Reduce long-term cost growth to rightsize your university

Higher ed’s budget woes are becoming harder to ignore. The cost of running a college spiked 5.2% from FY21 to FY22, a 10.1% increase since FY19. At the same time, 28 states continued to fund higher education at lower levels than before the pandemic, and the average tuition discount rate at private colleges reached an all-time high of 56.2% in FY23. Capital renewal costs also broke records, coming in at $133 per gross square foot in FY22. Pandemic relief funding provided a lifeline for the sector across the last few years but has now run dry.

As costs continue to grow faster than revenues (as they did across the last decade), it’s no surprise that institutions with tight budgets or outright deficits are reopening the cost savings playbook. EAB has done a decade of research on cost savings and efficiency on both the academic and administrative side. The core is that across-the-board cuts don’t work. Consequently, it is crucial for institutions to engage in proactive and nuanced cost control strategies to ensure financial viability.

The future you should be planning for

Beyond the financial pressures of today, leaders must also consider the long-term enrollment challenges that will drive further revenue constraints. The much-discussed demographic cliff represents a 6.5% decline in the U.S. 15-19-year-old population from its peak in 2021 to its trough in 2032. The number of prospective students will continue to drop after that, permanently falling another 21% by 2100, despite a slight bump in the 2030s.

Coupled with growing market concentration and declining college-going rates, this continued demographic decline will push hundreds of institutions far below their current enrollment levels. In fact, as the graph below illustrates, EAB predicts that nearly 250 institutions could see their enrollment drop by over half by 2040, based on current long-term trends.

Estimated cumulative number of four-year institutions with 25% and 50% declines in first-time first-year enrollment from 2022

Based on trends in demographics, market concentration, and college-going rates

Source: EAB analysis of WICHE, IPEDS, and American Communities Survey data.

Now is the time to act

While projections are not destiny and shrinking enrollments not inevitable, these projections are a sobering glimpse into the future. To navigate the challenges presented by our current and projected realities, institutions must address rising costs.

For many, this likely entails a shift from the mindset of “doing more with less” to adopting a strategy of “doing less with less.” This approach advocates for proactive rightsizing of the institution—making strategic choices and adjustments on your own terms. Such a strategy is geared towards ensuring long-term health and viability and focusing on sustainability even in the face of limited resources.

Potentially better conditions for some cost-control strategies

Many institutional leaders know the long-term savings playbook, but most haven’t fully implemented it. The good news is that recent disruptions and innovations have made many strategies more valuable and/or reduced change management challenges.

Wherever your institution is on cost containment efforts, EAB’s Essential Guide to Cost Containment Strategies for Higher Education recommends best practices across institutional maturity and units.

Interested in learning more? Join our Roundtable for Chief Business Officers in Washington, D.C. in spring 2024. You’ll have the opportunity to engage in highly interactive, executive-level conversations with peers about the most pressing challenges facing higher education today.