By Rachel Gross

The higher-education funding crisis was peaking, and the mood was grim. Into the spotlight stepped Gordon Gee, then president of Ohio State University. “The choice, it seems to me, is this: reinvention or extinction,” he told the American Council on Education in 2009. “We must become more agile, more responsive, less insular and less bureaucratic. In so doing, we will save ourselves from slouching into irrelevance.”

In the half-decade since, Mr Gee’s call for reform has become even more urgent. In order to sustain itself for the future, today’s public university will need to transform into a different beast—leaner, meaner and taking cues from the private sector on how to do business. Leading institutions are recognising the need for change, and a number of universities are engaging more with their surrounding communities, incorporating online learning technologies and partnering with industry to support key research.

Yet adaptation will not be painless. For decades state governments have been pulling funding from higher education. Although some universities have responded by reducing core services and turning students away, the majority have attempted to replace lost resources by hiking tuition—leaving students and the federal government to shoulder higher costs and universities with unsustainable revenue streams. Over the past two decades, tuition as a share of college revenue has doubled, while state government support has declined by approximately 33%.

That said, many higher-education economists predict that fees will level out within the decade as the tuition bubble bursts and resets expectations for both students and institutions. Meanwhile, universities must develop new learning models that serve more students more efficiently and effectively, as well as business models for themselves that will prove sustainable over the long term.

Tightening belts

The global recession of 2008 thrust higher education into the spotlight. Millions of individuals who would normally be found in the workplace were seeking degrees instead, augmenting the already sharp rise in higher-education enrolment that began in the late 1980s and spiked with the advent of online learning and for-profit institutions in the 1990s. In the US, 21m students were enrolled in higher education in 2010 compared with merely 13m in 1987, according to a federal report on the economics of higher education. According to UNESCO (The United Nations Educational, Scientific and Cultural Organisation), nearly 160m students now attend college worldwide.

Within the US, state funding has not kept pace with increasing enrolment. On average, state support for public institutions of higher education has dropped from 60% to slightly below 40% since the 1980s. To make up the deficit, tuition at public four-year schools (which educate three-quarters of US students) has skyrocketed. Annual tuition at these schools has more than doubled—from US$3,350 in 1991 to US$8,660 in 2013.

The drop in state support has limited access to some university systems. In 2012, the California State University system—the largest in the world—was forced to reject 20,000 eligible students. (Despite hefty tuition increases, the tuition each student pays is still less than the cost of educating that student.)

In this stark new landscape, higher-education institutions worldwide are pressed for greater accountability and transparency, according to Ellen Hazelkorn, director of the Higher Education Policy Research Unit at the Dublin Institute of Technology. Public funding now comes with strings attached: in the US, state resolutions and the federal rankings have ushered in the rise of performance-based funding, allocating a percentage of resources based on indicators such as course completion, graduation rates or time to degree. “Survival is the name of the game,” Ms Hazelkorn says. “But in some cases, the ability to do what you did before but with less money is not possible.” Public institutions are now seeing greater teaching burdens, hiring and salary freezes, and departmental restructuring. In 2013, Purdue University in Illinois instituted a salary freeze for all administrative and professional staff with salaries above US$50,000, and began a programme to assess expenditures and practices across the university for potential centralization and cost-cutting.

Coping mechanisms and innovation

In the EU, shrinking funding has sped up what some call the “modernisation of higher education”, forcing institutions to focus more sharply on their core mission and values, says Ms Hazelkorn. And in the US, cash-strapped systems with an eye towards positive change are redesigning courses and using online learning technologies to increase efficiency and enhance learning, as well as generate new revenue streams through economies of scale.

A lack of resources has pushed California to innovate and experiment with lower-cost educational methods. Its  colleges and universities have launched online-learning pilot programmes, developed virtual laboratory classes and introduced “flipped classrooms”—blended teaching that combines online lectures and supplemental instruction—to reduce bottlenecks and enhance learning. Today, more than three-fourths of higher-education students have taken a course with an online component, according to the Educause Information Technology Report 2013, a figure that is only predicted to rise.

And it isn’t only California. Facing higher expectations from students and attempting to avoid further funding cuts due  to underperformance, other colleges across the nation are attempting to use technology to transform courses. In 2009, the University of Maryland reported on the success of its course redesign programme, including a large introductory psychology lecture known for its poor attendance, high failure rate and “overwhelming” amount of material. The class was transformed into an “interactive milieu” of online labs and small-group work. By the end of the experiment, administrators managed to cut the costs of teaching assistance while increasing the scope of content and student pass rates.

Some universities are also looking outside of traditional funding methods, partnering with industry in an effort to offset revenue decreases, expand research and prepare students for jobs after study. Ohio State University, for instance, has US$111mworth of industry-sponsored research and works with commercial institutions on programmes that range from agriculture to polymer science.

A clearer future

The funding squeeze will not undermine the classroom experience everywhere or forever, says Morton Schapiro, a higher-education economist and president of Northwestern University. “I wouldn’t confuse the last couple of years with a permanent decline.”

The financial crunch has not changed the way Northwestern does business; in fact, the school has admitted a more economically and racially diverse freshman class since Mr Schapiro took the helm in 2009. “A higher-education degree for most people is the best investment they will ever make,” he maintains. The more difficult task for universities will be to make sure the provision of those degrees is sustainable and their cost justified. Most schools looking to survive in an increasingly competitive and cash-strapped landscape will need to innovate and think differently about the best tools to serve their students—and their bottom lines.