Stevens Strategy Blog

Stevens Strategy was pleased to sponsor the CIC President's Insititute January 6th Plenary Session presentation by Dr. Ann Austin, entitled "Rethinking Faculty Work: Issues and Challenges in Independent Colleges and Universities." Dr. Austin is a highly regarded scholar who is noted for her research on faculty issues. Her presentation focused on the responsibility of presidents to participate in the development of policies, programs, and practices that foster academic workplaces supportive of faculty members.

For those interested in learning more, her presentation materials are provided using the link, below:

Dr. Austin's Presentation

You can find more about Dr. Austin at her web site:

Dr. Ann Austin

Turnarounds are cyclical events at most tuition-driven colleges as enrollments grow and provide excess income, then tail off, draining reserves from the growth period. Financial data over the past decade reflects this porpoising effect showing how colleges pop above zero net income and then soon dive below the surface. Most colleges accept this precarious existence as just a fact of life. Sometimes internal or external events conspire to send the college into an extended period of deficits soaking up all reserves and exhausting its short-term borrowing potential, pushing it to the very brink of its existence. This is when boards, presidents, alumni and others see turnarounds as a necessity for survival. The issue is: What do the college’s leadership and friends have to do to turnaround a college in dire straights? This question necessarily means that the college must devise a way to set itself on a course where its existence is no longer defined by bare survival at the margin. Successful colleges build resources so that future generations can count on a reputable education that imbues its graduates with the skills to meet life’s challenges.

Turnaround strategies that have a better than even chance of driving a college toward long term stability are built upon these half-dozen principles:

1. Presidential leadership that is market savvy is a necessary condition for a turnaround. This requires a president with the personal skills to change the dynamics and culture of a college and the experience to know how to deliver what the market wants. The board must make sure that its president has these skills and must be willing to pay the going price to find the best person to lead the turnaround.
2. Top quality leadership team in skilled positions – chief academic officer, chief financial officer, and chief marketing officer - is a critical secondary condition for the turnaround. Good presidents, great plans, strong financial support, and board commitment for a turnaround can be thwarted by mediocre leaders in the skilled positions. Effective change means that these chief officers must get others to do their work well, have the perspective to know what works, and the technical experience to know the right course of action.
3. Support for presidential leadership and willingness to implement change is the primary responsibility of the board. The board must not use tradition, personal interests, or intrigue to inhibit strategic change. If the board looks to revive a long dormant culture that is neither relevant to current markets nor pertinent to improving the college’s financial position, then the turnaround will never make headway. The board must make it patently clear that it supports the president’s strategy. If some board members find the president’s strategy unpalatable then they must seriously consider moving to the sideline given that the strategy is reasonable and ethical.
4. Process makes change legitimate by involving internal and external constituencies vital to the turnaround in the design and implementation of the turnaround. Nevertheless, process must not divert the direction nor act as a break on the pace of change. The president must assure that the constituent process expeditiously acts to formulate a realistic and timely strategic plan.
5. Reliable and valid data to test strategies are imperative so that the board and president can figure out what is available, what could work, and what is needed to make it work. In some ways, putting together a reliable and valid data set can be as daunting as process and leadership. Data at most colleges and in particular at schools in severe financial straits is poorly maintained if it even exists. For example, enrollment data in the registrar’s office is usually not reconciled against revenue reported in the audit. As a result, it is frustrating to build an accurate forecast model on enrollment data that that is out of sync with the financial data. Another area where data and audits are not in tune is expenses. At the end of the audit, the business office is handed changes that must be booked to the ledgers. However, these changes are not made to the budget reporting system, which is the source of detailed expense information. Time and extensive effort must be expended to get precise financial data.
6. Money to underwrite the turnaround is essential if it is going to have a reasonable probability of success. There are few instances where the confluence of good luck, a clever president, and a market ripe for new educational services have taken a college from death’s door to financial stability. In most cases, money was also needed to buy time, top quality leadership and professional support to get a turnaround rolling. The board has a key role in finding quick cash – either from their own generosity, from alumni or friends of the college.

These six principles can be summarized as the right people in the right place at the right time with enough new cash to take reasonable risks to kick start the turnaround. Although these half dozen rules do not guarantee success, they do compile practices that have worked in producing successful turnaround strategies. If the president, board, and community work together in good will and concentrate on the turnaround, they have a good chance of turning around even the most moribund institution.

Price as a market clearing device is sometimes distorted in higher education because of the academe's not-for-profit social purpose and endowment income, for instance. Colleges also often distort price when their governance structures make them slow to react to market forces, unable to clearly articulate goals, and inefficient in the selection of technologies to deliver services or when the determine price solely as a function of internal costs of operation. No matter how wise or foolish we may be in determining the price we charge, these prices do inform prospective students and their parents about the colleges they will consider. And despite the effects of endowments and collegiate values, price remains a balancer between demand and supply. So, many mid- to low-quality institutions are using, and more will need to use in the future, an aggressive price discounting strategy to attract students.

Excess demand should mean higher prices or tuition rates, and excess supply should result in lower prices or tuition rates. While this is not always evident from posted prices, it is more evident when tuition net of discounts is used as the price of education. This pricing relationship is not as clear among wealthy institutions such as Harvard, Princeton, Yale, Duke, or Stanford that have high demand and also offer large pricing discounts. They use large endowments to subsidize tuition so that they can attract the best academic talent.

For the rest of our colleges and universities, pricing is a critically important matter. And there is a fundamental dynamic that determines an enrollment driven college's flexibility in pricing: The rate of change in its enrollment. When enrollment falls or even when it is stable, these colleges are forced to raise tuition faster just to keep pace with their internal inflation rate. Unfortunately, this fundamental dynamic will eventually push a college's price to an unfavorable position vis-à-vis its market. And more and more colleges may face this dynamic as student markets enter a period of tremendous demographic change. The west, southwest, and southeast should see strong growth in the traditional and adult components of their markets. However, the northeast and mid-west will see a drop-off in the number of high school graduates that will last through 2015. Even the adult market will decline here.

High school graduates with low grade point averages and low achievement test scores are already being recruited more heavily by mid- and low-quality colleges and universities. And these colleges are finding that the cost of educating these students has been rising dramatically. As some markets get pinched, these dynamics are likely to accelerate. But even if these colleges attempt to maintain applicant quality and address the shrinking market by recruiting students in more abundant yet distant applicant pools, the cost of enrolling a new student will increase while they spend more on travel, advertising, and financial aid. And one of the main competitive devices in these new markets will likely take the form of large price discounts as colleges in declining markets fight among themselves for more distant pools of students. The exasperating result will be pressures to increase in costs and to reduce cash flow from tuition.

Enormous pressures to reduce tuition are likely as markets get tighter, so most colleges are going to need to keep tuition increases in check. And to do that, they'll need to take important steps to control cost or spend available cash more wisely.

Here are some suggestions on how to manage price and continue to offer a quality educational program.

1. Carefully manage new costs - especially personnel costs that usually have the greatest potential of quickly driving up costs.
2. Add new revenue programs or revenue sources at least every other year.
3. Weed out programs by using responsibility management analysis to identify programs with costs that exceed revenue. This analytic method will take into account the issue of financial productivity for general education service courses.
4. Develop a coherent financial aid strategy to target students that will enhance the college's academic standing and its market reputation.
5. Get auxiliary services to produce positive net income or out-source the program.
6. Place a portion of positive cash flow into a quasi-endowment fund that can throw off income to reduce reliance on tuition income.

In what is now becoming an all too familiar occurrence, there have been two more on-campus shooting incidents in the recent weeks. While it is too early to determine whether these latest incidents were preventable, other on-campus tragedies have resulted in many commentators questioning whether concerns regarding student privacy rights have outweighed student health and welfare interests. Such queries are perhaps justified as many schools have been reluctant in the past to release information without a student's written permission, and rarely avail themselves to the exceptions allowed by the Family Educational Rights and Privacy Act (FERPA). In large part a school’s reluctance or failure to communicate critical information regarding a troubled student is either due to a misunderstanding or misinterpretation of FERPA. Those schools whose administrations, staff and faculty have a clear understanding of what the law really provides are best prepared to recognize when a credible threat exists and act accordingly.

While FERPA does indeed protect a student’s privacy, the law is limited to the disclosure of information from a student’s education records. FERPA does not prohibit the disclosure of information garnered from personal observations or interactions with a student. For example, if a college or university employee is concerned about a student’s well being or the public welfare based upon personal knowledge or observations, the employee can disclose that concern without fear of triggering FERPA. Realizing this, many proactive schools have begun training their employees to recognize potentially dangerous behavior and have created avenues for the reporting of such observations. Others schools have created alert teams comprised of administrators, campus safety personnel and counselors which meet regularly to discuss students exhibiting emotional problems. With adequate training, education and well placed policies and procedures, all campus employees, from custodians to administrative executives, can play an active role in making the campus a safer environment without fear of violating FERPA.

Even when information exhibiting a credible threat is part of a student’s records, FERPA permits schools to disclose personally identifiable information “to appropriate parties in connection with an emergency if knowledge of the information is necessary to protect the health or safety of the student or other individuals.” While this amendment is admittedly ill-defined, campus administrators should not use fear of FERPA-related litigation as an excuse not to act prudently when a credible threat exists that a student might harm himself or others. The key is good faith and appropriate response in light of the facts known at the time. Thus, if a student sends a threatening email to a professor which could reasonably be construed as posing a risk of serious harm to others, the professor should share the information with on-campus professionals trained to address such emergencies. The on-campus professionals can then determine whether further disclosure and/or action are warranted. In a best case scenario, the school will have a policy in place which explicitly details which professional(s) should be contacted.

Another exception to FERPA’s general prohibition against disclosure authorizes campus personnel to share information from student education records with other “school officials” who have “legitimate educational interests” in the information. Again, the act poorly defines who qualifies as a “school official” and what constitutes a “legitimate educational interest.” Recent guidance from the Family Policy Compliance Office (FPCO) offers some clarity. According to the FPCO model definition, a “school official” is:

1. A person employed by the University in an administrative, supervisory, academic or research, or support staff position (including law enforcement unit personnel and health staff);
2. A person or company with whom the University has contracted as its agent to provide a service instead of using University employees or officials (such as an attorney, auditor, or collection agent);
3. A person serving on the Board of Trustees; or
4. A student serving on an official committee, such as a disciplinary or grievance committee, or assisting another school official in performing his or her tasks.

The FPCO further notes that a school official has a legitimate educational interest “if the official needs to review an educational record in order to fulfill his or her professional responsibilities for the University.” Within these parameters, an employee concerned that a student’s actions suggest a credible threat should share the information the school official charged with the responsibility of addressing such matters. In our example above, the professor should provide a copy of the email to the appropriate campus professional.

Parental notification also can serve as an effective tool in addressing student health and safety needs. While FERPA generally prohibits parental disclosure without the student’s consent, there are two notable exceptions to the rule. The first exception permits parental disclosure if the college or university can confirm that the student is the parents’ dependent for federal tax purposes. The second allows privacy to be breached if the student is under 21 and has a drug or alcohol violation. If these two scenarios are not applicable, the school should seek the student’s consent and/or determine whether the behavior at issue triggers one of the exceptions to FERPA discussed earlier.

Given the recent on-campus incidents over the past few years, it is increasingly evident that colleges and universities must take a more proactive approach to observing and interceding with a troubled student. Despite privacy concerns to the contrary, FERPA does not serve as a significant obstacle to taking such a proactive approach. With a clear understanding of the parameters of FERPA and appropriately trained administrators, faculty and staff, colleges and universities are in a position to help avoid further tragedies.

Note: Other exceptions to FERPA exist and we urge administrators to review the act in its entirety. We also would be remiss is noting that additional restrictions may arise under applicable state or federal laws. Discuss these issues with your counsel.

Daily news articles are reporting that the sub-prime loan debacle will hit higher education this fall. State lenders, major national lenders like Sallie Mae, and colleges and universities are reporting that they cannot get investors to buy their sub-prime loan packages. In almost every case, where equity loans are not used, students or parents loans for education are sub-prime. No one will buy them because there is no collateral to support the default and give the lender recourse.

Should colleges and universities even care?

Yes! The reason is that many institutions are vulnerable because most non-governmental loans are sub-prime. If students are unable to find some means of borrowing money, they may have to either forsake college or find a cheaper alternative such as community college. This could prove disastrous to enrollment and budget plans. Depending on the wealth of the families of new or continuing students, colleges could face a dramatic hit to their bottom line.

So what should presidents, chief financial officers, financial aid officers, and admissions officers do?

1. Find out the level of vulnerability that you face. Ask the financial aid officer to tabulate:
• The number of continuing students who receive sub-prime or non-governmentally backed loans;
• The total, average, and standard deviation of the value of these loans;
• The number of new students who may have to borrow money to complete their financial package before matriculation.
2. Have the financial aid office prepare a list of the names, addresses, email addresses, and phone numbers of these students - both new and continuing.
3. Have the chief financial aid officer meet with local lenders or other lending agencies to see what can be done to package financing for these students if the crunch hits.
4. Prepare information packages for each student that sets a deadline to cover the balance of their financial obligations to the institution.
5. Set-up a calling team to personally contact each person and arrange to get them to apply for money immediately.

This crisis may never happen, but it is best to prepare a response now rather than later. If the crunch does arrive with the start of classes and no action was taken earlier, colleges may find that the usual challenges of starting the fall semester are the least of their problems.