There’s a strange disconnect in the latest Inside Higher Ed survey of chief business officers. Eighty-three percent of institutions expect to be financially stable over the next five years, up from 73 percent last year. Most CBOs describe their institution’s financial health “good” or “excellent.”
As I told Inside Higher Ed for their coverage of the survey, some of these numbers are “way too confident.” Many CBOs still budget annually, without multi-year projections to catch what’s coming in the marketplace.
At the same time, well-publicized institutions continue to announce hiring freezes and staff reductions.
Those trends seem contradictory, but taken together, perhaps they suggest that institutions are becoming more proactive about addressing cost structure problems that were overlooked in previous years.
The Tightening Horizon
The survey itself shows the distinction between medium- and long-term confidence.
While 83 percent of chief business officers expect financial stability over the next five years, only 70 percent expect stability when looking ten years ahead. Only 62 percent expect to be in better financial shape one year from now. That’s a 19-point jump from last year, but hardly universal conviction.
This tells us that institutions are hopeful in the medium-term, but their confidence drops sharply as you extend the timeline. Institutions are buying time rather than solving problems.
The hiring freezes and staff reductions we’re seeing now are the inevitable result of a structural problem that institutions have been managing around for years.
The Cost Structure Institutions Continue to Face
At private nonprofit, non-research institutions, roughly 50 percent of operating costs are tied to wages and benefits. Another 25 percent is tied to facilities. That’s 75 percent of your cost base concentrated in two categories, both outpacing revenue growth.
Personnel costs continue to rise faster than institutional revenue. Healthcare and retirement benefits remain one of the largest sources of financial pressure, with 35 percent of private institution CBOs reporting “great pressure” from these costs—double the rate for public institutions. Most institutions respond incrementally, increasing employee contribution rates, or simply don’t address the problem at all. Relatively few have fundamentally restructured their benefits strategy.
Facilities present a similar challenge. Seventy percent of CBOs report funding less than 25 percent of identified maintenance backlogs annually. Many institutions are deliberately making this choice to defer known costs into the future. The math works in the short term, but it’s a financial disaster in the medium-term, when deferred maintenance becomes urgent and expensive. In many cases, prospective students can already see the effects when they tour campuses.
This dissonance creates the confidence paradox outlined in the survey. Institutions feel stable because they’re achieving operating margins this year, but they’re only achieving those margins by making structural decisions—deferring maintenance, tinkering with benefits, avoiding program rationalization—that guarantee more difficult decisions later.
The Real Test: Enrollment and Pricing Under Stress
The CBOs in the survey know what’s coming. Forty-six percent cite enrollment decline as their top financial concern, while forty-two percent worry about structural cost imbalance. These are the institutions announcing hiring freezes now because they’re preparing for a scenario where enrollment stalls and institutions face price competition.
When both levers of the business (enrollment and pricing) tighten at the same time, you can’t manage your way through with small adjustments. The cost structure itself must change.
Many institutions have not planned for this change. We see “balanced growth and efficiency” as the default strategy—for example, grow enrollment and cut five percent from overhead. But when you’re facing potential enrollment decline and price compression, your plan needs to be fundamentally different. You need to know exactly which academic programs generate margin and which don’t. You need to understand the true cost of student support, retention initiatives, and facilities operations. You need to have tested multiple scenarios to explore what happens if enrollment drops by 5 or 10 percent, or if you need to reduce net tuition.
Institutions that consider these tough scenarios in their strategic plans today will have more options available than those waiting until financial pressures become unavoidable.
Why Scenario Planning Isn’t Optional Anymore
The survey also uncovered a preparedness gap. Only 16 percent of institutions have developed multiple formal financial scenarios, while just four percent have stress-tested their finances against specific policy and enrollment risks.
A practical planning framework should include at least three scenarios, perhaps consider below:
- Base case: Stable enrollment and pricing with a modest margin target.
- Downside case: A 5 percent enrollment decline with two percent pricing pressure, requiring a larger expense reduction target to offset lost revenue ($4M by year 5).
- Transformation case: Structural changes to the cost base such as program consolidation, shared services, or revised delivery models, enabling better margin targets even with lower enrollment.
Within each scenario, leadership should understand the financial impact of specific decisions. How much margin improvement comes from a hiring freeze? From program consolidation? From shifting to online delivery in specific programs? From reducing facilities footprint? From restructuring benefits for new hires?
The goal isn’t to predict which scenario will occur, but to understand your options before being forced to make a rapid decision.
Why Early Action Matters
Hiring freezes and staff reductions make headlines because they appear to signal institutional distress. However, they often reflect organizations acting while they still have meaningful choices available. Institutions that are mapping scenarios, identifying margin levers, and making early adjustments are positioned to weather what comes next without the trauma of sudden closures or emergency cuts.
The ones that will struggle are the ones that wait. They’ll be the ones with “stable” finances until suddenly they’re not. Then they’ll face the choice between radical restructuring or institutional decline.
What This Means for Your Board
If, like 83 percent of survey respondents, your institution’s financial stability strategy relies on confidence, that’s a risk. You need a multi-year financial plan that models the scenarios your institution actually faces, identifies the specific cost-structure changes required to remain viable, and establishes clear annual targets and milestones.
We’ve written about this before. Defining financial sustainability isn’t optional for any organization. If your sustainability definition doesn’t account for enrollment or pricing stress, it’s inherently unsustainable.
The same principle applies to cost alignment. Where is your institution subsidizing programs that shouldn’t be subsidized? Where are you over-investing relative to value delivered? These are difficult questions, but answering them provides institutions with more strategic options.
A Forward-Looking Perspective
We shouldn’t dismiss the confidence this year’s survey reported. Many institutions are in better shape than they were a year ago. But confidence isn’t a measure of long-term financial health.
The institutions most likely to succeed may not be the ones expressing the greatest confidence today. They’re likely to be the ones announcing hiring freezes now after doing the hard work of looking three, five, and ten years ahead and deciding to make changes voluntarily rather than under duress.
That’s what proactive financial strategy looks like. It doesn’t feel good in the moment. But it’s how institutions survive and thrive when the market tightens.
FuturED Finance helps CFOs and campus leaders build the financial models and strategic capacity to navigate scenarios like these. If you’re ready to move beyond confidence to clarity, let’s talk.