David Reisman, a renowned commentator on higher education, noted fifty years ago that colleges set revenue to the level of their revenue. A corollary is that colleges add fixed costs to the level of large and predictable sources of revenue, such as federal revenue for indirect costs for administering federal grants. Cutting fixed costs is always painful.
The federal announcement that indirect cost support will be cut to 15% of grant revenue will put tremendous pressure on research universities and any college receiving large sums from indirect cost support. These college will face the following quandaries: raise tuition, cut costs, or do both. Since today’s market is no longer a sellers’ market, expect significant cuts to expenses. These cuts will typically mean dismissing employees and upsetting the operations of these institutions.