A new Chronicle Intelligence report, “The Recession-Proof College: How to Weather the Coming Economic Storm,” by Alexander C. Kafka, explores both the difficult choices and potential options college leaders will face in the likely turbulence ahead – and what they need to do now to prepare. The following excerpt highlights the urgency of transformational leadership today. To purchase the full report and other Chronicle Intelligence products, go to Chronicle.com/Browse.
Colleges have benefited from a bull market for almost 11 years, the longest in American history. Many endowments have reaped robust returns from a strong stock market, and donations to higher education have soared. But bull markets do eventually end, whether that takes the form of a slowdown, a brief downturn, or — most likely — a full recession.
Higher education should brace itself for what boxers call the old one-two. First will come a left-hand jab from a downturn and potential recession that will further limit who can afford college in a market that is already pushing against the limits of both sticker-price tuition and deep discount rates. That will be followed by a hard right cross from an enrollment drop around 2025 that won’t bottom out until 2031.
Institutions that have a strategy and are steady on their feet will come out all right — maybe even leaner and stronger in some respects. Those that carry on with business as usual, or who are lulled by a possible countercyclical enrollment bump from the economic downturn, could find themselves lying on the canvas and wondering what hit them.
Higher education should brace itself for what boxers call the old one-two.
Which kind of institution is yours?
Although no one knows how long or how severe it will be, economists say a recession — sometimes defined as at least two consecutive quarters of economic decline — will probably occur before mid-2021. One analyst predicts that when it does, the Dow could tumble 35 percent.
As painful as that will be, it will also be colleges’ last, best chance to get their houses in order before the full impact of the subsequent enrollment drop. If they haven’t been doing so already, college leaders should intensify their efforts to retain students and steer them toward completion. They should gauge the resilience of their institutions by testing various financial scenarios. That work should also be accompanied by some constructive dreaming as institutions forge new student-recruitment strategies, refine their missions, and think hard about what higher education can be and their roles within it.
Put plainly, an economic downturn should compel colleges to do the kind of institutional soul-searching they should be doing anyway.
“Most universities never make tough choices to become efficient or to set real priorities,” says Lawrence H. Summers, a president emeritus of Harvard University, former secretary of the U.S. Treasury, and now a professor at Harvard. “Recessions can be salutary if they stop the inertia.”
Despite many areas of recovery — the stock market and employment chief among them — many colleges haven’t fully recuperated from the financial damage brought about by the Great Recession of 2007-9. What’s more, structural change from that financial disruption will make it harder for colleges to use the same strategies that helped them earlier.
“The fallout from the Great Recession, coupled with more or less flat net-tuition revenue since, means that most institutions have had plenty of opportunity to confront difficult trade-offs,” says Nathan D. Grawe, the professor of economics at Carleton College who wrote the influential 2018 book Demographics and the Demand for Higher Education (Johns Hopkins University Press).
In it, he explains that declining birth rates will lead to a 15-percent drop in the number of college-age students, and colleges across the country will experience that decline unevenly. Enrollment erosion is already being felt, particularly among small private, regional public, and two-year public colleges in the Midwest, the Northeast, the mid-Atlantic, and parts of the South.
Those segments of the market are experiencing “a dress rehearsal” for the mid-decade shake-up to come, says Brian C. Mitchell, president of the consultancy Academic Innovators and a former president of Bucknell University and Washington & Jefferson College. A recession will exacerbate that, and for colleges heavily dependent on tuition revenue, he says, “you’ve got a problem, and a serious one.”
A recession will lead to difficult choices, but it will also offer opportunities for transformational leadership. Your college doesn’t have to be defined by any one thing, says Mitchell, “but you have to have something to sell” — if not acclaim in particular fields, then maybe it’s your setting, your alumni network, or some cultural intangibles. If you don’t, consider what changes or alliances will make you distinctive.
The challenges are daunting. But if you’ve been waiting to share your bold institutional vision, this is your moment.
