1、（x.x）xx）=xThe Last Straw for US Higher Educationand a Moment for ReinventionFinancial viability will depend on new models onceconsidered out of bounds、By Pam YeeMaureen SullivanMark Kraff Jeff Denneenand Hernan SqenzBAIN & COMPANY#page#Copyright2021B#page#BAIN & COMPANY QThe Last Straw for US Higher
2、 Education-and a Moment for ReinventionAt a GlanceCovid19 is pushing many US colleges and universiies toa financial precipice,with revenuesfalling as spending on virudl insructon and safey protocols rises.But many schools have been on an unsustainable pah for more than a decade. Bains modelingfinds
3、thatheavily tuitiondependent private instituions face he greatest risk. Up to 60% of theseschools have a weak financial outlookTo survive and thrive over the longer term all institutions must innovate in their economic andacademic modelsIncreasingly sfudents ofall ages wil seek sackable degrees and
4、cerificafes to help themprosperAlternaive payment sreams will flourish with more employers funding coursework.Teaching will blend onlineinperson and experientidllearningand adoptreolword mudisciplinary approaches.Covid-igs disruption is more abrupt severe and universal than anything US colleges and
5、universitieshave experienced Ina matter of weeks,the pandemic forced a shift to remote instruction and admin-longer view the sweeping changes in student needs.funding andthe role ofthe physicalcampusunderscore trends thathave been brewing formore thanadecade.Consequentlythe pandemic is pushing many
6、institutions towardafinancial precipice They willneed to take extreme steps to maintain economic viability in the near term and they must innovateto survive over the longer termIn the wake ofthe 2008 financial crisis. many boards oftrustees and senior campus leaders discussedtaking actions to operat
7、e more efficiently and to grow revenue beyond tuition increases.Yet once theeconomy recovered. those initial efforts largely petered out. An uptick in enrollment and endowmentreturns masked thefact that only a handful ofschools made major changes to improve their businessand financial sustainability
8、 Instead many US institutions bought into an escalating race for studentsbuilding highcost state-oftheartfacilities and expanding nonacademicservices.whichincreasedoperating defcits lsee Figure 1The pandemic is pushing many institutions toward a financial precipice#page#BAIN & COMPANY OThe Last Stra
9、w for US Higher Education-and a Moment for ReinvenfionFigure l:The race to atract and refain students has incredsed operating deficits for US institutionsCompound annualgrowth rate,revenue andShare ofinstitutions with operating deficits orthinliquidity.fiscalyear2019expensesperfull-time enrollment，2
10、014-175.132%283.8%10.9PublicPrivatePrivatewih operatingWith 30 daysforprofnonprofitdeficitscash on hancExpenses口 Public口PrivateRevenueWe raised an alarm in 2012 about the large number of institutions spending beyond their means（see the Bain Brief“The Financially Sustainable University）. Since then c
11、osts have continued to risefaster than revenue. Now the pandemic may force a choice between reinvention and ruinThe Covid-19 squeezeCovid-ig is intensifying the growing imbalance between supply and demand. Remote learningtechnology vastlyincreasessupply toamarketinwhichdemandwill barelyrise over the
12、nextdecade.Growth in international demand for US education also is waningIn parallel a decisive majority ofthe US population questions the value ofadegree.Lately revenues havefallenjustas institutionsface higher operationaland capitalspending on safety protocols andvirtualclassroom technologyThe fin
13、ancial squeeze could force many institutions to shutter on top ofthe 62 thathave merged closedorannounceddlosure since 2016.Many others willendure prolongedfinancial hardship. By contrastthose that use this crisis to catalyze innovation may beable to develop more flexible operating deliveryand econo
14、mic modelsSpecific predictions about how Covid-r9 will affect a particular institution are neither credible noruseful. Still the outlook for many institutions is bleak under any recovery scenariio,with harsher#page#BAIN & COMPANY QThe Last Straw for US Higher Education-and a Moment for ReinventionFi
15、gure 2: Four tiers of institutions face different financial oulooksOther Tier 1Elite privateLarge publicTuition-dependentinstitutionsprivate institutionsuniversitiesprivate institutionsForecast 3year3%-9%average annual4%-11%6%-13%90-98revenue declineShare of40%-60%institutionswithweak financial20%-3
16、5%15%-30%outlook6%-15%High tuiton relianceEnrollmentincreaseSignificantLowesteffecton enrolmentin medium termenrollment decineModerate effectHighestoperatingState fundingHigh relianceonenrollmentreductionsmarginon tuitionCandrawonLow investmentendowmentcapacityconsequences than in past recessions.Ou
17、r modeling of 98rinstitutions finances assessed the falloutunder three possible scenarios: a sharper morerapid bounce-back from the pandemic a deeper slowerrecovery anda prolongedrecession wih mutiple waves ofreinfectionandcontainmenteforts.each willcontend with its own set ofcircumstances lsee Figu
18、re 21Tiers of financial riskElite private institutions Gincluded in the top 5o national universities or top30 liberal arts colleges asranked by U.S. News Q World Report） willweather the stormin the best shape.They can count ontheir strong reputations,low acceptance rates and long waitlists.and large
19、r endowments. Weestimatetheirannualrevenues willdecline39 to 9% onaverage through 2023,depending onthe schoolandthe shape ofthe economicrecovery2023.Those with very high acceptancerates andweaker finances will need to take moredramaticactions to offset enrollment declines and spending on remote clas
20、ses.#page#BAIN & COMPANY OThe Last Straw for US Higher Education-and q Moment for ReinventionLarge public universites (the SIlargest public systems interms ofenrollment andresearch） stand to face a49 to II9average annual declinein revenues.Although they benefit fromthe backstop of state funding stat
21、e budgets are tightening andmany publiccampuses operate with slim margins.so thereisless room to cut Some willlikely enjoy increasedenrollmentas more students look to reduce tuition expenses and staycloser to homeHeavily tuition-dependent privafe institutions (827 privateuniversities with tuition ge
22、nerating atleast half of their revenues）bear the greatestrisk.They must contend with waning demandweaker finances and less effective remedies than other institu-tions.As a result, we estimate they will see average annualMany institutions mustrevenue declines of between 89 and 209 over the mediumterm
23、. Up to 609 of these schools have a weak financial outlookconsider makingnow（2o points higher than our pre-Covidestimate）and they willneed to make more dramatic changes in order to survive.financial andopera-tionaldecisionsthatWith the haltingandvariedresumptionofon-campus lifemany institutions must
24、 now consider making financial andthey have deferred forfaculty productivityacademics，cost structure，cashreserves，years involing faculyenrollment strategy and revenue.Many are cutting costs throughproductivity， academnear-term or temporary tactics such as furloughs. salary reduc-ics， cost structure，
25、 cashSome are taking longerterm actions.For example， Stanfordenrollmentreserves，permanently reducedthe numberofsports itoffers.The Universtrategy and revenue.sity ofAkron is eliminating 6 ofits II colleges and laying offabout one-fifth ofits unionized workforce.George Washingtonand many other school
26、s have delayed capital projects some ofwhich may not return. The California State University systemscancellation ofthe vast majority ofinperson classes for the fallmay presage the greater role of online instruction in the future.To stimulate demand and maintain revenue in the near termschools have a
27、 number ofoptions.They can invest in remotelearing technology and partnerships.adopt flexibleadmissionstotarget They can also look critically at their academic pro-gram structre andscheduleadjusting them to bettermatchstudent demand#page#BAIN & COMPANY OThe Last Straw for US Higher Education-and a M
28、oment for ReinvenfionAl instituions even the elte, should make a cleareyed assessment oftheir curent position and outlook， then decide how deeply and broadlythey must transform their academic offering, delivery model operationsand economic engine，Many institutions will stop there，using a series of t
29、actical cost and revenue levers to squeak throughthecrisis.This likely wont be sufficient to thriveor possibly to survive, over the next decade giventhe trends described above, All institutions，even the elite, should make a cleareyed assessment oftheir current position and outlook then decide how de
30、eply and broadly they must transform theiracademic offering, delivery model operations and economic engine (see Figure 3Figure3:An institutions best path forward will depend on its starting positionEite privateOther Tier 1Large pubicTuition-dependentinstitutionsprivateinstitutionsuniversitiesprivate
31、 institutionsStrongDifferontiate to surviveInnovate tothriveStrengthen or change academic andeconomic models to break fromReset by establishingamorediferentiatedthetraditioroffering，targetingspeciic student segmentsPost-Covidand their needsfinanciayoomnoPull extremeStabilizefinancesRestructure cost
32、and economic modeloperational leversOptimize cost structureAggressively reset cost structure throughDramatically changeand maximizea broad range oflevers:make portfolio choicesoffering and cost structurethrough major structuralmoves.includingconsolidationWeak#page#BAIN & COMPANY QThe Last Straw for
33、US Higher Education-and a Moment for ReinvenfionAlternative models take holdThe standard higher education model has not changedmuch over the pasthalfcentury or So.Typicallyan 18-to 22-yearold procures a two-or fouryear degree paid for by parents or debt with coursesHIMAsop uye eu uuaoerdqolpuP Apms
34、Jo SUEIOIdUEM Kue sjuapnsJo suuas JuaIaJptheir career goals, with continuous learning throughout their lives. The digital revolution has bothenabledlifelong educationand stoked the need for it New learning models.instructional opportunitiesand degree offerings have sprung up.As aresultwe predict tha
35、t the future market for higher education willlook different than todays.to help them prosperas theirlivesandcareers evolveAlternativepaymentstreams willfourishwithmore employers funding coursework for employees. Institutions ability to selffund research willdiminishandthey will need to find new fund
36、ing models.Academicdelivery models willchange dramaticaly to serve this evolying demand blending onlineprivate-sector principles to better control the cost of growthinnovation and operations lsee Figure 4）Figure4:The future marketfor higher education willlook very differentFrom.StudentpopulationAges
37、18-25longland needsMission andAcademic exploraton viastackabledegreestworksvia flexible.strategywo-and fouryear degreesOcampus，ipersonsioedby fieldOffering anddeliveryTWO orthree terms peryearOperationalEnrollment and tuiton growth000More balancedview ofconroling costofgowhgoalsas core priorityDegre
38、es purchased by parentsSkils andoutcomes purchasedby employersPaymentand debt#page#BAIN & COMPANY CThe Last Sraw forUS Higher Education-anda Moment for ReinventionIndeed promising alternatives already exist. Northeastern has introduced a broad range of certificateanddegree programs thatcombine class
39、room study with experientiallearning through companiesandotheremployers. Western Governors gives students creditfor prior work orschoolexperiences.they will funnelmoregraduates intoAmazon andotherlocaltechnology companiesBy viewing higher education from this “future-back perspective,institutions can
40、 break fromtraditional constraints and carve out new models that will delivera more atractive propositionto students，ata more sustainable cost. While these models will not completely supplant the tradi-tional approach, they will become more prevalent The transformation will happen in waves，startingw
41、ith insurgents andat theedges ofincumbentinstitutions.andeventually expandingas followersreplicate successful innovationsAcademic delivery models will change dramatically blending online，inperson and experiential leaning and adoping realworld muldisciplinary approaches. Educaton will become more per
42、sondlizedQuestions to frame the choicesBoards of trustees andcampus leadership teams that feelready to transform their institutions can startWho are our largetcustomers，andwhatare their prioriies Theclassic student population ofthoseunder age 25 is shifting to lifetime learners who may stop in throu
43、ghout their careers in order toelevateandexpandthir skills.Inline with this trend Purdueistargeting lifetimelearners throughthe purchase of forprofit online-only Kaplan Universityorreplaced withfexiblestackabledegrees tailoredto specifc studentorbusiness needs. Universitiescollege credits affordably
44、 online，for programs that develop specific skills.or reimburse employees for education based on their perfor-Arizona State. The government willl also continue to play a role,albeit a more limited one.#page#BAIN & COMPANY CThe Last Sraw forUS Higher Education-anda Moment for ReinventionHow do we deli
45、ver the offering？ Todays familiar delivery model on campus， siloed by academicvaried needs. One new model consists ofhybrid online/inperson instruction with face-to-face meetingsreserved for discussion and debate rather than lectures.Flexibility also means yearround on-demandlearningSo thatstudents
46、cantailor thepaceandintensity ofstudy to fittheirlives.Arizona Stateforinstance, offers multiple start dates.Whatdowe ousource? Universities havelong provided far more than academic instruction.includinghousing,dining，nearprofessional athletics.facilities managementandeven electric power We expectth
47、at much lke the forprofit sector educational institutions will increasingly create partnerships andsanIqede aioS Iau uo snooj ue Kauieu Os suaskso Jo ied se aneiadoThe appropriate timing for transformation will of course， depend on the institutions point of departure and the path ofthe Covidr9 pande
48、mic.For all colleges anduniversities. though planning now isandother stakeholders.Followingadisciplinedapproachaninstttioncan thenmove toits desiredfuture state stepbystepSurviving and thriving in the post-Covid environment will hinge on the ability ofcampus leaders tobuildon the organicexperiments
49、thathave already occurredtestingandlearningadapting swiflyand eventually creating new and viable models for hiigher education#page#Bold ideas. Bold teams. Extraordinary resultsBain &Company is a global consulfancy hathelps the worlds most ambitous change makersdefine the fulure.Across 59 offices in3
50、7 countries.we workalongside ourclients as one teamwithasharedambition toachieve extraordinary results. outperform the competition and redefine industries. We complementour tailored integratedexpertise withavibrantecosystemofdigitalinnovators to deliver beter fasterand more enduring outcomes. Our Io
51、-year commitment to invest more than SI billion in pro bonoservices brings our talent expertise and insight to organizations tackling todays urgent challenges ineducation racialequity socialjusticeeconomic developmentandtheenvironment Since our founding in1973，we have measuredour success by the succ
52、ess of our clientsandwe proudly maintain the highestlevelofclientadvocacy in the industry#page#For more information， visit DALLASATIANTABERLIBOGOTABOSTO3RUS5ELSUENOSAIRESCHICAGOCQPENHAGENDOHADUBAIDisSEIDORMEXICO CITYMILANMINNEAPOLISMoSCowMUMBAIPALO AITO PARIS PERTH RIO DE JANEIRORIYADHROMESAN FRJOLKVASHINGTON,DCZURICE
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