Treasury Symposium 2017 was held in New Orleans earlier this month. 285 senior financial officers from over 100 large universities participated in the strategic discussions. Once again, the takeaways from the three-day Symposium were thought-provoking as well as cautionary for the higher education industry.
Here are a few highlights from those discussions:
- Demographics for future students have changed – The 50 year uptrend in enrollment growth has come to an end resulting in fewer students to fill recently enlarged campuses. In recent years, an inflow of international students has helped offset the decrease of U.S. students; however, recent political changes may put this student base at risk. Ultimately, some schools will move to more discounting to attract students, leading to a broader divergence between competitive and less competitive schools.
- Financial resources are a difference maker! – Those institutions that have the ability to maintain and grow financial resources are likely to thrive where those with limited resources may be challenged, and possibly lose independence.
- The Internal Bank is essential – The ability to manage operating assets and debt portfolios effectively (the Internal Bank) has always been important, now it’s essential. Not only is this important for credit ratings, peer comparisons and operating budgets, this is also necessary to meet funding deficits for growing capital needs.
- A favorable interest rate environment is over – Managing operating portfolios in this rising rate environment is difficult and requires diversification (into non-fixed income), continuous oversight and risk management. This issue is accentuated by the end of cheap borrowing rates as the net cost of capital is poised to dramatically increase.
- Industry contraction will happen – However, higher education is much different than the private sector. News or rumors of a possible merger or restructure could “kill” an institution by diverting potential students and resources away to other institutions quickly. Integrating programs and facilities is tricky at best, and the need for this capability will grow.
Educational institutions will need to manage resources more effectively going forward as the environment for students and capital is changing rapidly. Those institutions that do this well are more likely to prosper, while those who don’t may face a very uncertain future.