By Mahesh Bhangriya
Education in the United States of America (USA) is known for its emphasis on creativity, critical thinking, and flexibility, which allows students to align their interests with career goals. On top of this, the country’s educational institutions are equipped with highly skilled professors which makes it one of the most preferred study abroad destinations for students across the world.
However, everything that shines is not gold. Close to 100 higher education institutions (HEIs) in the US have been closed or consolidated since the year 2016. The primary reason for the majority of HEIs closure is financial headwinds. A decline in enrolments, federal aid, donations, and rising debt burden resulted in the operations of many US colleges at unsustainable levels.
A couple of public listed education companies and chain of colleges such as Corinthian Colleges, ITT Tech Institute, and the Education Corporation of America (ECA) were forced to shut businesses on charges such as predatory practices, cheating students and financial frauds.
Is pandemic the reason:
It is true that many US colleges have struggled financially in recent years. However, a brief analysis of the numbers also suggests that it is incorrect to make the coronavirus pandemic responsible for this mess.
Let’s split the closure of 93 HEIs since 2016 between pre-covid and post-covid. A total of 37 consolidations have taken place since covid-19, resulting in 0.9 consolidations per month. Whilst, the same number for the pre-covid period since 2016 results 1.2 consolidations per month (56 in 48 months).
Higher consolidations in the pre-covid era signify that the challenges among the institutions are beyond the coronavirus pandemic.
The real problem:
It is a widely known fact that restrictions on Title IV federal aid lead to declining enrolments and result in revenue plunges for institutions. But again, a change in macro policies is not sufficient to justify the shutdown. In fact, dependency on aids raises questions on their sustainability.
Drawing from a parallel to the SVB, Signature Bank and First Republic Bank failures; it becames clear that the collapse was essentially an outcome of poor risk management. It should not be termed a fraud, and it would be a mistake to blame regulatory policies.
Infact, inefficiency in the cost matrix of HEIs is a bigger reason for dwindling operating margins. The internationalisation agenda also faced fierce competition from fast-growing overseas study locations. As per the reports from ICEF, overseas students in Canada and Australia grew by 31% and 8% y-o-y in 2022, respectively.
Hence, the real problem lies in cost structure and operational inefficiencies rather than Title IV fund controls and the coronavirus pandemic. Yes, federal aid was one of the key factors that made institutional management overlook cost controls while the pandemic played a role in revealing this fact.
Learning outcomes:
There are important takeaways for students, especially prospective higher education students. Enroling in a college or university for a higher education degree is somewhat similar to marriage. The degree awarding institution’s brand gets attached to the student’s name for their whole life.
Hence, it is crucial for every student to check the institution’s profile on multiple aspects. Apart from sustainability, a comparison of fees and prospective earnings after college is also very important to evade future debt traps. The US Department of Education (DoE) could be one of the reliable sources for related information.
For the institutions, the key learning is to fix the cost of structure if it is imbalanced due to a variety of reasons and practices followed in earlier years. Many organisations across different sectors leveraged the pandemic as a blessing in disguise to rationalise the costs. The institutions that failed on cost matters could have also used the pandemic as an opportunity to correct the matrix to a reasonable level.
In fact, many innovative tech-enabled solutions that have been launched in the market to make education operations more efficient are now widely accepted among students post-covid. The lesson for the institutions is to show nimbleness and be resilient to changing market dynamics. It’s the need of the hour to reimagine the existing practices from student recruitment and course designing to academic execution and non-academic deliveries while adding elements of innovation and effectiveness.
Last but not least, the regulators, including the DoE and accrediting agencies, should also be vigilant for any potential closure of institutions. The instances of shutting down the campus without teaching out or pathway plans are a big trust loss to the whole ecosystem. The regulators should act proactively to avoid such situations.
The author is vice president, head, Corporate Strategy, Career Point Limited. Views expressed are personal.
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