students who will make a tangible and constructive difference in the world.”

Related: The students disappearing fastest from American campuses? Middle-class ones
The crisis has advanced beyond the point where those sorts of good intentions are enough, said Thorsett. He and others in higher education have been actively searching for concrete ways to rebuild enrollment and produce much-needed revenue.

“This is a business,” Thorsett said. “It’s not for profit, but we have to keep the lights on. We have to build a model that’s sustainable.”

One way is through acquisitions like the one his university made of the Claremont School of Theology in California, or CST, which is being moved to the Salem, Oregon, campus of Willamette, just as private companies consolidate to increase their size and cost-effectiveness.

The pace of mergers and acquisitions has given rise to the self-described first full-service university and college merger consulting firm, Higher Ed Consolidation Solutions. “Will there be more? Yeah, we’re betting on it,” said its founder, Brian Weinblatt.

Colleges are also working to reduce their numbers of dropouts on the principle that it’s cheaper to provide the kind of support required to keep tuition-paying students than to recruit more. A few colleges are pushing job and on-time graduation guarantees as selling points. Several are getting into the business of corporate training, which is lucrative because employers foot the bill for workers who don’t need financial aid or fitness centers.

Many institutions are adding programs tied to real-time workplace demand, including online courses that appeal to people who are balancing their educations with families and work. Some are even squeezing small amounts of money from such things as renting out their dorm rooms in the summers on Airbnb, catering weddings and licensing their logos for products (including, in the case of 48 universities and colleges, caskets and urns).

“You have to be thinking beyond the current business model, whoever you are,” said Stephen Spinelli Jr., president of Babson College, whose Academy for the Advancement of Global Entrepreneurial Learning makes money for the business university by training educators worldwide how to teach entrepreneurship. “That’s what higher education is going to have to do if it’s going to survive.”

Willamette has been particularly aggressive in its strategy of acquiring the 134-year-old CST, which was suffering multimillion-dollar annual shortfalls that it couldn’t make up from its endowment.

Among the institutions Willamette considers as its competitors are small liberal arts colleges such as Reed and Whitman. But it has something they don’t: several graduate divisions (Reed offers one master’s degree in liberal studies) and a goal of increasing its enrollment from its current 2,700 to 4,000 over the next 10 years, starting with about 400 from the theology school.

“ ‘Midsize university’ is a sweet spot,” said Thorsett, who is working to position his school as being small enough to promise personal attention but big enough to offer lots of choice, while not coincidentally lowering per-unit costs by serving a larger student body. “The university nature of our institution lets us do things our competitors can’t do.”

These include accelerated programs that can save students money, such as a five-year combined B.A. and MBA. Willamette now may add a joint B.A. and master’s of divinity degree with CST.

“Those kinds of synergies are really distinctive,” Thorsett said. “And they’re something that is really hard for the competition to match.”

Related: Colleges provide misleading information about their costs

college enrollment

Howard University, which suffered a nearly 28 percent drop in enrollment last year, is guaranteeing rebates equal to half the cost of their final semester to students who graduate on time or early. Enrollment has rebounded. “As students and their parents become more sophisticated as consumers, these are the kinds of things they’re looking at,” the president, Wayne Frederick, said.

Other institutions are also trying to cash in on students’ and their parents’ growing impatience with how long it takes to earn degrees. Only 41 percent of undergraduates now finish in four years, federal figures show, with the extra time adding substantial costs.

Speeding this up has become a promotional tool. Howard University, for instance — which suffered a nearly 28 percent drop in enrollment last year, according to figures provided by the university — is guaranteeing rebates equal to half the cost of their final semester to students who graduate on time or early.

“We sell that to the parents and students when we’re recruiting,” said Wayne Frederick, president of the university, which reports a 25 percent rebound in enrollment this fall. “The goal here is for your parents to come back in four years and pick you up.”

Or maybe three years. That’s how quickly Frederick thinks as many as 10 percent of his students can finish by increasing the number of credits they can take at one time. He also plans to add a three-credit “mini-mester” during the otherwise unproductive winter break.

“As students and their parents become more sophisticated as consumers, these are the kinds of things they’re looking at,” said Frederick.

A few universities and colleges are offering employment guarantees as an inducement to prospective students. DePauw University last year started promising job placement or a free additional semester to graduates who meet certain guidelines but don’t have a job within six months. Davenport University graduates who can’t find jobs in their fields of study within six months get up to 48 additional credit hours free.

Even colleges that don’t guarantee jobs are scrambling to add subjects that connect with real-world demand. Higher education institutions nationwide added 55,416 new programs in the five years ending in 2017, the last period for which the federal government has figures. Nearly 400 now offer credentials in cybersecurity, for example, for which demand is growing three times faster than for other IT jobs, according to the labor market analytics firm Burning Glass Technologies.

“Employability and a school’s ability to provide students with access to successful employment is now the key factor in our programming,” said John LaBrie, dean of the School of Professional Studies at Clark University, which, among other subjects, just began offering a graduate certificate in the timely area of regulating legalized marijuana.

Lehigh University has started hiring faculty for a new college of health, part of a plan to add 1,800 students. Other universities are forming partnerships with private, for-profit coding boot camps to which they worried they were losing customers. The University of Tennessee at Chattanooga in August became the latest to team up with the coding school Thinkful. Rice University in September added a financial technology program to the data analytics and cybersecurity boot camps it launched last year with Trilogy Education Services.

“Those are the kinds of places you can pick up dollars,” said Paul Freedman, cofounder and CEO of the innovation strategy firm the Entangled Group. “A lot of the focus has been on picking up pennies, like by making sure that students stick around longer.”

If it seems odd for colleges and universities to try to attract more customers by promising results that people might have been expecting anyway — degrees within four years, with jobs at the end — some of their strategies underscore the magnitude of the challenges they face.

Related: Already stretched grad students rebel against rising and often surreptitious fees

college enrollment

Linfield College is responding to declining enrollment and resulting budget deficits by marketing itself to the growing population of college-age Hispanics, hiring bilingual admissions officers and Spanish-speaking “student ambassadors.”

Not all of those tens of thousands of new programs, for instance, are likely to attract enough students to pay off. Nationwide, fifteen that were added in casino management turned out an average of two graduates apiece, the consulting firm Eduventures found. “That’s a philosophy of ‘Let’s throw something at the wall and see if it sticks,’ ” Miles Davis, the president of Linfield College, said with a laugh.

The number of programs being offered online has nearly doubled since 2012 as institutions try to get in on the one-third of students who now take at least some of their courses that way. Many may be too late, however; the top 1 percent of established online providers have already cornered 21 percent of enrollment, according to the Babson Survey Research Group, which tracks this. “Very little of the growth is from new people coming in,” said Jeff Seaman, the research group’s co-director.

Even what online growth there is may be slowing; Purdue University, which in 2017 bought the former for-profit Kaplan University and turned it into the online Purdue Global, has seen double-digit increases in enrollment, the university says, but Purdue President Mitch Daniels has publicly raised caution flags. “What we did not expect was for the market to slow down, which it has,” a spokeswoman for Daniels said

Those job guarantees, meanwhile, come with lots of fine print; at Davenport, for instance, they apply only to certain majors in high-demand fields. And for all of the work it’s done to reduce the number of dropouts, the higher education industry has so far barely moved the needle. Twenty-six percent of freshmen each year fail to return as sophomores, just 2 percentage points better than in 2009, with almost no improvement in the last few years, the National Student Clearinghouse Research Center found.

A few colleges have taken yet another lesson from the business world and responded to decreased demand in the most dramatic way of all: by lowering their prices. Central College in Iowa announced in September that it would cut its tuition by $20,000 starting next fall, to $18,600, after years of enrollment declines. St. John’s College, which has about 750 undergraduates on campuses in New Mexico and Maryland, reduced its tuition by $17,000 this fall, to $35,000. Applications went up, and the size of the entering class rose slightly.

But some colleges that cut prices have seen their numbers go down, not up. That speaks to Americans’ conviction that things that cost more must automatically be worth more, said Mark Roosevelt, president of St. John’s Santa Fe campus.

Related: Spotlight swings to for-profit middlemen that may be driving up the cost of online higher education

“Most of the gains were pretty short-lived if they existed at all,” said Alex Bloom, a pricing expert at the enrollment management-consulting firm EAB, who has studied what happened to colleges that cut tuition in the last two decades.

Colleges and universities are also pushing more students into graduate school, since this is typically a money-maker for them, and graduate enrollment has been a bright spot, but there are signs that it’s beginning to flatten out, too. That includes international graduate enrollment, long an important source of revenue for universities in the United States.

Another move for colleges struggling for students is to look for them in new places and in different ways.

While the supply of 18-year-olds overall is falling, for example, the number of Hispanics 18 and under will nearly double nationwide by 2060, the Census Bureau projects.

Linfield, which suffered five years of declining enrollment and resulting budget deficits that forced a buyout of 13 faculty and staff, now has full-time admissions officers who are bilingual, four Spanish-speaking “student ambassadors” and new scholarships for students who are the first in their families to go to college.

“It seems like a simple thing” to make a sales pitch to customers who haven’t gotten one before, said Davis. “But now we can have that conversation with parents who may or may not speak English.”

Linfield, which had 1,240 students last year, says it’s seen a 38 percent jump in the size of its entering class this fall, and more than 40 percent of freshmen are first-generation.

“The world that existed 35 or 40 years ago, where there was an unlimited number of people applying to school, is diminishing,” said Davis. “And the smaller you are, the more difficult that battle is.”

If it takes more work to find traditional-age freshmen, there’s one very big supply of prospective students available to colleges: older adults who never went, started but didn’t finish or want to get advanced degrees. Those who have some credits but never graduated number more than 35 million, according to the Census Bureau.

Many institutions are attempting for the first time to recruit these students, but it can be a hard sell; often these adults were left with debt but not degrees and are understandably skeptical about risking that again, or are now juggling careers and children. “If you are not already serving adults in some capacity, trying to make that pivot can be difficult,” said Marie Cini, president of the Council for Adult and Experiential Learning.

Related: College students are increasingly forgoing summers off to save money, stay on track

A faster way in is by selling corporate training to their employers, who pay full price without requiring the colleges to give discounts or financial aid. Pace University, for example, has a deal with AT&T, Verizon and a coalition of other companies to train network technicians in the telecommunications industry.

“The corporation makes it easy,” said Patrick O’Keefe, a business reorganization and turnaround expert. “That’s a good reach-out by the universities, no question. You’re dealing with a deep-pocketed customer. Why wouldn’t you tap into that?”

Now smaller institutions are getting into the estimated $88 billion-a-year corporate training business. Starting this fall, Husson University is providing an MBA program to employees of the outdoors retailer L.L.Bean, which hired it to offer the degrees at the company’s headquarters in Freeport, Maine.

“This broadens our product range from an 18- to 21-year-old market to a multiple-age range,” said Husson President Robert Clark. “You couldn’t have a better model as part of a portfolio. And being associated with a brand like that doesn’t hurt.”

If Clark talks like a certified financial analyst with an MBA, it’s because he is one. Many of the campus leaders who are trying innovative strategies to stay afloat have taken unconventional paths to their jobs.

“What a president does these days has very little to do with academic programs. It has a lot to do with business, finance, labor law, marketing, fundraising,” said Davis, who before taking over last year at Linfield was a business-school dean and a managing consultant and principal at EDS, now part of Hewlett-Packard. “You need people who can think entrepreneurially.”

Spinelli, who started in July at Babson, co-founded Jiffy Lube before becoming president of Philadelphia University and overseeing its merger with Thomas Jefferson University in 2017. Howard’s Frederick is a medical doctor who also has an MBA. An astronomer, Thorsett managed $125 million spacecraft missions.

Even for them, it isn’t easy, in an academic setting, to talk about such things as mergers and markets, strategy and synergies, Davis said.

“But what’s more difficult than having this conversation is having the conversation that they’re having in places where institutions are shutting down,” he said. He’d rather be discussing allocation of resources and prioritization of programs, Davis said, “than stand in front of students and say we’re closing.”

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