The Wrap Podcast | Episode 060: Navigating the Changing Landscape of Higher Education | Warren Averett

Commentators (0:03): Hey, I’m Paul Perry, and I’m Kim Hartsock. You’re listening to the Wrap, a Warren Averett podcast for businesses designed to help you access vital business information and trends when you need it. So, you can listen, learn and then get on with your day. Now, let’s get down to business.

Paul Perry (0:19): So, I want to welcome everybody to The Wrap, where we’re specifically talking about higher education. I mean, in today’s colleges and universities, it’s an unprecedented array of challenges and threats, right? I mean, there’s a lot of enrollments declining and a lot of rising costs. Student debt’s always in the conversation. So, you know, a lot to talk about and a lot to unpack in this session.

Kim Hartsock (0:39): Yeah, and I know that higher ed has certainly weathered crisis before, but this feels like we’re moving into a different territory. So, we’re really excited to have the experts within our firm here with us today. Please welcome Lee Parks and Rick Blanton.

Lee Parks (0:59): My name is Lee Parks. I’m with the Montgomery office, and I work in the public sector at Warren Averett. I specialize in state and local governments, nonprofits and institutions of higher education.

Rick Blanton (1:11): I’m Rick Blanton. I work in Montgomery office as well. I also work a great deal in nonprofits, institutions of higher education and state and local governments. We had some thoughts about what Paul mentioned about the history of colleges.

Lee Parks (1:29): Historically, colleges and universities have relied on a traditional model, where enrollment, state and local appropriations and contributions funded operations. COVID came in and upset the apple cart. All of a sudden, people were sent home and schools were initially locked down. The government came in, did what they needed to do and provided a lot of stimulus money to get everybody through this. So, in the past couple years, which has been a big Band-Aid, and it allowed everybody to get through that issue.

Now, we’re coming out of this, and everybody is looking at where they’re going to be positioned. Once the stimulus money runs out, it’s going to be interesting to see where various institutions are and how they position themselves to move forward.

Rick Blanton (2:24): You know, there’s been a lot of changes from code, not all of them terrible, but you mentioned some right there with funding. The traditional student has changed some too for colleges. The workforce has so many more people who are looking at working, and they realized they could work from home, as well as they could learn from home. So, I think that impacts a lot of the offerings. When you talk about the traditional model that focuses so much on enrollment. The programs and even the structure and how it’s provided has really been revamped in the last couple of years. I don’t know, I wonder… is that going to stick? I think there’s going to be certain segment of that population that expects that offering to continue.

Lee Parks (3:20): Yeah, I think that’s a good point. You know, you’re not only talking about online learning, but the commuters and the traditional student that comes to college and lives on the dorm (or in on-campus housing) and stays for four plus years and graduates? That is going to be a lot less than it was in the past. You know, now like you said, you’ve got not only online learning, but people who are working and going to class at night and working around that. So, it’s definitely going to be different.

Rick Blanton (3:56): You mentioned about the funding and the Band-Aid approach that the federal government took. Thank goodness that they did. I think that’d be a good time to mention something that all of our clients are hearing about is employee retention credits. Everybody has heard about them. A lot of our clients are getting phone calls and emails, and it’s really come down to people beating down their doors, talking to them about it. One of the things that our clients really have to be concerned about is, as you mentioned, state appropriations, federal funding and things like that where those initial expenses are covered.

Our clients, especially the higher education ones and nonprofits, have to be really cognizant of potentially double dipping if somebody decides to pursue one of those tax credits. These people that are reaching out, they are unconcerned with our client’s wellbeing and their future. It becomes the onus on our clients to determine whether they even have a possibility because they could be jeopardizing future funding. So, when you mentioned Band-Aid, it made me think about it. That’s one that may be harder to rip off, you could lose a lot of hair on that Band-Aid.

Kim Hartsock (5:24): Well, it sounds like the overall business strategy of colleges and universities is being forced to shift. Some of this was already in the works, prior to the pandemic, that was escalated or exacerbated. But talk to me a little, Lee, about the overall business strategies. What are leaders within these higher education institutions… what are they thinking about and what are they focused on, as they shift their business strategies?

Lee Parks (5:56): Well, I think, you know, as we’re transitioning out and the stimulus money is drying up. You know, they’re going to have to start focusing back on their budgets and trying to live a life without the stimulus. Obviously, your enrollment and the state and local funding will continue to be important, but really trying to home in on your expenses, get back to a leaner operation and trying to grow enrollment. But one thing we have seen is enrollment… they’re trying to grow enrollment at a cost. So, you know, when colleges and universities provide scholarships to students to come, they can be funded in different ways. Some are externally funded by an endowment (or gift).

Then, some are funded entirely where the schools are basically paying for that person to attend. So, they need to be careful about trying to get too aggressive in trying to grow enrollment at a cost. That’s going to be a difficult play. Because there’s no benchmark. Every institution is different when asked, “Well, what’s your discount rate?” The discount rate is the percentage of scholarships compared to tuition revenue. It’s hard because everybody’s different. A lot of that depends on if it’s an externally funded scholarship or an internally funded scholarship.

Paul Perry (7:32): You talked about a lean organization. I mean, I would imagine that, staffing has to be different. There has to be new challenges and new opportunities as it relates to the staffing of these colleges and universities. Have you seen that with some of the clients you’ve talked to? What is the industry looking for there?

Lee Parks (7:51): No, I think that’s definitely a good point. You know, staffing as a whole, it’s an issue. We all know that the cost of employees has been driven up. That’s a direct impact on the bottom line on the professional level. Not only the calls, but, you know, getting staff is difficult. Especially in the finance office or financial aid office. Those two come to mind initially. That’s a really difficult market right now. It’s competitive, and it’s hard to keep.

Rick Blanton (8:34): You know, that really speaks to that budgeting that you’re talking about, Lee. You’re talking about running a leaner operation, when some of your most important inputs, your people, are at an all-time high. The marketplace has just drained the pool of whom you’d like to have. Then, that also affects enrollment as well when you think about staffing and employment as a whole. You know, I read something the other day in the Wall Street Journal, McDonald’s expects their average pay to be $15 an hour next year. We all consider that, like the baseline, you know, your job at McDonald’s.

That’s what you could get just right out of the gate. That’s now impacting student choices about whether they want to now jump off this road after education or even two years of education, they start thinking about what they’re giving up because these employers are just making it really hard for them to make that personal investment without the initial upfront drive. You know, I feel like the higher students are getting it from both sides right now.

Lee Parks (9:45): Yeah, that’s a really good point. When somebody is coming out of high school and looking at the return on investment of a college degree. You know, these days, four years is a minimum. Most require a Masters. So, when looking at that, $15 an hour is high enough.

Kim Hartsock (10:14): Certainly, if you look at someone who’s having to face the obstacles of paying for college versus starting out working immediately, you’re not only delaying four years of making an earning income, but you’re now adding an expense, right? So, it’s doubling the impact as cost of going to college increases, you know, it’s making it more difficult, and you can see that.

Lee Parks (10:44): Fortunately, some businesses, you know, they’re having staffing issues as well. So, we’re seeing some businesses offering an incentive to current staff or future staff to come in. They may assist in the cost of the education with the requirement that they stay with, you know, a certain amount of years after. That does help a little bit, that everybody’s feeling the staffing pinch.

Rick Blanton (11:11): You know, some of our higher education clients are reaching out to industries to see what the highest and best use of what they’re putting out (an educated student ready for a career) is, so that they know they’re putting out the kind of people that the employment makes sense, and the college makes sense. Based on employment headed that way, I think that proactive approach between industry and higher education is maybe part of the answer to that business strategy.

Commentators (11:42): Want to receive a monthly newsletter with The Wrap topics, then head on over to warrenaverett.com/thewrap, and subscribe to our email list to have it delivered right to your inbox. Now, back to the show.

Kim Hartsock (11:56): I’m sure you know that every business and every sector of the economy had to shift during the pandemic to utilizing technology. I know that the colleges and universities were not immune to that. They had to adapt to that as well. With all that we’re talking about, you see more and more people offering a virtual MBA and a web program. So, talk to me a little bit about how technology is factoring into this shift that higher ed institutions are going through as well?

Lee Parks (12:31): Well, I think technology obviously is not just online learning. Everything has gone, as far as student access to records, study materials, grades and everything related to the school, to technology online. The security definitely becomes an issue. To discuss this, I would defer to Paul. Everybody’s at risk.

Paul Perry (13:07): Yeah, I would say that from a security perspective, anything that’s accessible through the internet is obviously adding a risk. Universities had a lot of vulnerabilities, as it related to their technology in the past. But once you put absolutely everything online and everything’s accessible, it’s even a bigger threat or a bigger vulnerability for them. They’re having to shift what they do. You talked about running a lean shop and doing good security is not cheap, right? You just got to put some funds to it, and you’ve got to have governances buy in on adding that expense. Yeah, it’s definitely going to play into enrollment, and it’s going to play into how everybody works and interacts. The more security you put in there, the less convenient it makes accessing things for people. No industry is immune to higher expenses around security. I’m pretty sure that universities are going to have an issue there as well.

Lee Parks (14:10): Paul, let me ask you… This is for a college that there may have not the investment of the infrastructure prior to this, and then all of a sudden, the demand of the technology network has significantly grown, so you may be at 100+ capacity on that network. Does that open them up more to risk?

Paul Perry (14:35): It absolutely does. You know, for universities that are listening to this and thinking: “Well, where do I get started?” You know, it’s that quick risk assessment of: “Where are we most vulnerable? Let’s fix that first.” A lot of people get overwhelmed, and they say, “Hey, I can’t fix it all at once. So, I’m not going to fix any of it.” That’s not the way to approach it. It’s, you know, step by step.

Do something different this month or this year. But really focusing on the higher risk areas, it’s definitely opening them up more to the vulnerabilities out there. The cyber criminals are not focused… You know, sometimes they have a moral code that says, “I’m not going to go after universities, I’m not going to go after children. I’m not going to go after hospitals.” But there’s a lot that say, “I don’t know what or who. I’m going after whoever I know has a vulnerability, I’m going after that.” It could be a mom-and-pop down the street, it could be a university. I don’t know the answer to that. So, you really have to take that with a grain of salt. You can’t assume that just because you’re a university, they’re not going to go after you.

Lee Parks (15:35): Sure. But since they’ve moved from the use of social security numbers as the primary identification for students, and they do student IDs now, some institutions think, “Well, that’s relieved me of my responsibility.” That’s really not the case.

Paul Perry (15:50): Right? Because I mean, I can easily find that out. It’s a portion of social security number, it’s got a little bit of other things to it. But if I can figure one person’s out, I may can figure others out. So yeah, it’s definitely linked to a bank account somewhere. Definitely, lots of vulnerabilities out there.

Kim Hartsock (16:09): Lee and Rick, there’s just a lot going on here. It’s a very dynamic situation for higher education institutions. Here on The Wrap, we like to wrap it up in 60 seconds or less… what’s the one thing you would leave listeners and the leaders of these organizations with for them to have success in the future?

Lee Parks (16:28): Well, I think that’s a great question. You know, to try to narrow it down to just 60 seconds is very difficult. I think we’re all trying to walk through this time together. Like we mentioned, I think, you know, getting your budget honed down, focusing on enrollment and other funding sources. Obviously, technology is huge. I’m getting that risk assessment and penetration analysis performed. Rick, do you have any other things that you want to add?

Rick Blanton (17:01): You know, Lee, you’ve done a great job summarizing that. I’d say, the awareness of all those things you just mentioned, and keeping them in your horizon line when looking at things like budgeting and making your strategies for the next year and the coming years. Being aware of all those items and how they could impact your university is the single biggest thing. It’s a broad approach, and it takes a lot of awareness to do it.

Lee Parks (17:26): You’re really focusing on a five-year plan as opposed to a one-year plan.

Paul Perry (17:32): Well, like every other industry, I mean, it’s not business as usual. I think you guys have mentioned and really expanded on that. So, Lee and Rick, it’s a pleasure to have you all on the podcast with us, and we appreciate you being here.

Lee Parks (17:46): Thank you all. We appreciate y’all including us.

Rick Blanton (17:48): Thank you so much. Well, we enjoyed it.

Commentators (17:50): And that’s a wrap. If you’re enjoying the podcast, please leave a review on your streaming platform. To check out more episodes, subscribe to the podcast series or make a suggestion of other topics you want to hear, visit us at warrenaverett.com/thewrap.