Overcoming Inaction in Higher Ed Finance with Financial Modeling

Four Perils of Inaction in Higher Ed Finance 

Making decisions in higher education can be hard. It’s a complex landscape with many potential stop gaps to progress. There are many reasons why finance teams may not take action. These include decision democratization, compliance issues, and the endless decision cycle.

With challenges like inflation, high-risk events, and economic uncertainty, can higher education teams afford to miss opportunities? Can they handle the risks that come with standing still?
The world is changing. Colleges and universities should not make snap financial decisions. However, doing nothing can be just as harmful.

Inaction can hurt your institution's long-term financial health, but we’re here to help. One of the main causes of inaction is uncertainty and we can help you get a handle on best path forward for you and your institution.

1. Waiting Out Decisions Can Mean Missed Opportunities

Delaying strategic decisions can result in lost opportunities that might not return. This is especially true in higher education. A missed opportunity can lead to lost enrollment or a failure to retain a student.
Institutions should pay attention to these metrics. They often affect more than just one year of revenue. The impact can last for a student's entire education, which may be two, three, or even four years.

When considering the opportunity that each student presents, it makes quite a case for action. Time is of the essence. In academic year 2020-2021 the average net tuition revenue per first-time full-time student was $23,990 after adjusting for inflation. Over a four year span this represents $95,960 per student in potential lost revenue.

Source: COE – Postsecondary Institution Revenues

With student success being such a driving force for different institutional missions across the nation, there are greater internal and external incentives to chase success with action, rather than using the status quo as a way to shy away from failure.

Key Questions for Action:

• Does your institution have the resources to act now?
• What are the opportunity costs of waiting?

Financial modeling will play a key role in answering both of these questions. First, having a in-depth model that keeps you up to date on your institutions financial health is critical.

This model should be able to show you the current situation. If done right, it will also highlight your financial risks and strengths. These strengths may include reserves, debt capacity, or retention metrics.

Next, the opportunity cost of waiting. If nothing is done and you continue on as usual, you should know what that means for your future. Modeling out the cost of projects versus their impacts and weighing that against inaction can be telling.

Remember that even low-cost projects can make a positive difference. Institutions with fewer resources can still achieve their goals.

2.Inflation, Rising Costs, and Deferred Maintenance

Inflation affects higher education more than other sectors. Schools across the country cannot just raise prices to fight inflation. They need to be creative with their growth strategies. This will help them stay sustainable as costs continue to rise.

A report from commonfund on the higher education price index noted that inflation rose by 4% in 2023. This was a decrease from FY2022 but remains higher than FY 2020 by 1.9%. For context, the CPI reports that prices rose by 3.4% from December 2022 to December 2023, indicating that costs associated with higher education are rising at an accelerated pace to that of the average cost of goods and services.

The concept of rising costs compounds when applied to deferred maintenance for colleges and universities. Moody’s reports that deferred maintenance across U.S. institutions amounts to between 750 and $950 billion dollars over the next decade. Choosing to delay projects such as deferred maintenance or capital improvements might seem prudent, but it can backfire.

Deferred maintenance is exactly that, deferred. As these problems persist, they often get worse. For example, you are a university that has a crack in a dorm window. This issue is not mission-critical, so it isn’t fixed. Over time, the problem worsens, and suddenly not only the window, but the frame and the floor below need to all be fixed as a result of water damage from the crack.

Consider the effect on inflation into costs and the new fix is much more expensive than the cost to correct the initial problem. All of this is of course not factoring in the potential for these problems to expand to infrastructural damage or even lost revenue from construction barring the use of facilities like dorms.

It may be time to ask:

“At what point is inaction actually costing us money?”

This is where financial modeling and analysis for capital projects can provide a system that helps you act. Analyze your needs, what can you accomplish sustainably?
Strategic Takeaway: Incorporate cost escalation models into capital improvement planning to forecast the impact of inflation and avoid expensive cost increases.

3.Risk and Institutional Resilience 

Higher education is increasingly grappling with gray rhino events—highly probable, high-impact threats that are often ignored despite being visible on the horizon. One of the most pressing examples for the sector is the enrollment cliff.

This demographic trend, driven by a sharp decline in the U.S. birth rate following the 2008 recession, is expected to significantly reduce the number of traditional college-aged students starting in 2026. Institutions that fail to prepare for this challenge risk severe financial strain.

Preparation Is Key: Planning ahead is key, develop both contingency plans and a warning system of watching crises-based trends unfolding. Using key risk indicators as a scoring method can help predict problems. Having special funds for crisis management is also important.

Additionally, having clear crisis procedures will reduce the risk of potential crises.

4.Recession Fears and Adaptability

Economic downturns often push institutions to “hold the line” on spending, but inaction can worsen financial woes. Research from the Center on Budget and Policy Priorities indicates that during times of economic decline, downturns often relate to cuts in state funding, which correlate to an increase in tuition. The issue at hand here is that these tuition increases in many cases did not offset the state funding cuts.

There is no clear playbook to sustainability through economic downturns, but you can plan ahead to give your institution the best chance at success. What should be considered is adaptability and having a system in place to evaluate potential high impact initiatives, and promote agility.

A well thought out financial framework to initiatives can make the change management process smoother, and allow your institution to act quicker, or change course if need be.

Recession Response Strategies:

• Evaluate discretionary spending to redirect funds toward high-impact initiatives.
• Prioritize investments in technology and enrollment strategies to sustain revenue streams during economic instability.

How Strategic Financial Modeling Can Help

Embrace Change with Flexible Financial Processes

Higher education leaders need a forward-thinking approach to risk. Scenario modeling allows institutions to quantify risks and rewards, ensuring that decision-makers can visualize potential outcomes before acting.

Institutional Resilience through Contingency Strategies

Institutions need robust long-term plans that anticipate financial challenges. Having a flexible modeling solution at your disposable enables institutions to not only explore and refine solutions but quickly iterate on them over time. This will allow your plan to change as new information arises – keeping you ahead of the curve.

Focus on Controllable Variables

Uncertainty can paralyze decision-making. By focusing on clear actions, like changing project scope or timelines, institutions can keep moving forward despite challenges.

Plan Wisely, Act Confidently

Inaction can be costlier than a calculated risk. Higher education leaders must proactively assess and address financial challenges to secure a sustainable future. Working with tools and teams like Synario gives the data and insights needed to act confidently. This helps institutions stay strong in an unpredictable world.