As many colleges and universities face not only the financial strains stemming from COVID-19, but also the challenges of a broken business model that was in peril before the pandemic, many have sought to dig themselves out by launching new programs that generate new revenue.
But a new report from Burning Glass shows shocking failure rates from that strategy over the last several years.
Titled “Bad Bets,” the report reveals that a stunning number—two-thirds—of new programs launched on the heels of the Great Recession were graduating fewer than ten students a year by 2018. Roughly half were graduating five or fewer students, and 30% reported zero degrees.
This matters because, as the report makes clear, launching new programs costs money. And it’s money that colleges in many cases are hemorrhaging.
I’ve written before about the broken business model plaguing colleges and universities that I believe will lead to at least a quarter closing, merging, or going through financial exigency in the years ahead. But it’s not just me making these observations.
An article in The Hechinger Report estimates that more than 500 institutions currently show two or more signs of financial strain.
COVID-19 has exacerbated these challenges by diminishing enrollments and capacity to pay and, in many cases, increasing costs. Undergraduate enrollments have fallen 4% since last year, with first-year enrollees showing a 13.1% drop. This caps a long-term trend of declining enrollment, which is down 6% since 2010.
More than 50 institutions have closed or merged since 2016 with big proposals in states like Pennsylvania and Connecticut for further consolidation.
There’s a sense often in higher education that yes, the business model may be broken, but institutions can just grow their way out by launching new programs and driving new revenue. The research behind “Bad Bets” tracks the launch of 10,536 new programs.
The problem is that so many of these programs fail to graduate numbers that would justify their annual cost, which is what’s so striking about the report. Rarely are the conclusions from reports in higher education as clear as this one is—with significant implications.
To be fair, not every new program aims to produce large numbers of graduates. But there is a real set of questions if struggling institutions ought to be launching new programs unlikely to bring in new revenue.
Just as schools that try to pour dollars into money-losing sports programs in the hopes that it will boost their marketing—only to see the investment not pay off—the same dynamic could be true here.
According to the report, by conservative estimates, launching a new program costs $2 million over four years. If a program doesn’t pay for itself, then it may pull institutions closer to the brink.
What’s more, these costs don’t factor in the overhead costs from adding additional programs and pathways for an institution to manage. As our own research has shown, although doubling scale can bring efficiencies and lower overhead costs by 15%, doubling the number of pathways and products an institution offers increases overhead costs by 30%.
Against this backdrop, also striking is that there’s only one thing that predicts better performance in launching a program—which is size of the institution. The bigger institutions are better at launching successful programs, whereas small institutions—often those at greater risk financially—are worse.
Also interesting is that the programs that are failing the most aren’t just humanities programs or liberal arts ones. They are also vocational-focused—like construction, education, and engineering.
This suggests that a big problem is that institutions just believe that if they build a new program, students will come—and are failing to consider data around market demand in their region, the competitive landscape in their region, what employers are demanding, and the like.
Although many colleges have shown unexpected nimbleness during the pandemic by cutting entire academic departments in order to lay off all the department’s faculty members, to achieve longer-term sustainability, many schools will need to show greater discipline and risk management—and avoid making bad bets.