The world has faced no shortage of challenges over the last twelve months—that’s for certain. But while hindsight is 2020, the future is much less certain. Although many countries have returned to relative normals, there are significant uncertainties and structural changes that are here to stay.

Organizations have rapidly adapted to new operating models and workplace situations, such as the shift to remote staffing and flexible operations. Amidst these changes, one of the most heavily impacted sectors of the economy is higher education. Universities and colleges reliant on physical campuses and in-person teaching have had to move with agility. They have had to adapt to a slew of changes, including online learning and an exodus of international students incapable of traveling across borders.

As economies reopen and vaccination efforts reduce the future threat of COVID-19, higher education must continue to deal with a range of possible outcomes if they wish to survive and prosper into the future. With growing pressure on enrolment and tuition fees, how do higher education institutions navigate an uncertain destiny?

Current events: why pricing strategies are in focus

Market prices are a function of supply and demand. This is true of any business. In the context of internal financial management and strategy, decreased demand naturally places downward pressure on current and future pricing. The higher education sector is currently taking a hit, in terms of demand and pricing mechanisms, across four main fronts: 

• Economic hardship. According to Southern New Hampshire University President Paul LeBlanc, “traditional college education was becoming increasingly out of reach for a majority of Americans” prior to the onset of COVID-19. Of course, the impacts of the pandemic have made the situation even bleaker. Students are struggling to afford the rising costs of tertiary education and may, therefore, be more likely to seek alternatives.

• Lower cost of online learning. The shift to digital learning has been coming for years; the pandemic has only accelerated this movement. Proponents of traditional schooling may look to prestigious universities’ sprawling campuses as pillars of the “true college experience.” But these grounds are expensive to build and maintain, and they may become unnecessary if students are forced (or increasingly, choose) to learn from their homes. 

Online learning simply costs less to provision than in-person tuition. However, agile institutions have already taken the first steps to increase affordability and remain attractive to at-home learners. Pennsylvania’s Lafayette College, for instance, offers a ten percent reduction in tuition for students who opt to study remotely.

• International students. Certain countries rely more on international students than others. For many, the demand from overseas is one of the most significant drivers of funding. In the US, international students enrolled in domestic higher education have declined every year for the last four years—a trend that has accelerated following overseas border closures due to the pandemic. 

• Student loans and government oversight. Universities in England have recently experienced another round of government intervention. Following two years of fee freezes, the UK Government has intervened to cap the undergraduate tuition fee at £9,250. There is a growing concern about the cost of education and the proliferation of student loan debt hampering the future prospects of current and potential students. This is just another factor that universities and colleges must address over the coming years.

The importance of tuition modeling and strategic planning

The pressures on tuition demand have a massive impact on higher education providers. When it comes to strategizing their future, these institutions, like any businesses, need to drive with the lights on. After all, it’s impossible to make effective strategic decisions without all the necessary information.

Tuition fees are the primary source of revenue for higher education institutions. Therefore, these fees are the main component of their finances, impacting both their liquidity and longer-term solvency. Financial modeling allows organizations to simulate a range of future economic scenarios to better guide strategic decision-making. A financial model can be as in-depth as needed, taking into account a range of sub-initiatives and rolling them up into a clear, overarching picture. 

Tuition modeling allows institutions to assess a myriad of changes—like, for instance, the impact of a reduction (or further cap) in the fees they can charge. Does it make sense to promote online learning at a lower price point if costs can be offset by reductions in on-campus amenities? How many new students need to enroll to cover our ongoing funding costs? An effective tuition-based financial model can answer these questions and more.

How do higher education institutions maintain solvency despite today’s pressures?

There is clearly a monumental challenge brewing for higher education institutions. In a world of increasing competition, new government leadership, and renewed pressure on maintaining low tuition costs and reducing student loan debt, how do higher education providers balance their finances with their ability to serve their student’s needs?

The key is agile and informed adaptation to the changing environment. To demonstrate, let’s take a look at Wofford College, an independent liberal arts college in South Carolina. In early 2018, the college set out to assess the impact of new tuition models on their ability to attract new students in a financially beneficial manner. Wofford College developed five new pricing models, as well as five marketable initiatives to improve their financial sustainability. 

Using the Synario modeling platform, their finance team was able to quickly and accurately project the financial impact of the various tuition models and complementary initiatives. More importantly, they were able to effortlessly combine different initiatives to assess the effects of every feasible scenario inside of a single model. 

Tuition-based models should be flexible and adaptive to a rapidly changing economic and social environment. If your higher education institution would like to learn how Synario can help your teams model the future to enhance your strategic planning, get in touch with us today.