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Surviving and Budgeting in Modern Higher Ed: A Three-Front War Amid Enrollment Uncertainty

By Michael K. Townsley

Thursday, August 21, 2025

Colleges’ chief financial officers may be facing the greatest budget uncertainty in their lives: shrinking student markets due to the looming demographic cliff, potential deep cuts in federal and state student aid, and major changes in technology that disrupt how institutions operate and compete.

Here is a partial list of these uncertainties are:

  • Demographic Cliff – student markets will start to shrink dramatically in 2026 and will not provide the scale increases in enrollment to generate more tuition revenue
  • Increasing tuition Rates – not be possible without corresponding increases in unfunded financial aid, which are counterproductive because they reduce the amount of cash flowing from enrollment
  • Pell Grants – could see a potential loss of $1,655 per student
  • SEOG – elimination of this grant;
  • College Work Study – large cuts in the grants with the amount undetermined at this time.
  • Student Loans – colleges would be partially responsible for students who failed to repay their loans; predicted large growth in the number of defaulters will provide further justification for Congress to approve requiring colleges to partially pay for defaulted balances.
  • Indirect Cost –indirect costs from federal grants would be cut to 15% of grants;

Together, these forces require a shift in how institutions plan, budget, and implement strategy. This guide combines two essential perspectives, survival strategies for long-term stability and budgeting tactics under uncertainty, to assist institutions in navigating the years ahead. The five steps are:

  1. Cut Expenses

Too many colleges wait to cut expenses until they are in a deep financial crisis. That is the worst time to consider this option because cutting tends to be done without forethought and results in a machete approach. Cutting expenses should be done strategically to yield a college with offers marketable academic programs and has the services to support academic programs and operations. However, when determining what to save, the college leadership must ask this question: Does this expense serve the strategy, while not weakening its long-term financial condition?

  1. Contain Enrollment Risks by Banding Enrollment
    • Budget enrollment forecast should use current enrollment; do not increase enrollment for the budget forecast.
    • Compute the standard deviation for enrollment for the prior five years;
    • Compute for the prior five years including the current fiscal year; the first and second standard deviation;
    • Only use the first and second negative standard deviation to band the current enrollment; this will capture 34% and 49% of the downside;
    • Compute the enrollment budget using the current enrollment with the first and second negative standard deviations as lower continent bands;
    • Plan enrollment and tuition revenue for all three bands;
    • Design contingent expenses for each band;
    • As the enrollment picture becomes clearer, move from the lowest band to the current enrollment band.

3. Increase Productivity

This is a very tough nut to crack because it involves faculty and staff workloads that are usually subject to college policies, governance ambiguities, and labor law. Nevertheless, here are several approaches to increasing productivity – decisions based on intuitive analysis or decisions based on data-driven analysis.

Goal: Make significant cuts in expenses that do not support the college’s mission or are not justified because the costs are not covered by revenue.

Intuitive Decisions:

    • End majors with multiple instructors and few students.
    • No longer provide secretarial support for faculty and administrators below the level of chief administrators.
    • Cancel athletic programs that do not generate sufficient tuition revenue to cover expenses.
    • Eliminate superfluous staff from offices and push the work to the administrator, such as
    • Contract out services when the contractor can do the work for less.
    • Eliminate services and activities that do not directly serve the mission of the college.
    • Scrutinize the costs of all benefits for employees and giveaways to student that the college can no longer afford.

Data-driven Decisions:

    • Switch to an RCM Model:
      • The Revenue (or Responsibility) Centered Model (RCM) is typically used to identify revenue generating programs that are note generating sufficient net income to cover college operations.
      • The RCM allocates expenses to the revenue centers. It also distributes the revenues when students take courses outside of a revenue center that is also an academic major. The distribution formula represents transfer pricing between multiple majors.
    • Transfer pricing must also take into account general (education or elective) course. Otherwise, these courses may either be overvalued or undervalued. Since most accreditation commission require these courses, they cannot be dropped willy-nilly.
    • Because RCM mainly focuses on revenue generation, many analysts overlook the potential for expense reduction to increase net revenue. For example, a revenue center net performance may fall below goals because direct costs or indirect costs (college operations) may be driving down net revenue for a revenue center.

Resources:

4. Sell Down Assets:

Simply means getting rid of assets that carry operational and capital costs but do not directly support academic programs nor directly support the academic needs of students. The most difficult aspect of assets aspect of the prior productivity conditions is that any costs can and often are justified to support instruction programs and students working toward a degree. The only resolution of this conundrum is to rigorously test what would happen if underutilized property, classroom, building, or piece of equipment is declared surplus and sold.

5. Borrow from Endowment:

The colleges in deep financial distress with endowments have two choices – figure how to access endowment funds to provide funds to survive long enough to stabilize the college; or close the college and leave the endowment unused and on the table. This option requires a good legal team to work with the state department of justice and with the courts to be authorized to access endowment funds. In most cases, the court and department of justice will only approve a loan from the endowment, if they can be convinced that the college has a strategy to stop bleeding out the last dregs of the college’s financial reserves.

The coming years will demand both strategic transformation and tactical agility. Long-term stability will depend on making tough decisions about programs, staffing, and assets today, while short-term survival will require flexible, risk-banded budgeting and constant vigilance over cash flow. Colleges that combine these approaches will be far better positioned to weather the demographic cliff, funding cuts, and economic uncertainty ahead.