Case Study: Economic Crisis and Higher Education in the United States
The 2008–2012 economic failure is considered by many economists and investors to be the worst financial crisis since the Great Depression of the 1930s. It results in the risk of total collapse from big financial firms, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis also plays a significant role in the crash of key businesses and collapse of housing market, results in the delayed unemployment. Higher education is a large and various venture in the United States, which has impacted by the economic recession in a number of ways, but these impacts have not been the same and vary depending on state and type of institution.
Most higher education traditions started to be concerned about their financial problems due to economic recession. Their main source of revenue has been hurt by the downturn, and that those universities would need to make hard decisions about how to spend their money. In some states, a lot of institutions are in process of fund-raising programs to avoid delaying their supported campus building projects. Many of higher education university’s leaders have been considering and solving of two following questions: How is the economic downturn affecting institutions both public and private? What strategies are leaders implementing to guide their institutions?
Unsuccessful budget strategies are the main reason that caused many institutions’ problems. Their top managers have not effectively managed their money. Fund-raising, government support, and earned income will also suffer in a poor economy. They are also experiencing revenue deficits due to lower state appropriations, endowment losses, or a reduction in donation. Furthermore, institutions' difficulties in gaining access to funds invested in a major short-term investment fund.
According to Ken Chabotar, author of The Economy and Higher Education, budget management is related to the most complicated set of relationships in higher education are among college costs, student tuition fees, financial aid, and enrollment. Quality plus financial aid and affordability are the issues that most colleges and universities worry how much economics will affect while thinking about to limit costs and prices.
In the current economic situation, adults and recent high-school graduates are willing to study for two years at a community college make more financial sense than going straight to a more expensive campus. Community colleges as known as lower cost institutions are recognizing a rise in enrollment levels while small, independent colleges and universities result in a fall in enrollment. As a result, the economic crisis creates hardship not only for students in paying their tuition and also difficulties for higher education institutions to maintain their enrollment level, especially their budget and revenue. Additionally, many of well-known universities such as Harvard, Yale, and Princeton etc. are facing difficult financial problems due to cut of endowment and donation from investors and alumni. Well-endowed institutions have suffered losses up to a third of market value and 30% of donated money compelling budget cuts, wage freezes, and borrowing to support the operating budget rather than increase endowment spending. In the United States, there are a lot of campus relied on endowment too much. Many universities have been delayed on cash funding of appropriations from state and federal government. The top managers have to suspense almost half of capital projects and research in order to balance their institutions’ budget. Loss of enrollment and endowment in higher education increases the financial needs of university in order to afford their expenses and keep operation going. Below are the Decline in Balance Sheet Strength and the Percentage Change in State Fiscal Support for Higher Education, according to Moody Investor’s Report (Figure 1 and Figure 2): Figure 1 Figure 2
In order to do that, many universities have been accepting more students into their higher education programs and raise the tuition fee higher, almost three times the rate of inflation since 1983. Based on the government’s report, student debt has reached a record $1 trillion. It causes the leave of some student loan supplier or limiting their loan budget, resulted with an increased demand for financial support. Moreover, budget cut is one of the significant tools that most of universities have been applying. When budget cut occurs in education and universities sacrifices student resources, many students suffer and hold on their education until all of these are recovered. Many of students worry that those changes will affect their opportunity to complete their education in a timely manner because some classes and majors will no longer be offered. Besides, reducing number of faculty and staff and operation hours of campus services is the reason of diminishing quality of education. Figure 3
The current economic recession has not only affected every area of the population and society, but also higher education. Many universities are in critical financial condition; it is complicated for them to maintain their balance between budget and spending, raise enrollment level and attract more donation and endowment. In the current economic crisis, people worry about how to make and save their money more than spending on higher education. Budget cut is necessary but they have to execute it proficiently in order to keep quality of education and reputation. Efficient budget management and strategies are very important to higher education institutions at this time.
In response to the financial crisis, the institutions have reacted quickly to recover. They should review and reduce all of unessential spending over the campus. Suspension of capital projects and hiring freezes for unnecessary staff will be efficient in this condition. Discussing and understanding the need of society to offer more suitable programs for students that will increase the enrollment level. Tuition discount should be opened to all unemployed or low-income students in order to keep them stay with campuses. Applying more technologies in education such as offering more online classes and online library service, will result in less faculty and staff usage and less overhead costs. They should get more investors and donors by holding more fund-raising programs and creating more attractive and profitable projects. Also, all of institutions should send a request to Congress for an education stimulus package. References:
AEI North America. The Financial Crisis and the US Higher. Rep. N.p.: AEI North America, 2009. Web. 11 Aug. 2012. .
The Economist (2012). Higher education - The college-cost calamity. [ONLINE] Available at: http://www.economist.com/node/21559936. [Last Accessed August 11, 2012].