David Capitano and Adrienne Larmett of Baker Tilly’s Higher Education Practice

Higher education is at an inflection point, with many institutions fighting for their existence.

Changing student demographics and needs, evolving technologies and market demands and the recent pandemic have compelled colleges and universities to evolve. Simultaneously, institutions are combatting an increasing societal narrative on the perceived benefit of a college degree compared to the rising cost of education, public criticism of growing burdensome student loan debt and the ongoing debate regarding the value of a degree.

The academy has made significant progress, even with its inherent resistance to change, to be responsive to the evolving needs of its students and society broadly. However, it will continue to face significant headwinds. The risk universe is vast for higher education and any number of adverse events presents operational, financial, legal and reputation risk, which can significantly impact an institution’s achievement of its strategic objectives.

This article highlights four key risk areas administrators, faculty and even students need to be keenly aware of – business model, reputation, operations and compliance. Each hold some of the most serious challenges facing higher education today.

1. Business model

Demographic/enrollment cliff: traditional college student population declines (i.e., 18-year-olds), economic variability, shifting migration patterns and changing education preferences are resulting in student enrollment dropping. Many institutions are tuition-dependent, meaning a decline in enrollment directly impacts institutional sustainability.

Affordability: the rising cost of higher education is leading many potential and current students, and their families, to question whether the value of a degree is worth their investment, debt and long-term post-graduation financial well-being.

Fiscal sustainability: in addition to many institutions face declining enrollments, they are experiencing fluctuating levels of public funding, increased competition from other institutions and rising operational costs. These have negatively impacted the fiscal viability and stability of many institutions.

Academic offerings: maintaining attractive academic offerings and programs for students and employers is key to recruitment and retention efforts. However, new programming development and sunsetting less in-demand programming is challenging in many institutions due to tenure, culture and other structural (e.g., labor) factors.

Competition: institutions face steep competition both domestically and globally. An increasing supply of programs and institutions nationally and internationally, a decreasing supply of domestic students and an increasing desire for unique academic opportunities and experiences have impacted student recruitment and compelled institutions to forge partnerships and collaborations across borders.

2. Reputation

Brand and reputation: several scandals and adverse events have rocked higher education in recent years. Whether due to academic integrity (e.g., cheating), athletics, hazing and sexual assaults, these events have harmed or damaged the institution’s reputation and have, in some cases, impacted student recruitment and retention.

Campus safety: keeping students, faculty and administration safe on campus or on campus-sponsored trips is paramount. While crimes occurring on campus have decreased in recent years, cases of campus violence (e.g., sexual assaults, burglaries, thefts, robberies, protests), health emergencies and other incidents such as weather events and natural disasters, can negatively impact experience and retention and could result in other financial, reputation and legal risks and penalties.

Wellness and mental health: a recent Healthy Minds 2021-2022 Data Report, which measures mental health and related issues in college student populations, found that 44% of students reported having some level of depression, including 23% of students with major depression, 37% reported having an anxiety disorder, 14% reported having an eating disorder, and 29% reported taking psychiatric medication within the past year. Institutions that fail to provide the proper level of mental health services can face enrollment and retention issues, and long-term financial and reputational issues if a student leaves and graduates elsewhere.

Diversity, equity and inclusion (DEI): opinions on DEI programming have taken on a highly political and controversial nature with some calling for campuses to diversify and be more equitable, while others are seeking the elimination of DEI programs and positions. This makes it increasingly complex to navigate the reputational, regulatory and political risks.

Pandemic effects: the aftershocks of the recent pandemic are still being felt on campuses. Enrollments continue to climb to pre-pandemic levels, and students are still working through issues related to academic readiness and learning lag. These issues continue to impact finances, whether due to lower enrollments or the need for increased resources to support students.

3. Operations

Staffing and resources: recent higher education survey results demonstrate more than half of administrators are unhappy in their current positions and would leave if given the opportunity. Given staffing insecurity and increased demand for flexible work arrangements in the recruitment and retention of staff, institutions need to develop and respond to risks related to staffing to support continuity of operations.

Business continuity: due to uncertainty in staffing, retirements, increasing natural disasters, cyber interruption or other events (e.g., health pandemic), institutions confront significant risk to operations continuity in the event of an interruption or outage.

Cybersecurity: institutions face a variety of cybersecurity threats as they have increasingly digitized and automated operations, learning, support and research. The open nature of higher education, research and collaboration makes it more vulnerable to data breaches, ransomware attacks and privacy concerns. These are now significant cybersecurity risks that sit atop most higher education risk registers.

Technology tools: technology advancements pose challenges for institutions in integrating digital tools and ensuring data security. Conversely, failure to adapt to changing educational technologies and teaching methodologies can negatively impact competitiveness, recruitment and engagement, which impact retention.

Operational efficiencies: many institutions have not automated various processes, instead relying on manual processes and increased headcount. The impact of not implementing approaches to improve operational efficiency can lead to increased costs, inconsistent service and human error. Likewise, student service and support expectations warrant more responsive approaches to communication and interactions.

4. Compliance

Regulatory requirements: higher education institutions receiving federal funding (i.e., Title IV funding, sponsored research funding) must comply with numerous regulations as a condition of the funding. Failure to implement internal controls to support compliance and non-compliance can lead to significant fines and penalties, and potential loss of funding. If an institution cannot provide financial aid, that could significantly impact recruitment and retention and overall institutional financial stability. Without research funding, institutions may not be able to fulfill their research objectives or attract and retain faculty, which could also impact the recruitment and retention of students and the overall financial stability of the institution.

While there are no simple solutions to all the challenges listed above, making sure that the leadership of your organization is fully aware of and actively discussing how to handle them is the appropriate place to start.

About the Authors

David Capitano, CPA 

David Capitano is Baker Tilly’s higher education practice leader. He provides oversight to more than 200 team members serving over 400 public and private colleges, universities, research institutions and academic medical centers across the United States.

Adrienne Larmett, CRA, MBA

Adrienne Larmett is a principal and higher education leader in Baker Tilly’s risk advisory practice. She has worked with more than 30 higher education institutions, focusing on internal audit, enterprise risk management, and research compliance.

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