The Impact of the Recent Financial Market Downturn on Private Liberal Arts Colleges

The purpose of this exploratory study was to analyze, using a multiple-case study design, how private liberal arts institutions of higher education were impacted by and reacted to (and coped with) the recent (2000-2003) economic downturn. A total of six institutions took part in this qualitative study. The study has resulted in a portrait of the steps institutions took in reaction to the market downturn (like financial initiatives and programs). Lessons learned by these institutions will inform the collegiate financial officer community of relevant practices and policies. This study is additive to thegrowing literature on financial management of higher education. Strategies employed bythese institutions could be applicable to all institutions interested in reducing costs and/orenhancing revenues.The conceptual framework found in Chapter Three presented an initial hierarchy between revenue enhancements and cost containment. This research found that the process is more dynamic; that is, it is more fluid and less hierarchical. The process is complex where revenues and expenditures are considered together in a holistic fashion. Since the six institutions researched believed the recent recession was a minor event, the processes they followed may only describe institutional behavior when temporary cuts are needed. It seems that student fees are constantly under consideration in the budgetaryprocess.Four of the six institutions experienced enrollment growth since 2000. Without this growth, the institutions would have needed to substantially increase fees, make additional cuts or containments in expenses, or find alternative revenues. Many of these institutions increased their tuition discounting during the same period and maintained a healthy gap between net revenues and net expenses. These institutions cannot growforever and eventually, as they achieve campus capacity, their enrollments will stabilize.When they lose the ability to contain costs through growth, these institutions will need toescalate revenue enhancements (like tuition hikes), reduce their tuition discounting, or cutcosts (probably a combination of the three). If the next financial market downturn hits when enrollment is flat or falling, its impact will be greater than the experience of the downturn studied.This research provided a holistic description of not only the impact of andreaction to the recent financial market downturn, but also the institutional attributes thatappear to influence the coping mechanisms. The research should serve as a foundation forfuture study. The research should be deepened by further exploring institutional frugalityand endowment payout methods. It should be broadened to include schools of varyingtype, locus of control, and geographic location.