A study by strategy consultancy EY-Parthenon titled “Strength in Numbers: Strategies for Collaborating in a New Era for Higher Education” recently caught my attention. Many analyses of higher education portray an industry in decline, with a forecast of many institutional closings, but this study suggests a potentially different outcome if higher education institutions adopt a strategy of collaboration. Although not new, this strategy’s day has come, and in my opinion, not just for higher education but for K–12 as well. The study’s authors, however, note that not every institution may be a candidate for collaboration if too many risk factors are currently present; in that case, institutions may need to look at complete transformation if they are to survive. The authors describe those risk factors as:
- Enrollment under 1,000 students
- No online programs
- Annual tuition increases of more than 8 percent
- Tuition discount rates higher than 35 percent
- Dependent on tuition for more than 85 percent of revenue
- Endowment that covers less than 33 percent of expenses
- Debt payments more than 10 percent of expenses
- Deficit spending
Trends Driving Demographic and Economic Changes
Let’s take a step back and review the trends that are cause for concern:
- From now through 2060, according to the U.S. Census Bureau, the under 18 population is expected to experience the least amount of change of any population segment, with projected growth from 74 million in 2016 to 80 million in 2060, while during the same time period, the population over 65 is expected to double in size.
- Young adults who are starting families today are projected to be downwardly mobile compared with previous generations at this time in life, due to rising costs, lesser attainment of wealth producing vehicles such as home ownership, and accumulation of student debt. That debt now stands at $1.48 trillion.
- Sharp cuts in funding to higher education have driven tuitions up at public colleges and universities, and cuts in subsidies to both public and private higher education have shifted more of the tuition burden to students and their families, resulting in an ever-expanding debt burden for the consumer and more discounting for the institutions.
- According to a study just released by the National Association of College and University Business Officers, in 2016–2017, the average discount rate for first-time, full-time freshmen reached 48.2 percent. By 2017–2018, it is expected to have reached the highest level recorded since the organization’s tuition discounting study began—49.9 percent. The discount rate for all undergraduates in 2017–2018 is also an expected all-time high, at 44.8 percent.
In response to these trends, Moody’s recently downgraded its rating of higher education from stable to negative, predicting that “the growth of the industry’s expenses will outpace revenue growth for the next 12–18 months, with public universities in particular facing money woes.” Independent schools face many of the same trends as higher education, resulting in enrollment declines and escalating financial aid in many corners of the industry.
There is no question that there is cause for concern as we look to the future, but there is also cause for optimism. There is still very strong support among the American public for quality education at all levels. However, if we are to be successful, K–16, over the long-term, we need to rethink our models.
Segmented Strategies for Collaboration
The EY-Parthenon study concludes that this new era “demands a significant shift in strategy for institutions around the idea of collaboration and the development of much deeper partnerships than higher education has ever seen before.” The authors frame the problem as too many institutions chasing too few students and the strategy as deep collaboration to cut expenses and to enhance the student experience. What most intrigued me about the approach was the division of the higher education market into four buckets, with a different strategy resulting from the market conditions for each segment. Here’s how they divided the higher education market:
Their categorization could easily be applied to the independent school world and the strategies resound as well. I would like to build off the recommendations from the school context.
- Strong niche: Schools in this category come from a position of strength, as they have a clear value proposition and a particular niche in the market. However, that may not be enough to keep them solvent in the years ahead. The study authors suggest that this group consider partnerships as an opportunity to further differentiate. For example, a successful single-sex independent school could partner with similar schools, as well as other nonprofits and corporate entities, to create a STEAM focused-school unrivaled in the marketplace. The partnerships could reduce costs and drive much larger fundraising dollars, thus making the school more accessible financially to a larger segment of the market.
- Large and thriving: These are also schools that come from a place of strength. The authors suggest that schools in this category should think enhancement. Like schools in group one, they grow stronger from collaboration, offering even greater opportunities for students. Collaborations could allow them to build on their current strengths or fill a gap for which there is a growing market. For example, a few independent schools have experimented with partnering with existing social service agencies to address student needs that they can’t fill within their own institutions. Schools also have partnered with colleges and universities to expand advanced curricular offerings.
- Small and at risk: These are perhaps the most vulnerable institutions for which survival is questionable. The authors suggest that these schools can’t cut or tweak their way to survival, rather they have to come up with a totally different strategy. Merger is certainly a potential option for these schools, but also there is the option to partner with one or more schools to come up with something completely different in the marketplace—the blue rather than the red ocean strategy. In the higher education world, think of Western Governors University. It was founded when a group of governors got together to solve this problem: “How can we ensure more of our residents have greater access to a college education that fits their schedule?” Could a group of independent schools collaborate to solve a problem such as a high-quality, affordable independent school within reach of the middle class?
- Large and languishing: There is probably a slower march to extinction for schools in this category, but the authors suggest that they need to adopt newer models of efficiency if they are to survive long-term. In the independent school world, schools in this category could think about partnering around infrastructure services such as database, finance, and human resources. Instead of launching new programs, they could partner with online programs or other schools. If they take a systems approach to structuring themselves and breaking down silos, they will no doubt find new efficiencies.
Exploration of New Models Also Needed
In addition to collaboration, I believe we need exploration. If we look at the problems that need to be solved in our society and partner around those, we may come up with novel educational approaches and business models. Consider MissionU, a partnership of academics and businesses trying to solve the problem of students graduating from college laden with student debt, yet finding it difficult to find a job because they do not have the requisite skills. They offer an intensive one-year program that charges no tuition up front, rather the student pays it back once they have achieved a certain earning level. WeWork’s WeGrow, an enterprise that is opening its first elementary school this fall, just purchased MissionU. It also acquired a coding bootcamp and developed a partnership with 2U, which operates online graduate programs. According to WeGrow CEO Rebekah Neumann, its mission will be to unleash every human’s superpowers, as opposed to every child’s. “The purpose of life, in our opinion, is to be a student of life, for life.”
It’s an interesting value proposition and an organization worth watching as we enter this third education revolution of continuous learning.