Ripon College, August 21, 2023

Dr. Stephen M. Coan

Smaller liberal arts colleges provide an essential service in America including being the foundation of the most sophisticated, accessible, and multi-faceted higher education system in the world. A recent string of failures of small colleges has raised considerable concern about the viability of these colleges.

A declining population among traditionally aged students, and fewer young people choosing college, are driving a decline in enrollment. This has hit smaller colleges hard, as they tend to be more dependent upon tuition than larger institutions which have diverse revenue streams such as research grants, public funding, and non-academic revenue.

The solution being discussed in many small college board rooms is to fundamentally change the small liberal arts college model. Some suggest that they become career oriented, others suggest moving towards larger cohorts of students, or explore merging or being acquired. “Reinventing the Small College” has become a common title of articles and op eds related to higher education.

In 1985 the Coca-Cola company made what is regarded as a colossal error in modern marketing and product placement. Faced with 15 years of losing market share to Pepsi, and consumer demand for variety in soft drinks, Coca-Cola changed its formula, one that it had been using since the late 1800’s.

Despite consumer taste tests overwhelmingly favoring it, the new Coke created a backlash towards the company including protests demanding a return to the authentic taste of the original. The company quickly relented, reintroducing the original Coca-Cola as the “Real Thing” alongside the new product, and then quietly discontinuing the new in favor of the old.

The lesson from Coca-Cola is that innovation need not come at the expense of what is essential, or what you might call the core mission of the organization. Small, liberal arts colleges can survive by reinvigorating their time-tested model of teaching and learning. To do so, they must re-invent and innovate their business models to address six of the biggest challenges that they face:

1. Trust. There is no question that trust in institutions in the United States is at an all-time low. Without going into the reasons for this, suffice to say that liberal arts colleges are under attack on many levels. We know, however, that brands and even institutions that build trust and loyalty by authentic engagement and transparency, remain relevant and viable. Successful brands today also embrace diversity, equity, and inclusion and think about it as central to their business and financial growth strategies.

2. Optimization. Many college campuses and buildings are empty, much of the time. The opportunity costs associated with low utilization are increasing, especially costs such as housekeeping, energy usage, and maintenance required to keep buildings ready. While more academic programs may not be the answer, how can buildings and grounds be utilized in new and creative ways?

3. Scalability. Small liberal arts colleges lack scale in about everything, making about everything exponentially more expensive per student than larger institutions. Significant attention has been given to the merger of colleges in some cases, however, less attention is focused on partnerships and strategic alliances that both share and expand resources.

4. Data: The capacity to collect and then analyze data is one of the most immediate financial and operational challenges that small colleges face. Larger colleges have been doing this for years. Small colleges that can understand everything from energy usage in minute detail, to student preferences in the dining hall, to common characteristics among prospective students who visit campus in August versus May, and much more, are at a competitive advantage. Mining data, providing constant analysis and regular performance indicator dashboards, are essential to the financial success of liberal arts colleges.

5. Debt. Too many small colleges have too much debt. Cazenovia College could not make its debt service this year and closed. Birmingham-Southern is desperately seeking debt relief from the State of Alabama. Debt service is already high at most small colleges, and as refinancing kicks in at today’s interest rates, many colleges will find it even harder to meet repayment terms. Because of current debt loads, colleges are facing challenges in addressing capital renewal costs. Institutional debt loads, repayment, and addressing deferred maintenance, are in conflict, because borrowing is less of an option for renovation and capital improvements.

6. Pricing: The cost of college is not what individuals are paying, and the listed price is not what people are paying either. The public is increasingly weary of rising tuition and those with means to pay are increasingly reluctant to do so given the heavy discounting that is taking place at most colleges. Some colleges have recently announced price cuts. This usually results in short term gains in admissions, but those gains are typically lost in the ensuing years, and this strategy does not solve the core problem of optimizing revenue on a per student basis, equity in financial aid, or perceived value.

The solutions for smaller colleges lie in what Robert Fried and Eli Kramer refer to as the “Village Commons.” Successful institutions will burnish their brand, reinforcing that they are the “Real Thing” by amplifying and enhancing focus on liberal arts.

At the same time, successful colleges must think beyond the physical campus boundaries, and radically re-engage with existing and prospective markets to build strong trust, affinity, and new pipelines for students, including more emphasis on students from varying age groups, and creating large scale program partnerships for engaging youth at earlier ages in communities that are most often ignored in college recruitment. This is really a key component of a true diversity, equity, and inclusion model. Smaller liberal arts colleges have traditionally remained apart from communities, “the academy on the hill,” relying on prep-schools and dependable school districts as feeder schools.

Rethinking the role of small colleges in relation to communities and markets and transforming them into the kind of interactive brand that people feel a part of, is less expensive and more effective than rethinking the core product. Such an approach will create organic avenues for scalability, partnership, new student pipelines, and the invention of new revenue generating programs such as pre-collegiate academies, camps, conservation programs for adults, and other ways to optimize revenue from use of campus facilities.

Pricing needs to be understood as dynamic. As with other financial issues, pricing should be transparent to reinforce authenticity of the brand and experience. Decisions on pricing must be data driven to constantly determine true costs, true needs, true market value, and therefore maximize revenue on a per student basis. Need-based financial aid needs to be clearly differentiated from dynamic pricing.

The longer-term issue of institutional debt is a public policy issue that must be addressed by the state and federal government. Small liberal arts colleges must work together in this area to get relief from onerous debt loads. To do so, they must amplify their importance to society by demonstrating that they are truly rooted in the broader community, not online, but authentically as both providing for social good and as essential economic generators that continue to be needed and wanted.

Smaller liberal arts colleges are the “Real Thing.” They are an essential element of a robust and competitive higher education system for America and deserve not only to be saved, but to thrive .

Merchant Policies