You have /5 articles left.
Sign up for a free account or log in.
skegbydave/iStock/Getty Images Plus
For months, higher education headlines have been dominated by turmoil at three elite universities whose leaders were perceived to have responded inadequately to questions about their institutions’ reactions to the Hamas attack on Israel, the ensuing war in Gaza and incidents of antisemitism and Islamophobia on their campuses.
For all the media hoopla that’s followed the drama at Harvard University, the Massachusetts Institute of Technology and the University of Pennsylvania, one would think the biggest threat to higher education today is the hostile takeover, whether it’s orchestrated by disgruntled donors, vulturous politicians, unhappy alumni or activist students. College leaders are being warned almost daily about the risks of outsiders commandeering their campuses.
No doubt higher education’s culture wars have been restoked in the last two months, and it would be foolish for college presidents to ignore the increasingly critical, even treacherous, political environment their institutions now face. But free speech battles, donor revolts, legislative scrutiny and student activism are not the higher education threats with which most presidents should be most concerned. At the vast majority of colleges, even some elites, the biggest problem is a more fundamental one, common to most enterprises: how to operate in a financially responsible way. At America’s colleges, this means reducing the structural budget deficits that are driving up costs and harming students in the process.
That focus has become more important than at any other time in recent history, as an increasing number of American colleges and universities are in financial crisis. They’re being squeezed ever more tightly by the vise of decreased revenue from more than a decade of dwindling or stagnant enrollment and retention coupled with increased expenses from inflation, soaring labor costs and excessive capital construction debt.
In the almost four years since the onset of the COVID-19 pandemic in the U.S., multiple signs of dire economic straits in higher education have become obvious, but the standard wisdom has been these problems were largely limited to small, nonselective private colleges, regional public universities and community colleges.
That’s where financial vulnerabilities led to college closures, consolidations and major academic restructuring. As just a few examples, Presentation College in South Dakota, Finlandia University in Michigan, Iowa Wesleyan University and Cazenovia College in New York shut their doors. Six public universities in the Pennsylvania State System of Higher Education merged into two regional campuses. Villanova University agreed to buy the campus of Cabrini University, which has battled financial problems for years. The list of institutions forced to close, merge or dramatically cut back their academic portfolio is long and growing.
It’s tempting to view these financial headwinds as specific only to colleges already in danger of going out of business, but that’s a mistake. The financial storm clouds threatening higher education are more ominous and widespread than that. Witness the historic, large-scale reductions in academic programs and faculty undertaken last fall at West Virginia University, the state’s flagship institution.
More recently, administrators at Miami University in Ohio, one of the nation’s most highly regarded public institutions, told the leaders of 18 undergraduate majors they would need to reinvent themselves, potentially through mergers with other programs, to help the university cope with the “unprecedented fiscal, societal, and political challenges … that are part of a larger troubling higher education landscape.”
A troubling landscape, indeed. Last spring, DePaul University, the largest Roman Catholic university in the nation, projected a $56 million deficit for the 2023–24 fiscal year. In November, the University of Arizona announced it was facing a $240 million shortfall in its budget.
Also last year, four Big Ten universities, long among higher education’s most well-resourced public institutions, reported large operating deficits. Rutgers University, Pennsylvania State University, the University of Minnesota and the University of Nebraska all acknowledged the need for substantial budget resets, ranging from $24 million at Minnesota and $58 million for the University of Nebraska system to more than $100 million at Penn State and Rutgers. (Penn State announced just last month plans for $94 million in total reductions to its 2025–26 budget.)
While many colleges point to the COVID-19 pandemic as the precipitating cause for their current economic crises, the fact is their post-pandemic plight might actually have been alleviated, at least temporarily, because of three rounds of Higher Education Emergency Relief Fund (HEERF) grants they received, totaling about $76 billion. That money provided financial relief to students and helped keep the institutions afloat throughout the pandemic and its aftermath. Now those relief funds are gone. And it’s very unlikely colleges will see more federal or state bailouts anytime soon.
As we document in our new book, Colleges on the Brink: The Case for Financial Exigency (Rowman & Littlefield), many colleges and universities now find themselves in various degrees of financial precarity. Every higher education sector is facing such risks: public and private, two-year and four-year, for-profit and not-for profit colleges are in the same leaky boat. A prolonged stretch of sinking enrollments, a global pandemic, uncertainties in state funding, a public increasingly skeptical of their value and their own tendencies to overbuild and overspend have left hundreds of colleges facing unsustainable futures.
If these institutions don’t change how they operate, it’s unreasonable to believe they will change this trajectory. Grand plans to grow their enrollments or solicit large private donations to boost their endowments aren’t viable strategies to dig out of deep budget holes. They’re wishful thinking.
Financially stressed institutions must take a full, clear-eyed accounting of what it costs to offer the academic programs, student support, research activities, entertainment and community service that most aspire to provide. At an increasing number of institutions, this reckoning will show they are offering more academic programs; employing more administrators, faculty and staff; and spending more money on intercollegiate athletics and other nonacademic activities than they can afford.
Their revenues and expenditures are headed in the wrong directions. At most institutions, more careful attention to cost containment, a stronger effort to recruit and retain students, and modest administrative and academic restructuring will be sufficient to achieve the necessary financial realignment. They can do enough belt-tightening to fit their budgets.
At colleges where the money crunch is more severe, where enrollments and net tuition revenue continue to erode, where state appropriations have taken a steady downturn, where debt has increased, and/or where private donations and the endowment have been hard-hit, more extreme measures will be required to right the ship. Furloughs, salary rollbacks, hiring freezes, the elimination of academic programs, a gradual downsizing of the campus workforce and ending or cutting subsidies to some nonacademic activities will be needed.
Then there’s a group of colleges we focus on in our book. In addition to all the problems above, they’re carrying huge debt, often because of ill-considered capital expenditures; major sources of revenue are running dry; and prior attempts to pull their budgets out of the red have proved too little, too late. Their financial outlook is so bleak that nothing short of emergency, institutionwide measures will sustain them.
These colleges on the brink may need to consider invoking financial exigency, an acknowledgment that the financial problems are so severe that overall academic integrity is fundamentally compromised. Exigency typically results in the termination of faculty contracts, including the retrenchment of tenured faculty. That’s why it’s regarded as such an extreme and dreaded measure, often avoided even when it could help save an endangered institution.
As painful as financial exigency can be, it’s survivable when done in the right manner, and it offers the most severely stressed colleges a way back from the brink as they become leaner and more fiscally stable, ready to provide the education that students and society need.
A recent example is Henderson State University, in Arkansas, where one of us, Charles, was the chancellor who led the institution through its exigency process. In 2022, HSU was facing a projected $12.5 million budget shortfall for the year, even with the use of nearly $6 million in one-time federal HEERF funds; it was carrying long-term debt of $78 million; its reserves were nearly exhausted despite a $6 million advance from the state of Arkansas; and its enrollment had fallen from 4,037 students in 2019 to 2,919 in 2021, with one of the lowest six-year graduation rates (37 percent) of any public four-year institution in the state. Even after furloughing staff, imposing hiring freezes and salary rollbacks, reducing administrative expenses, and requiring several other strict spending controls, HSU was headed to its financial demise.
In spring 2022, HSU declared financial exigency and began the painful process of reducing its academic programs and terminating faculty and staff. At the end of that process, 88 faculty jobs were eliminated, 76 of which were filled at the time, and 25 (more than a third) of its undergraduate degree programs were eliminated or set to be phased out, with remaining undergraduate programs reorganized around four “meta-majors” aligned with regional workforce needs. The total workforce was reduced from 330 to 230 employees, and HSU restructured dozens of administrative positions.
Using a declaration of exigency and other cost-containment measures, the university improved its overall net financial position by nearly $10 million, an improvement that prompted its accreditor, the Higher Learning Commission, to remove a financial distress designation it had placed on the institution less than six months earlier. Going through a financial exigency process was a very traumatic, emotionally wrenching experience for everyone involved, but—while declining enrollment remains a concern—HSU is moving forward on a better financial foundation under the leadership of a new chancellor.
Other examples of colleges that have successfully worked their way through exigency include institutions as diverse as Upper Iowa University (2023), Chicago State University (2016), Tulane University (2005) and Southeast Missouri State University (2002). Those examples involved differing combinations of program closures, permanent and temporary layoffs, and administrative and academic restructuring, but in each case the institution has worked through and survived its period of financial exigency.
While the headlines will continue to focus on political firestorms at elite institutions, it’s failing finances that loom as higher education’s greatest danger today. University presidents must be alert to cultural controversies, but what they most need to do is keep their eyes trained on the bottom line, helping their colleges and universities travel the rocky financial road that lies ahead. That’s the biggest leadership test facing most college presidents today.