President Obama wants colleges and universities to stop increasing tuition rates.  His State of the Union address, followed by speeches at several colleges and universities, indicates that controlling tuition rates are high on his agenda.  Arne Duncan, Secretary of Education, has followed up the President’s call for action by announcing that the Department of Education is preparing plans to limit tuition increases.  Duncan said that prospective students will have access to a DOE scorecard to compare tuition, potential debt loads, and graduation outcomes among colleges and universities.  Many presidents in public and private colleges and universities are deeply concerned that DOE may apply to their institutions the “gainful employment” measure used to evaluate for-profit institutions.  This rule tests whether the pay received by graduates from a for-profit institution is sufficient to cover their educational debt.

Presidents of public and nonprofit institutions alike know all too well that tuition increases are determined by changes in enrollment, in other revenue sources, in institutional financial aid, and by changes in expenses.  Simply put, every dollar increase in expenses must be offset by increases in dollars from net tuition and other revenue.

When presidents develop plans to reduce pressure on tuition rates, they need to evaluate their strategic, financial, operational, and marketing capabilities using the following techniques:

1. Evaluate what would have to happen to limit tuition increases by developing a sophisticated financial planning model.
2. Measure financial viability using CFI and the DOE test of financial responsibility.
3. Assess productive and non-productive academic programs.
4. Identify the net financial contribution of auxiliaries and athletics.
5. Compute the productivity of student services, academic support, and institutional support.
6. Conduct a SWOT (internal strengths and weaknesses and external opportunities and threats) analysis to identify strategies and to determine where the institution should allocate its resources.
7. Prepare an economic equilibrium plan that will guide the college as it builds financial stability within regulatory constraints that limit tuition increases.

It is very evident that the President, parents, and the media want colleges and universities to moderate tuition increases, now and not later.  Now, headlines are shrieking about the trillion dollar debt load carried by graduates.  Tuition debt load is being cast in the same light as the housing debt crisis: a problem that is crushing the average person.  They see college’s and university’s as only offering excuses for not moderating tuition increases.

Stevens Strategy can help presidents work through the preceding seven steps so that you develop an effective strategy before unwanted solutions are imposed by the government.  If you have questions on how to deal with tuition control, please contact us at [email protected].

Michael Townsley, PhD

Senior Consultant, Stevens Strategy