Higher Education: Managing Costs to Hedge Against A Funding Shortfall

Higher education is costlier than ever. While it’s easy to have the perception that institutions of higher learning are not doing enough to manage increasing costs, the truth is that government aid that once came as grants has transitioned to student loans.

In 2016, Colleges and Universities experienced a 1.8% decrease in funding at the state and local level, according to a recent report produced by the State Higher Education Officers Association. While that might not sound too drastic, it is 17% below the 2008 funding level, with substantial cuts on the table as states look to offset increased funding requirements for recent changes to health care reform and other factors.

Recently voted changes to Medicaid will strain already stretched state budgets, requiring them to spend more on Medicaid, which may result in more pressure on public funding for colleges and universities, according to Inside Higher Ed. In addition, some states are dealing with challenges, such as underfunded pensions and/or declines in certain industries that will make finding funds for higher education more difficult. The downward spiral in per student funding results in higher tuition prices and increased student debt. In addition, it also limits investment in upgrading the educational experience. 

As tuitions and fees continue to rise at an unsustainable rate and funds become tighter, a number of schools are undertaking cost reduction and financial sustainability programs. Some schools, like Purdue University, have been extremely successful. In fact, cost reduction strategies have contributed to Purdue’s ability to freeze in-state tuition since 2012. According to a report by the James G. Martin Center for Academic Renewal, Purdue derived savings from a variety of efforts, including salary freezes, selling off its automobile fleet, streamlining purchases, cutting rental storage costs in half, and repurposing used office furniture instead of buying new.

Discussing cost-reduction efforts with your staff and the reasons why it will take a collective effort to achieve savings fosters an actionable culture of cost-reduction. This can create a sustainable plan to help compensate for funding shortfalls. Actionable steps can include evaluating spending patterns and pinpointing savings opportunities.

During a spending evaluation, expenses should be regrouped and scrutinized to create a well-defined picture of purchasing patterns. This can help you determine if there are areas where discounts are not applied, if there are invoicing errors, or if the same goods or services are ordered separately by different departments—all of which can increase procurement expenses. A spending review will also note other inaccuracies such as unnecessary expenses or redundant orders.

This analysis can reveal overlooked savings opportunities. For example, if you’ve noticed that staff members are purchasing office supplies from Amazon because a loss leader item has a lower price online when compared to a supplier’s list pricing, it’s worth it to explain to staff that supplier vouchers and discounts based on order volume will provide greater savings over the long run.

Working towards creating a collective mindset towards cost-reduction among staff and taking actionable measures to find savings opportunities can help your organization not only hedge against a shortfall in funding but continue to find the means to finance key initiatives within your organization.

The National Association of Colleges and University Business Officers (NACUBO) maintains a running list of ideas – ranging from fairly simple/low resistance ideas like stretching IT asset replacement to more contentious ones around compensation.  This can be a great resource to jumpstart the process of streamlining costs. 

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