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Outlook on finance: Accountability and transparency

Campus leaders preparing to meet the challenges of increased scrutiny around financial issues
University Business, January 2015
A majority of higher ed leaders expect modest to significant increases in tuition revenue in 2015. (Click to enlarge chart)
A majority of higher ed leaders expect modest to significant increases in tuition revenue in 2015. (Click to enlarge chart)

Turbulence in the world of campus finance since the Great Recession has been starting to smooth, but the outlook is hardly pre-recession rosy.

Multiple forces are pushing institutions to change from the status quo. Institutions are feeling more pressure to advocate for state higher ed funding, prove their value to students and support the simplification of debt repayment. Yet some campus leaders might just be fine with the opportunities that scrutiny can bring, and in many cases, administrators are meeting those challenges.

Reauthorization question

In 2015, eyes across the finance and financial services spectrum will be watching for Higher Education Act reauthorization.

“Reauthorization, depending on timing, could present the biggest change for the financial aid community,” says Diane Corbett, director of financial aid at the University at Albany, part of the State University of New York system. “If reauthorization does not occur in 2015, we’ll be watching the impact of a continuing resolution on current financial aid programs.”

In that case, existing funding levels and programs would remain for a period of time until the HEA can be reauthorized.

Corbett believes the Perkins Loan Program, which provides loans for students with exceptional financial need, may be in jeopardy if HEA is not reauthorized.

Administrators could also possibly be facing a ratings system that ties student aid dollars to institutional performance. Other possibilities include emphasis on simplification of the financial aid process and streamlining of the student loan repayment process, to assist with student debt and to minimize risk of default.

Modest increases forecast for revenues, spending

Colleges expect to bring in a little more money but also predict modest spending increases in 2015, according to a UB survey on higher ed finance.

More than half of the respondents said tuition revenue will grow modestly over 2014 levels while 13 percent said it would drop—but not significantly.

Nearly half of the respondents also forecast modest increases in advancement income, endowment income and student fees. The biggest area of decrease cited was state and federal funding, with 20 percent expecting a modest drop and 14 percent anticipating a large decline.

As far as costs, more than two-thirds of respondents expect a modest growth in staff salaries, and over half anticipate an increase in tech spending. Some 47 percent expect to spend more on athletics.

When it comes to health care costs, one in five expect a significant jump; nearly one in four are preparing for a modest increase.

Respondents’ top financial priority for 2015 is keeping tuition down. More than half plan to combat administrative inefficiency, and about the same percentage said keeping technology up-to-date is a major goal.

Just under half said tapping philanthropic and corporate funding sources would be a primary financial focus.

The UB finance survey was part of a broader set of trend surveys deployed to readers in late 2014. A total of 470 higher education leaders participated.

F. King Alexander, president and chancellor of Louisiana State University, thinks HEA reauthorization has a shot in 2015.

He sees the biggest single shift this year as the focus on value and outcomes, which will become even more important if a new system is established to tie aid dollars to performance.

“‘Trust us, we’re worth it’ doesn’t sell anymore. I think that era is over, and the more higher education accepts the fact that we want to demonstrate value and outcomes, the better it is going to be in the long run, as opposed to having someone do it to us,” says King, who has addressed issues of college affordability, student debt and institutional efficiency and effectiveness in front of Congress as a representative of public higher education.

Investments in higher ed and financial aid

Alexander is concerned about having only a little bit added to the Pell Grant program when state appropriations are falling. He hopes the new year will ring in with continued discussion and possible federal legislation that rewards states through incentives and funding for investing in higher education. If this does not get done, “we’ll see states completely divest from higher education in years to come,” he says.

Alexander views federal incentives that are better tied to state funding as a cause for advocacy. “How do you leverage federal money as we were able to do with the American Recovery and Reinvestment Act of 2009? That example shows that federal leverage matters.” Higher ed leaders will need to advocate with U.S. Senate and House of Representatives committees. “Doing things as we’ve done them could be the looming disaster on the way,” he says.

In most states, funding is growing slower than the rate of inflation. Stephen Katsinas, director of the Education Policy Center and professor of higher education at the University of Alabama, sees major priorities—not all present before the downturn—now competing with restoring public education funding.

Katsinas says Affordable Care Act health costs and unfunded pensions, along with K-12 funding and Medicaid, are crowding out state investments in higher education funding. Since state appropriations and mid-year cuts can affect all types of institutions, all of higher ed is “in it together,” he says, adding that colleges should work together for success.

Organizations and policy groups across the country are proposing federal-state partnerships that would increase public investment in aid.

There’s also been a shift in recent years toward need-based aid, reversing a prior trend toward merit-based programs, says Andy Carlson, senior policy analyst at the State Higher Education Executive Officers Association.

Tuition, need-based aid to rise in 2015

Cost will almost certainly continue to get more attention than any other topic in higher education in 2015. Not surprisingly, three-quarters of the higher ed leaders who responded to a UB financial aid survey expect tuition to increase at their schools this year.

But institutions are providing help for students, and it appears there will be more focus on need-based aid. More than half of the respondents expect need-based aid to increase at their institution, while about a third plan to provide more merit aid.

Only 4 percent of respondents expect their schools to meet 100 percent of need in 2015.

Institutions also are planning plenty of initiatives around college costs. A third of the respondents said their schools will significantly increase financial literacy programs for students.

More than 1 in 5 reported plans to more actively counsel students about the financial impact of their student loans, course loads, choices of major and academic performance.

The UB financial aid survey was part of a broader set of trend surveys deployed to readers in late 2014. A total of 470 higher education leaders participated

“Most policymakers would say merit programs are a poor use of resources because students who can pay are going to go to college anyway,” says Carlson, who co-authored the April 2014 SHEEO report titled “Moving the Needle: How Financial Aid Policies Can Help States Meet Student Completion Goals.”

There are programs that tie such aid to completion, Carlson says. Indiana’s Frank O’Bannon Scholarship, for example, offers grant bonuses to students who complete coursework on time.

Financial aid transparency

Institutions will have more control over some 2015 trends, such as improving transparency around the financial aid process for families and students. That includes enacting policies to help students make smart repayment decisions.

Corbett says that financial literacy, early awareness about debt, and transparency in financial aid and cost to attend will still be big topics in 2015. “Educating students and families so that they are informed consumers in selecting colleges and in financing the cost of higher education is critical.”

Corbett also foresees continued emphasis on simplifying the financial aid process, which she says could affect aid programs as they exist today. For example, simplifiying aid programs has the potential to streamline the process for students and families, but not necessarily to reduce the administrative burden.

Corbett explains that administrators will also need to be vigilant that simplification does not result in reduction in student aid dollars and subsidies available to students.

Campus officials must demonstrate how both their institutions overall and their institution’s programs provide a good return on investment, says Katsinas of the Education Policy Center. “Our challenge is to better tell our story, with localized data.”

Education cost and value

The much-talked-about federal ratings system could be on the way in 2015, along with a stricter focus on outcomes, Alexander says. Current ratings—and the lack of a national system—leave parents and students confused about quality and value, he adds.

Tuition price is, of course, a key part of the discussion. The College Board reported in its “Trends in College Pricing 2014” report that the costs of a college education are “not accelerating. But they are accumulating.” The percentage increase in tuition and fees for 2013-14 was lower than the average annual increases for the past five-, 10- and 30-year periods. Costs have been growing for years, however—and may continue on the 2013-14 path of rising faster than most goods and services.

The average published tuition and fee price in the public four-year sector is 3.25 times its level of 30 years ago, after adjusting for inflation. In the public two-year and private nonprofit four-year sectors, the prices are about 2.5 times their levels from that time, the report says.

Whether or not simplification of the financial aid process, transparency and increased accountability become the focus of government action this year, administrators are thinking about how these potential shifts will affect students and administrative processing and other systems.

While the amount of financial aid students are using seems to be shrinking, says Corbett, that unfortunately doesn’t translate to less work for the institution. Administrators should be anticipating more regulatory burden along with greater accountability and compliance review. Even so, this is part of an overall shift toward value propositions for students and families—a shift that many policy experts and higher education leaders see as fundamental to higher education itself.

Caryn Meyers Fliegler, a former UB editor, is a Chicago-based writer.

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