Financial planning tools can help increased competition for students
Scenario modeling and tuition revenue planning can be effective tools to prepare for a future beyond the uncertainties of funding and student enrollment
- Uncertain enrollments have led to financial worries at institutions
- Turning to updated financial planning tools will help with long-term planning
- See related article: Higher education must innovate to meet students’ needs
- For more on enrollment uncertainties, see eCN’s Campus Leadership page
Declining student numbers, devalued degrees, lower retention rates, and affordability concerns continue to reshape the higher education landscape and increase competition among universities.
Uncertainty about future enrollment levels creates significant financial challenges for institutions that historically have relied heavily on tuition revenue. In fact, a recent survey showed that 81% of university leaders reported improving enrollment and student retention as a top priority for 2023. To attract students, 68 percent of leaders said they are implementing campaigns, and 55 percent are lowering tuition and offering new degrees. To boost retention, many institutions are investing in programs and services, including adding or enhancing mental health and wellness services and bolstering at-risk student tracking and advising.
Will these efforts be enough to attract and retain students and weather the enrollment cliff? To better assess their financial position, higher education institutions need to evolve their financial tools–like ways to track budgeting, spending, and financial planning–to diversify their funding and think strategically about long-term planning.
Analyzing funding sources with financial planning
While universities rely on various funding sources in addition to tuition–including endowments and federal/state funds–these sources continually fluctuate, especially among different institutions.
Despite 40 percent of all undergraduates attending regional public colleges–typically more affordable than most colleges–these institutions don’t receive as many private donations or research grants. They also lag on state funding: On average, regional public universities receive $1091 less than a non-regional public university per full-time enrollment.
And while state spending on higher education increased 8.5 percent in 2022 compared to the year before, there was also a jump in inflation–inflation for U.S. higher education institutions rose 5.2 percent in 2022, as opposed to 2.7 percent for the previous year.
Some states are shifting to outcomes-based funding models to better level the playing field. Indiana–which has already seen public college tuition and fees decrease 4 percent over the past five years and an increase in enrollment rates as a result–now looks to increase state college funding by $130 million. While colleges and universities will receive base funding, additional funding will be based on certain outcomes-related metrics.
Though these can be great for incentivizing student outcomes, it can also have negative impacts on Minority-Serving Institutions that are already under-resourced and can struggle to meet these new parameters for outcomes–further continuing the cycle of not investing in these institutions.
Handling enrollment fluctuations
Scenario modeling and tuition revenue planning can be effective tools to prepare for a future beyond the uncertainties of funding and student enrollment. Scenario modeling involves generating what-if scenarios based on different variables to evaluate potential outcomes.
For instance, financial leaders could employ scenario modeling to assess:
- Enrollment projections: Institutions project scenarios based on varied enrollment estimates to comprehend the potential scale of enrollment declines
- Financial impact: By estimating changes in revenue sources like tuition and government funding, institutions gauge how different enrollment scenarios might impact their budget and financial stability.
- Resource allocation: Scenario modeling aids institutions in identifying areas where resource allocation adjustments may be necessary, considering the impact of enrollment trends on program viability.
Tuition revenue planning entails devising strategies to optimize income while preserving affordability. Confronted with the enrollment cliff, institutions must strategically adjust tuition pricing and financial aid policies to maintain appeal to prospective students.
Effective tuition revenue planning includes:
- Flexible tuition strategies: Institutions can consider tuition discounting and/or adaptive tuition models, adjusting fees based on factors like financial need, academic discipline, or career prospects.
- New programs: The expansion of online and hybrid programs can attract non-traditional students and provide a counterbalance to declining enrollment in traditional programs.
Enacting change in a traditional industry
According to new research, 60 percent of finance leaders say higher education lags with budgeting and financial planning tools, with many institutions still pulling reports from Excel.
The enrollment cliff is a strong impetus for change, compelling universities to adopt innovative tools to navigate uncertainties. Implementing tools for tuition revenue planning and scenario modeling are pragmatic approaches to securing universities’ future. For institutions that want to implement these tools, consider the following:
- Begin data collection: Gather historical enrollment data, demographic trends, and market intelligence to input into your model.
- Identify scenarios: Develop a range of enrollment scenarios based on different variables (e.g., economic conditions, marketing efforts, program offerings) to model various outcomes. Consider best-, base-, and worst-case scenarios to cover a wide spectrum of possibilities.
- Engage in continuous monitoring: Regularly review enrollment trends and adjust strategies accordingly. Update scenario models with new data and refine assumptions as market conditions evolve.
Universities need to embrace change and innovation to thrive in this shifting educational landscape. By leveraging strategic planning techniques and turning to technology, higher education institutions can weather the enrollment cliff and emerge stronger–even amid rising competition.