Higher education institutions exist along a continuum of financial health. At one end are colleges and universities with manageable debt, stable enrollment, strong liquidity, and consistent leadership. At the other are institutions facing financial exigency, restructuring, or closure.
Most institutions confronting serious financial challenges fall somewhere in between. They are neither healthy nor in crisis, but operating under persistent financial stress.
For these colleges and universities, the critical question is whether there is a path back to long-term sustainability. Richard M. Cyert, the economist and former president of Carnegie Mellon University, offered a framework that remains highly relevant today.
Cyert argued that financial success in higher education is not defined by a single balanced budget. Rather, institutions should strive for what he called economic equilibrium: a sustainable state in which recurring revenues consistently support the academic mission while preserving sufficient organizational capacity to respond to challenges and pursue opportunities.
In today’s environment of demographic decline, political uncertainty, rising costs, and increased competition, that concept deserves renewed attention.
Principles of economic equilibrium
1. Long-Term Solvency. Institutions achieve equilibrium by eliminating structural deficits and ensuring that recurring expenses are supported by recurring revenue over time.
Too often, budget gaps are addressed through one-time fixes, optimistic enrollment assumptions, or temporary revenue sources.
Sustainable institutions resist that temptation and instead align spending with realistic expectations. Simply put, solvency is an essential element of mission. Institutions that cannot sustain their operations cannot sustain their educational purpose.
2. Organizational Slack. Cyert viewed organizational slack as a strategic asset. In higher education, slack includes cash reserves, operational flexibility, leadership capacity, and the ability to make investments without creating additional instability.
The term should not be confused with inefficiency. Rather, slack provides the capacity to innovate, invest, and adapt. Institutions operating at the financial margin are often forced into reactive decision-making.
Those with reserves and flexibility can pursue new programs, technologies, partnerships, and enrollment initiatives that strengthen their future position.
3. Stakeholder alignment. Colleges and universities are complex coalitions of students, faculty, staff, trustees, alumni, donors, lenders, and community partners. Each group brings different priorities and expectations.
Effective leadership does not eliminate those differences. It aligns stakeholders around a transparent strategy and a shared understanding of institutional realities.
Consensus does not require unanimous agreement, nor does it mean every decision will be popular. It does mean that institutional priorities move forward with maximum support and minimum resistance.
4. Stabilize before investing. Many struggling institutions search for a transformative solution that will reverse enrollment declines or financial losses. More often than not, those efforts fail because underlying financial challenges remain unresolved.
Successful turnarounds typically follow a sequence: stabilize operations, build stakeholder alignment, restore financial discipline, and then make targeted investments in programs and initiatives positioned to strengthen academic distinction and institutional reputation.
Sequencing matters.
3 steps toward equilibrium
1. Stop the bleeding. The first responsibility is to control what can be controlled. No institution can build a sustainable recovery strategy on hoped-for revenue. Financial stabilization often requires difficult decisions involving staffing, compensation, academic programs, and operations.
Many institutions have reduced payroll costs, offered early retirement incentives, consolidated programs, or eliminated underperforming activities. Others have deferred maintenance, though often at significant long-term cost.
These decisions are rarely popular, which is why communication must accompany action. Stakeholders are more likely to support difficult choices when leadership clearly explains both the rationale and the consequences of inaction.
2. Communicate, align, execute, assess. Economic recovery is not a single event. It is an ongoing process.
Effective communication begins with listening. Faculty, staff, students, trustees, and donors often possess valuable insights that improve both planning and execution.
Transparency matters. Financial realities should be communicated consistently and candidly. Trust is difficult to build and easy to lose, particularly during periods of institutional stress.
Execution must also be accompanied by continuous assessment. Financial performance, enrollment trends, program outcomes, and strategic initiatives should be evaluated regularly. Institutions that successfully restore financial stability understand that adjustment is not a sign of failure. It is part of the process.
Execution is not the end. It is the beginning.
3. Build slack through stewardship and asset optimization. For institutions facing chronic deficits, the idea of building organizational slack may seem unrealistic. Yet it is essential to sustainable progress.
After initial cost reductions, leaders must focus on disciplined expense management and active stewardship of institutional resources. These responsibilities cannot rest solely with a chief financial officer or a board committee. They require institution-wide attention and accountability.
Colleges and universities should also take a strategic view of their physical assets. Facilities are not simply overhead; they are part of the institution’s operating model.
Effective facilities strategies prioritize mission-critical space, explore shared-use opportunities when appropriate, invest in technologies that lower operating costs, and evaluate opportunities to monetize underutilized or non-strategic assets.
Building flexibility today creates the capacity to invest tomorrow.
