Cost Structure Is a Symptom. Revenue Dependency Is the Disease.

A response to FuturED Finance's "What Drives Our Cost Structure in Higher Education?"

The FuturED Finance team recently published a clear-eyed breakdown of what's driving higher education's cost structures. It's worth reading. The diagnosis is largely correct: labor-heavy operations, aging and underutilized facilities, unfunded discounting that masquerades as strategy, and a slow-moving demographic cliff that will make all of it worse. If you haven't read it, start there.

Where I want to push the conversation forward is this: cost structure is a downstream problem. The institutions struggling most right now didn't get there by spending too much. They got there because they built their entire revenue model around a single, price-sensitive, and demographically constrained source. You can trim every line in the operating budget and still be structurally insolvent if 85% of your revenue is net tuition from a shrinking enrollment pool.

That's the disease. Cost structure is one of its symptoms.

The article frames value as price times outcomes, which I think is directionally right, but practically incomplete for most CFOs staring at a budget gap. The institutions that have the luxury of working on the outcome side of that equation are the ones that have already dealt with the revenue side. Everyone else is managing a liquidity problem while trying to run a long-term strategy. Those are different problems and they require different tools.

The unfunded discount analysis the article raises is genuinely important and still underappreciated in many finance offices. I've sat in budget presentations where the discount rate was presented as a marketing metric rather than a financial one. It's not. When you peel back the layers, an unfunded discount is simply an operating expense that doesn't appear on the line item where it belongs. It shows up instead as net revenue that never arrives. The accounting obscures the real cost, which is exactly why so many institutions let it metastasize for years before the board notices.

On facilities: the article is right that most campuses are house-rich and cash-poor, and the utilization math is brutal. A building available 8,760 hours a year that hosts instruction 30 weeks, 5 days, and 7 hours, is running somewhere around 14% utilization before you account for classroom scheduling gaps. Most of our infrastructure was built for a headcount model that assumed steady enrollment growth. That model is gone.

What I'd add is that the depreciation point in the article deserves more weight than it typically gets in board discussions. Institutions that don't budget depreciation aren't just using an accounting shortcut—they're creating a future capital crisis that gets handed to the next CFO. Every year you defer that conversation, the backlog of deferred maintenance compounds. I've walked campuses where the HVAC in a residence hall was original to a 1970s construction and the institution's annual capital renewal budget was less than 1% of replacement plant value. The math on that doesn't work over any reasonable planning horizon.

Here's where I part ways slightly with the article's framing around education becoming a commodity. It's not wrong—but the more useful question for a specific institution is: in what segments are you already commodity-priced, and in what segments do you still have genuine differentiation? Treating that as a sector-wide trend misses the real strategic work, which is identifying where your institution has pricing power and building around it.

The online providers and employer-sponsored learning models are real competitive threats in certain credential categories. They're not, in most cases, competing for the same student who is choosing between your residential liberal arts program and a peer institution. The threat model matters for what you actually do about it.

The article closes with a question I find genuinely useful: how do you increase outcomes while holding or decreasing prices in an inflationary environment? That's the right question. It implies that cost-cutting alone isn't a strategy—it's a floor, not a destination.

My answer, based on what I've seen work, is revenue diversification that's structurally connected to the institution's core assets. Real estate partnerships. Research commercialization. Workforce development programs with employer co-investment. Executive and professional education that leverages existing faculty and facilities at marginal cost. None of these is fast, and none of them is easy to execute well, but they all share a common feature: they reduce the percentage of operating revenue that depends on the next class filling their beds in August.

The institutions that get through the next decade won't necessarily be the ones that cut the most. They'll be the ones who figured out how to earn revenue from assets they already own, while building the financial model that no longer puts everything on the back of eighteen-year-olds and their families.

That's a different planning problem than the one most budget cycles are designed to solve. But it's the right one to be working on.