Commentaries
Cutting Costs Is Possible. These Schools Did It.

By Jenna A. Robinson and Stephanie Keaveney

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February 05, 2016

As the stock market gyrates and talk of a new recession begins, many universities have reason to worry. The cost of college education hasn’t stopped rising, students are fearful of being burdened by debt, and political pressure is beginning to weigh in.

Congress is entertaining a bill that would require 25 percent of a school’s endowment spending to go toward student financial aid, and several presidential candidates have unveiled plans to solve the student debt crisis. At the state level, the return of state support to its pre-recession levels may be in jeopardy.

But a few universities have chosen to take a different route. In addition to looking for more state revenues, they’ve found ways to reduce their expenditures and to ease the financial burden on students. 

Former Indiana governor Mitch Daniels, president of Purdue University, has led these efforts with cost-cutting that has allowed it to freeze tuition since 2012, saving in-state students more than $20 million per year. The changes range from the mundane, such as selling off ten of its automobiles, to the path-breaking, such as forgone merit increases by all personnel at high administrative levels. 

Daniels plus his deans, executive vice presidents, vice presidents, vice provosts and other officers of equivalent level will not get merit increases this year. Increases for other top administrators are subject to direct approval from the chief financial officer of the university. The school has also streamlined purchasing, cut rental storage costs in half, and repurposed used office furniture instead of buying new. 

Among other steps toward savings:

  • The University of Cincinnati and Ohio State University (both part of Ohio’s university system) have cut costs through a combination of smarter spending and administrative cuts. At the University of Cincinnati, the president turned down a salary increase and bonus pay, and the school sold its presidential residence. Ohio State University, under the leadership of former president E. Gordon Gee, saved $95 million by switching to common vendors for office supplies and creating a common expense report. An impressive feat, slightly overshadowed by Gee’s equally impressive $2 million a year compensation package.
  • The University of North Carolina system has made one important consolidation that affects its 16 universities. Until 2013, every UNC campus independently determined which students were in-state and which were out-of-state, creating duplication, higher costs, and inconsistent results. In 2013, the general assembly centralized the process, increasing efficiency.
  • Temple University was among the first to eliminate varsity sports programs to save money. In 2014, Temple president Neil Theobald announced the university would eliminate seven varsity intercollegiate sports teams, saving the university about $3 million a year. The programs cut were baseball, softball, men's and women's rowing, men's gymnastics, men's indoor track and field, and men's outdoor track and field.

Other schools have focused on better accommodating students’ financial needs. One approach is to reduce the time to degree in order to decrease students’ overall tuition and borrowing. At Seton Hall University, students with a high school GPA of 3.0 or higher are offered lowered tuition—but only for eight semesters, or four years. Ashland University has a four-year graduation guarantee—as long as students stick to their university-approved graduation plan. Belmont Abbey has announced a fellowship program that will allow students to graduate in three years by attending courses on campus during the summer and online during spring and fall semesters.

Many private schools, including Converse College in South Carolina, Rosemont College in Pennsylvania, Utica College in New York, have moved from a "high price, high discount" model to a "low cost, low discount" model—a policy which more accurately reflects the cost of attendance by factoring grants and discounts given by schools. This change decreases what the average student pays in tuition; its advantage for the schools is that they may attract students who were scared away by the high sticker price. This is an essential move according to Kent Chabotar, professor and president emeritus of Guilford College. Speaking at a college finance conference earlier this year, Chabotar warned that half of all prospective students rule out colleges based solely on their sticker prices.

Understanding the largest sources of cost growth at universities may help more schools evaluate potential areas of cost reduction. According to the Delta Cost Project, an affiliate of the American Institutes for Research, the single largest source of rising costs at universities nation-wide is increased spending on non-instructional services and employees. This category includes spending on mental health services, career counseling, and construction of  lavish new facilities to attract prospective students. According to Delta’s Trends in College Spending: 2003-2013 report, spending on student services at research universities increased by 22.3 percent from 2003 to 2013 while instructional spending only increased 9.4 percent in the same time period. 

The most visible increase in non-instructional spending has been on marketing. Schools spend millions hiring branding firms to market their institutions to potential students, usually in out-of-state or international markets. However, at the University of Oregon, president Michael Schill recently canceled a $3.4 million contract with a branding firm and plans to spend the money improving academics instead.

Cost cutting isn’t rocket science. The National Association of College and University Business Officers (NACUBO) maintains a list of more than 70 unique cost cutting strategies. From adjusting computer power saving settings (which can save $75 a year per computer) to more significant measures such as suspending all undergraduate minors, the NACUBO’s list is, at least, thought-provoking. 

Universities unable to identify areas of waste independently have increasingly turned to private consulting firms, which evaluate university budgets objectively and recommend cost saving measures. The University of North Carolina-Chapel Hill was the first large university to do so, hiring Bain and Company in 2009. After a five-month study period, the consultants released a 100-page report, which identified 139 cost-cutting measures to save up to $161 million a year for the university. So far, Chapel Hill has completed more than 70 of the recommendations and has saved an estimated $75 million per year. 

The success of the Chapel Hill Bain study led other universities to follow suit. Both Cornell and University of California at Berkley have also contracted with Bain and Company to save an estimated $75 million and $25.4 million per year, respectively.

These steps can be important. According to Moody’s Investors Service, the number of colleges that close in the years ahead will triple, and mergers will double. This number will continue to rise over time if schools refuse to take the necessary steps to cut out the excess in their budgets.

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