Universities Facing Financial Ticking Time Bomb

Universities and colleges around the world are systematically experiencing declining enrollment, rising costs, costly digital and technological advancements, reduced government funding, and changing student preferences. All of these factors contribute to increased financial vulnerability and implementing urgent, strategic measures are vital to course correct the fiscal trajectory of higher education institutions.

A new report from EY demonstrates that many universities are heading towards, if not already experiencing, a serious financial crisis. The report is based on insights from leading university figures in the U.S, UK, Canada, and Australia and includes some strategies universities are employing to facilitate growth, streamline costs, and improve capital management.

The report highlights that in order to strengthen their financial position, university leaders pivot from hemorrhaging resources in weaker, or non-strategic areas, and invest in the latest technologies to enhance teaching, learning and general employee/student satisfaction.

“Universities around the globe are facing a ticking time bomb in terms of financial sustainability,” said Catherine Friday, EY Global Education Leader. “Although the exact pattern of revenue and cost pressures varies between countries, the overall picture is remarkably consistent: outside of the research elite, financial sustainability is an increasing challenge with a number of mid-tier universities finding themselves stuck in a vicious cycle of deficit. Inside the research elite, the intensity of competition for ranking and reputation - and therefore the need for investment -  is growing year on year. And nobody is immune to general wage, energy, and other cost inflation.” 

The research shows that university finances in all four countries are being stretched thin:

  • In the US, 20% of US 4-year institutions are at risk and another 20% are in the monitor category, based on EY-Parthenon’s analysis of six key metrics which create the compositive Institutional Viability Metric. Over the last 20 years in the US, around 180 mergers have been executed, and over 300 institutions and 400 branch locations of other institutions have closed. In addition, many individual academic programs6 have closed in response to shrinking or shifting market demand.
  • In Australia,universities are facing challenges in funding cuts, casualized and mismanaged workforces, and a reduction of international students. Of Australia’s 38 public universities, nine recorded a combined deficit of nearly Aus$850m in 2022.
  • In the UK, universities are under pressure with many running deficits. In 2020/21, 33 institutions in England and Wales forecast they would have liquidity below 30 days by the end of the year. 
  • In Canada, eight universities posted consecutive net losses in the last three years. 

In order to regain financial strength, the report indicates that higher education institutions must re-imagine the university business model. Four areas of change are identified: 

  1. Develop strategic distinctiveness by backing success — and actively accepting disinvestment in weaker or non-strategic areas. 
  2. Create and capture the cost and network benefits of scale. 
  3. Deploy digital technology to enhance teaching and learning and general employee and student satisfaction.
  4. Invest in change capacity across people, processes and technology.

“The time for tinkering around the edges has come and gone. Regaining financial strength will require a fundamental re-design of the university business model,” said Catherine Friday. “Previously unthinkable options need to be on the table: developing commercially focused portfolios, merging to achieve scale or building multiple funding streams outside of traditional funding models must all be considered to help solve for financial sustainability.”

Financial stability and sustainability are critical, time sensitive issues for the field of higher education and improving financial health demands higher education leaders to think outside the box. As leaders embark on innovative, essential change to bring a better future to fruition, they must motivate the dedicated faculty and staff to work in tandem towards this vision.