Higher Education Financial Health - A Case Study of the California State University (CSU)

Higher education is in a challenging financial time. Overall, states are investing considerably less in higher education than they did a decade ago and students are paying significantly more in tuition and fees. Simultaneously, the higher education landscape is changing – changing in terms of demographics, modes of delivery, workforce needs, funding and cost structures, and perceptions of value. Almost every day there is a new media story about a college or university experiencing financial difficulties. With decreasing confidence from campus financial officers in the long-term sustainability of their institutions and campus closures expected to escalate in the coming years, there is a significant need to better understand higher education financial health so that colleges and universities can proactively address challenges as they arise. Research pertaining to higher education financial health, particularly with respect to public higher education, was found to be limited. This project, first explored the research and methods in use to measure higher education financial health. Then, utilizing the Composite Financial Index (CFI), the most widely adopted metric for measuring financial health identified during the literature review, addressed a research gap related to financial analysis in public higher education through conducting a quantitative analysis of the California State University (CSU) system. The CSU, the largest four-year public higher education system in the country, serves as an important litmus test for the higher education industry as a whole given its sheer magnitude in educating over 480,000 students each year and producing one out of every ten workers in California. In addition, leading indicators signal that California public higher education should be exceeding industry performance given that California is the 5th largest economy in the world during a lengthy period of economic growth, is one of only four states to invest more in higher education in 2018 than it did in 2008, and has the 7th highest tuition rate increases over the same time period. The quantitative analysis of the CSU consisted of a four-pronged approach: 1) Analyze system financial health over a 20 year period; 2) analyze campus financial health over a five-year period; 3) analyze the CSU’s CFI over a 20 year period in comparison to key variables - Gross Domestic Product (GDP) growth rate trends, CSU state funding changes, and CSU tuition rate changes; and 4) analyze campus CFIs with campus enrollment size. Overall, results indicate significant underlying financial concerns for the CSU and disaggregating the results by campus indicate even greater financial concerns at a campus level, reinforcing the notion that smaller campuses experience disparate financial impacts and are more susceptible to closure if left unaddressed. In addition, this research establishes correlations with key variables analyzed and outlines recommendations for future research to further validate findings and more closely identify causality. These findings reinforce the need for colleges and universities to develop a sense of urgency to proactively address the changes and challenges that are occurring, with greater use of strategic financial analysis needed to achieve transformation