Higher education’s top cost savings opportunities

In an era marked by heightened financial pressures, institutions face the dual challenge of escalating costs and dwindling revenues. Recent government funding cuts and uncertainty about the future have compelled colleges and universities to deploy cost containment measures to ensure financial sustainability. In light of this urgent need, EAB has put together a summary of must-do ideas to help improve the effectiveness and impact of cost containment on campus.

Select from short- and long-term strategies based on financial condition

Institutions must tailor cost containment strategies to their financial conditions. Short-term measures (such as hiring freezes and reducing travel budgets) offer quick relief during budget crunches and help to buy time to deploy long-term strategies. However, short-term strategies often become unsustainable, which requires leaders to continuously adapt them to new crises.

Long-term strategies (such as position control and utilities retrofitting) promote sustainable financial health by streamlining operations and optimizing resource utilization while creating scalable opportunities to reduce costs. However, these strategies are inherently complex and require comprehensive coordination from institutions to implement them successfully.

Additionally, when deploying cost containment measures, many institutions default to across-the-board cuts. However, data shows that such cuts may escalate cost growth over time—67% of institutions that made large, across-the-board cuts saw costs grow faster immediately after. And, after two to three years, 45% of institutions had higher costs than if they’d done nothing at all.

Targeted measures are more effective as they focus on efficiency and protect mission-critical functions. Yet, leaders often struggle to strike a cultural balance when opportunities that yield the best results create winners and losers within the institution.

To help colleges and universities effectively navigate these challenges, we’ve outlined three must-do strategies for harnessing significant cost savings.

EAB’s must-do tactics for cost savings

1. Reduce labor costs with position control and voluntary separations

Labor is the major cost center for colleges and universities, with 56% of total expenses coming from salary and benefits alone. Position control manages the number and types of positions, as well as whether they are filled or vacant, ensuring that staffing matches the institution’s needs, budget, and goals. Unlike other labor cost strategies, this yields immediate savings from vacancies that aren’t filled and long-term savings by avoiding unnecessary hiring.

Position control is particularly effective because it aligns staffing decisions with institutional needs, thereby preventing unnecessary role creation. By maintaining sustainable staffing levels, this strategy also prevents labor costs from escalating over time. The University of Central Arkansas used position control to meet a savings target of $7.5M, deploying voluntary retirement programs, restructuring vacant roles, and enforcing a stringent policy against backfilling redundant vacancies.

Voluntary separation is also an essential strategy for immediate cost savings without layoffs. Institutions can choose to offer buyouts to faculty and staff across the board or design targeted programs appealing to those eligible for retirement. While across-the-board offers may increase savings, institutions risk losing top talent and institutional knowledge. Targeted offers may limit savings with fewer people eligible but can prevent too great of a brain drain.

For both approaches, institutions should avoid backfilling vacated roles to maximize savings. It is important to note that compliance with state regulations and collective bargaining agreements is crucial and may impact the ability to make targeted offers. One example of the impact of voluntary separations is Penn State’s Voluntary Separation Incentive Program, which is projected to save over $40M due to reduced labor costs and enhanced operational efficiency resulting from restructuring.

2. Pursue opportunities for academic efficiency

As academic costs account for over 60% of institutional expenses, institutions must look for opportunities to increase efficiency and reduce costs in the academy to significantly improve their financial health.

Enforcing faculty workload expectations is a key strategy for reducing academic costs. Approximately a quarter of faculty members do not fulfill a full course load annually, and while some receive course releases for research commitments or leadership responsibilities, others continue to benefit from reduced loads based on informal arrangements with leadership. By ensuring that faculty are teaching at capacity, institutions can eliminate adjunct or contract instructors previously required to fill gaps, saving on salary costs.

Departments should regularly conduct faculty surveys and review teaching records to assess opportunities for optimizing course releases, ensuring instructional resources are used to their fullest potential. The University of Wisconsin Oshkosh has reduced part-time faculty expenses by increasing average teaching loads (from 3-3 to 4-4) and estimates this will result in $1.9M in savings.

Another effective method for managing costs is returning vacant faculty lines to the provost or dean rather than leaving them within individual departments. When faculty exit an institution, the budget for the position may remain with the department, potentially leading to inefficient resource allocation either from unnecessarily filling the position or using the funds for a different purpose. Redirecting vacant lines to a more central authority allows institutions to capture savings and strategically allocate funds by not reflexively backfilling the position.

Many institutions, like Indiana University, have adopted policies where salary savings are partly channeled back to the dean for either backfilling roles or other academic reinvestments. An additional portion of these savings contribute to a central Strategic Investment Fund, providing broader institutional benefits. This practice allows for a more cohesive and financially sound approach to managing academic resources across the institution.

3. Evaluate physical plant and real estate costs

An institution’s campus is one of its biggest assets, yet it is also one of its largest expenses. A significant portion of Facilities expenses come from recurring operations and maintenance costs, which account for nearly 40% of a building’s total lifetime expense. Despite this, many institutions have not fully explored opportunities to decrease their space cost basis, even as the utilization of campus spaces has decreased with the rise in flexible work and virtual learning arrangements.

Reducing utilities usage in buildings that are unoccupied or have low occupancy rates presents a strong opportunity to lower costs. Many campus buildings sit empty or are partially used at various times throughout the year, yet institutions often continue to supply full utilities services to these areas. By strategically reducing heating, cooling, and energy provisions in low- or zero-occupancy buildings, significant savings can be achieved without affecting faculty, staff, or students.

Using sensor technology allows institutions to make dynamic adjustments continually; however, this requires an upfront investment, and institutions looking for quicker savings can begin with seasonal adjustments (e.g., winter break) and/or selective mothballing. The University of North Carolina at Chapel Hill exemplifies this approach by turning off HVAC units during winter breaks—a move that has saved over $325K in energy costs over four years.

Another prime area for cost reduction is leased space. Institutions frequently maintain costly leases even when their current campus spaces are underutilized. On average, classroom utilization rates fall below 60%, with office spaces faring worse, with average utilization rates of about 20%. Institutions can unlock considerable savings by reducing leases, which provide an easier exit option compared to owned properties, allowing for faster cost reductions.

Empire State University demonstrated this by exiting 60% of its leased space, resulting in a $3.5M decrease in operating expenses. This feat highlights the potential financial benefits of re-evaluating and optimizing space utilization across the institution.

EAB is here to help

Effective cost containment in higher education is crucial for both immediate relief and long-term sustainability. By targeting strategic areas like labor costs and resource optimization, colleges can navigate economic challenges with resilience.

EAB is available to support cost containment efforts at your institution in a variety of ways, including identifying opportunities, communicating financial conditions to campus stakeholders, educating academics on the budget, and supporting change management efforts. Reach out to your institution’s Strategic Leader or send your request to [email protected] if you are interested in cost containment support.