Is your funding strategy aligned with your institution?

Higher education leaders have long understood that their institutions are both real estate-intensive and fixed cost-heavy. For decades, relatively predictable enrollment growth, tuition and state funding revenue and research activity allowed those fixed costs to remain manageable. Capital decisions made under those conditions appeared rational and often were.

That stability has eroded. Demographic contraction, uneven research economics, rising costs and aging facilities now define the financial reality of U.S. institutions. Traditional revenue sources now cover a smaller and more volatile share of fixed obligations, while institutional planning cycles struggle to keep pace with change.

The risk we see institutions facing today is not underfunding. It's misalignment between funding activity, capital investment, debt issuance and the demand drivers shaping the future.

That misalignment surfaces most clearly in the campus footprint. Every aspect of the academic mission must physically manifest somewhere on campus, locking long-term assumptions into bricks, systems and debt. For CFOs, the campus is no longer just mission infrastructure, but a portfolio of long-lived assets that now concentrates financial risk as well as opportunity—something we increasingly see across institutions.

Enrollment volatility now directly affects revenue stability and long-range forecasting but not in uniform ways. We see several key shifts shaping demand:

• Recent undergraduate enrollment has stabilized and shown modest year-over-year growth, but underlying participation patterns continue to shift across sectors and student populations. Fewer recent high-school graduates enroll immediately after graduation than in the early 2010s, and enrollment gains are uneven across sectors and regions. Looking ahead, the widely cited “enrollment cliff” is expected to reduce the traditional college-aged population by 10–15% through the mid-2030s, with significant regional variation.

• At the same time, new international enrollment has declined sharply, contributing materially to lost revenue. Recent data show a roughly 17% drop in new international enrollment for fall 2025, a change projected to contribute to more than $1.1 billion in lost revenue.

   

The implication is financial, not demographic. Many funding models still treat enrollment as a single scalar—up or down—when in reality the composition of enrollment matters more than the count. Different students drive different space needs, support costs and capital requirements.

Institutions increasingly find themselves modeling for rightsizing rather than growth, even as capital commitments remain anchored to earlier enrollment assumptions. When funding decisions fail to distinguish between enrollment segments, misalignment quietly accumulates.

Research growth continues to concentrate in high-intensity fields such as AI, advanced engineering and health sciences that carry materially higher capital and operating costs. Internal funding models, however, often lag behind this reality. They rely instead on uniform overhead or space charges that fail to reflect the true cost differences across research activity. Institutions end up absorbing the gaps between cost and recovery, limiting visibility into research-level economics.

Indirect cost recovery from federal sponsors often falls short of covering the full facilities and administrative burden of modern research, widening the gap institutions must absorb. In 2025, several major federal research funders proposed new limits on facilities and administrative cost reimbursement, including a standard 15% cap on certain awards. While these efforts have been challenged and paused through litigation, they signal growing pressure on the indirect cost recovery model many universities have relied on to support research infrastructure.

National funding dynamics compound this exposure. Federal agencies still provide roughly half of all higher-education R&D funding, but inflation-adjusted federal research funding has not kept pace with rising institutional costs. Recent federal budget proposals also signal growing volatility and concentration in R&D funding.

Meanwhile, industry-sponsored and venture-backed research—while growing—follows different economic models that emphasize speed, intellectual property and commercialization, creating growing tension with research facilities and infrastructure designed around federal cost-recovery assumptions. As funding sources fragment and reimbursement rules narrow, internal models that fail to capture true research costs introduce growing financial risk.

The implication is clear: research prestige and financial sustainability increasingly diverge when high fixed research costs outpace recoverable revenue. We see this tension most clearly where facilities decisions outlast funding models.

Space demand has shifted faster than campus footprints. In response to demand for flexibility, institutions are diversifying course formats and rethinking how learning is scheduled.

On paper, classrooms appear fully scheduled; in practice, seat-fill rates often fall well below design capacity. Institutional scheduling and occupancy studies frequently show gaps between how space is scheduled and how it is used. Underutilized buildings require utilities, maintenance, staffing and future capital renewal. Over time, they become stranded capital—assets that consume resources without delivering proportional academic or financial return.

The risk is amplified in facilities with limited adaptability:

• Specialized academic buildings tied to declining programs

• Research facilities dependent on narrow funding sources

• Instructional space designed for delivery models that no longer dominate

   

These assets are difficult to repurpose, expensive to maintain and slow to exit. In a period of volatility, inflexibility becomes a liability, one we increasingly help institutions evaluate earlier rather than later.

Most institutions already have planning frameworks. In our work with institutions, the challenge is clarifying whether the assumptions beneath those plans still reflect reality.

Academic priorities, operational realities and financial planning often move on different timelines. Curriculum and enrollment shift quickly, but facilities, staffing models and capital structures move slowly, widening the gap between institutional needs and financial flexibility. During stable periods, the gaps stay manageable. Under current conditions marked by enrollment contraction, cost inflation and aging infrastructure, misalignment compounds quickly.

Tuition discounting illustrates the challenge. Discounting, which now sits at historic highs may stabilize demand in the near term, but it does not reduce fixed costs tied to space, staffing and campus operations. Financial pressure persists across planning cycles because costs unwind slowly, while demand shifts rapidly. True alignment requires governance. CFOs, provosts, COOs and EVPs must operate from a shared understanding of future demand drivers, not inherited assumptions from prior decades.

Whether or not it is framed this way, CFOs are among the largest real estate investors in the U.S. Unlike traditional investors, universities hold assets that are illiquid, long-lived and mission-critical.

Viewing through a portfolio lens, it becomes clear that not all buildings contribute equally to institutional goals. Some consistently support high-demand academic and research activity and warrant reinvestment. Others remain functionally necessary but require rightsizing or target reinvestment. Still others introduce persistent financial drag and must be addressed directly.

Without this lens, funding decisions default to preserving the status quo rather than preparing the institution for change—something we see that limits flexibility over time. This portfolio view shifts the CFO’s role from preserving assets to actively managing exposure.

Taken together, enrollment volatility, shifting research economics and increasingly inflexible campus assets point to a deeper challenge. The risk we see facing institutions today is not uncertainty itself, but how funding decisions respond to it. When capital investment, operating commitments and debt structures remain anchored to assumptions that no longer hold, financial exposure accumulates quietly.

At this stage, the questions that matter are not operational. They are portfolio-level ones we work through with leadership teams:

• Where is funding activity most aligned with future demand, not past patterns?

• Which assets become liabilities under downside enrollment or funding scenarios?

• Where is the institution carrying inflexible costs relative to uncertainty?

• How would the balance sheet perform if current trends persist rather than reverse?

  
  
  

These are not abstract questions. They determine whether financial pressure narrows options over time or preserves the capacity to adapt.

Higher education institutions rarely fail because leaders ignore mission. They fail because financial structures quietly drift out of alignment with reality. For CFOs, the challenge of the coming decade is not forecasting perfectly. It is recognizing misalignment early—before it becomes irreversible—and redirecting funding decisions toward resilience rather than inertia.

The most important consideration institutions now face is no longer whether they can fund their campus. It’s whether the campus they are funding matches the institution they are becoming.