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A Top Strategic Issue for Boards: The Business Model

A Top Strategic Issue for Boards: The Business Model

Top Strategic Issues for Boards 2016-2017 frames some of the most pressing challenges for colleges and universities. Excerpted and adapted below is a part of the discussion on the business model of higher education. Also included in this section are the rising price of college, deeper tuition discounting, diminished public funding for higher education, uncertain philanthropic support, volatile endowment returns. 

Most higher education institutions operate under several different business models. One set of economic structures might guide traditional undergraduate programs, for example, while different assumptions and practices come into play in regard to programs for adult or online students. Generally speaking, however, all college and university business models today are experiencing a certain degree of financial stress. And business practices that brought institutions to their current state may well not be the right ones to carry them successfully into the future. Innovative thinking and practices are required.

Limited debt capacity. Recent low interest rates have prompted sometimes aggressive institutional borrowing across higher education. But borrowing may be getting harder: The Wall Street Journal reported that some prospective buyers of bonds are avoiding bond issues form "small, private colleges that don't have national reputations, schools that rely heavily on tuition revenue, and those in regions facing population declines."

According to Moody's Investors Service, which rates the fiscal health of some 500 colleges and universities in the United States, the financial outlook for higher education going into 2016 was stable. Currently, Moody's reports, "universities will continue to explore expense containment and efficiencies, making it ever more difficult for universities to choose where to invest in order to remain competitive."

Looking for more information about the business model? Attend AGB's webinar on Revenue Growth and Diversification on September 20, 2016 at 1:00 ET.
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