Did private higher education just reach an inflection point?

American private colleges and universities received some major financial news this week, which raises the possibility that higher education prices are at a decisive point.

college_jarofmoney_TaxA report from National Association of College and University Business Officers (NACUBO; paywalled) found that only a minority of private institutions saw student enrollment increase.  Instead,

slightly more than half of the survey respondents said they saw a decline in enrollment or no growth.[emphasis added]

At the same time, these institutions offered the highest tuition discount rate of all time.  (“Discount rate” means the average price cut students receive after a school gives grants, scholarship, and other financial aid)

College discount rates, rising

A TIME writer puts it succinctly:

many private colleges in the United States are ramping up their financial aid packages in an attempt to attract new students and boost sagging enrollments…

But those enrollments continue to flag.  Especially for small colleges and universities: “Tuition discounting … often failed to have the desired effect, especially at small, less-selective institutions…”

What does this mean?

The report’s findings draw together a series of forces:

  1. Many middle-class families saw their wealth decline and compensation stagnate over the past decade (for example).
  2. Students and their families are increasingly sensitive to price, pre-discount.  This leads some to other alternatives, such as state schools.
  3. Although average debt is fairly low, popular stories about huge, debilitating debts are probably influencing people.
  4. Published tuition – sticker price – keeps rising.  Reasons for this are various, including rising staff costs and some institutions’ physical plant renovations, but paying for faculty is usually the biggest one.
  5. American demographics suggest a smaller teenage population over the next decade.

All five of those forces could well continue over the next few years.  #1′s impact will last for a long time, even if the US economy enters a real recovery period.  Stories of #3 seem to have long legs so far, and loom large in the minds of students looking at a darkened post-graduation employment landscape.   #4 is likely to persist, given the presence of a body of tenured faculty (whose cost will only rise with time), and the already very low salaries for non-tenure-track instructors.  #5 is already baked in.

But the specter of declining enrollment is a powerful one for campus leadership, and could provoke strategic changes.  What might they look like?

Here’s a quick roster of possibilities.  Please feel free to add in comments:

Back to the elite.  Some institutions, especially the well resourced, win students from very wealthy families.  Prices keep rising, and good capital returns mean their endowments grow healthily; combined, they can offer attractive aid packages to the most attractive members of the shrunken middle class.  These schools offer superb pedagogy, and represent class dynamics resembling those of a century+ past.

Closing up shop.  Other institutions fail to win enough students from wealthy families, despite high discount rates.  They enter a decline spiral as resource constraints limit what they can offer to increasingly discerning prospective students, which reduces their reputations.  Dropping reputations and resources chase each other down to the bottom.  Some campuses simply close, while more successful institutions purchase the assets of others.

The bubble pops. A small group of colleges and universities reduce their published tuition figures, hoping that media excitement will boost applications enough to make up for reduced revenue.  Some fund this by: further increasing the number of adjunct faculty; closing departments attracting few students (and thus losing tenured professors); cutting back physical plant work; outsourcing information services (library and/or IT); winning wealthy international students.  Once a formula for doing this appears to work, other institutions implement it, and private college tuition begins to climb down from its 2013 peak.

More of the same.  Despite the NACUBO report, institutions maintain the same policies.  In the minds of students the solid college wage premium manages to defeat fears of post-graduation debt.  Schools expand the number of wealthy foreign students. Online learning never goes mainstream, remaining in niche curricula and markets.  Tuitions rise, but enough families deem them worth the debt.

Which of these seems likeliest?  What other options are available?  Comments welcome.

(“College” photo by Tax Credits)

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21 Responses to Did private higher education just reach an inflection point?

  1. ellenandjim says:

    Why does it matter that private non-high elite colleges lose students? So what if most of them go to public-supported colleges? Are private non-high elite colleges any better than publicly-supported colleges? if so, in what ways specifically? if not, why care? except maybe there are so many of these private non-elite colleges.

  2. Good questions, ellenandjim. I suppose the best way to answer would be to identify the advantages private institutions have over publics.
    Independence is one benefit, as privates are largely free of state direction. This gives private colleges room to innovate in terms of curriculum, pedagogy, and student life. That independence also yields a greater protection from politics (in theory, with limitations).
    Small private colleges and universities also have a reputation for greater attention to individual students. Indeed, such care is often considered a hallmark of liberal education. (While there are some public liberal arts institutions – COPLAC represents them – most are private)

    Those two forces shape a somewhat different experience, and one that I’d like to see preserved.

    • Mark Rush says:

      Your two points should not make anyone rest easier in higher ed. It seems that we are most certainly headed to a situation in which a few well monied colleges will be able to pick and choose among an increasingly elite, competitive pool of high achievers. To the extent they can discount tuition, these schools will also be able to have their pick of any student, regardless of income. They will, in essence become the 21st century equivalent of British prep schools.
      Meanwhile, what happens elsewhere? This is where i have the most fear. The few, rich schools may actually become somewhat irrelevant as parents turn to more affordable options. These options, by my lights, will be hybrids akin to the likes of online universities and places such as Southern New Hampshire that look to streamline education. Lots of recent stuff in the Chronicle and the NYT indicate that more and more, motivated students can get training and education and enter the workforce with upward mobility.
      What I do wonder is what will happen with the really smart kids. If, thanks to the tech driven democratization of access to information, these kids can learn more, faster online in their early teens, they may find little attractive in residing for 4 years in a traditional college–even if the tuition is discounted.
      So, the rich schools will get richer and more exclusive. The less rich will become hybrids of a few full timers, lots of adjuncts, and contracts with MOOCs.
      I am babbling. Sorry. Thanks for posting.

      • That isn’t babbling at all, Mark. Thank you for your dark vision and warnings.
        Let me ask – what forces would mitigate the development of such a bifurcated society?

  3. Robert Goldstein says:

    So some colleges saw reduced enrollment. Was there a corresponding increase at others? How elastic is total capacity? Or do the prospective students plump for for-profits, technical training, or just job hunting? Colleges don’t compete for students quite in the same way that businesses compete for customers. Changes in overall demographics, and state/federal support either directly or via financial aid, can’t be ignored in considerations of financial health or strategies.

  4. There doesn’t seem to be current data about enrollments at publics so far, Robert. That’s essential, of course, because we can’t tell much about the students’ destinations away from privates.
    The demographic shift of declining teenage population is certainly a consideration, although its real power has yet to arrive.

  5. Dan Updegrove says:

    Bryan, A factor you didn’t mention is the so-called “Chivas Regal effect,” which some have argued leads institutions to raise sticker prices arbitrarily high — which they hope will be taken as a proxy for quality — then offer substantial scholarships — which makes students and parents feel proud and clever. If this approach is widespread, then the “discount rate” could be high without necessarily signaling financial peril.

    College Board data from two private liberal arts colleges in the same region are instructive. College A lists total costs for next year at $59,000; the college accepts 70% of applicants, with an admissions yield of 19%; 33% of entering students were in top 10%, 70% in top 25%, 94% in top 50%. College B costs $60,000, accepts 14%, yields 40%, with entering percentiles of 92%, 98%, 100%. By most traditional academic measures, these colleges do not appear to be “$1,000 apart.”

    Cheers,

    • That’s a classic marketing, er, strategic move, Dan. Physical amenities add to that de luxe effect.
      But what happens to that strategy when the economy stays weak and economic divisions widen? How many Chivas Regals can we support?

      • Dan Updegrove says:

        Bryan,

        Here we might distinguish between (pardon the expression) “academically elite / selective in admissions” and “marketing / wannabe elite.” Academically elite are often wealthy and can afford generous *need-based* student aid in the interest of diversifying the student body. Marketing / wannabe elites may be setting sticker prices higher than average costs, then discounting based on academic merit or other factors. So, perhaps to overextend the metaphor, there are Chivas Regals and those that affix Chivas labels to other intoxicants.

      • That’s not a bad metaphor, actually, given the natural of institutional aspirations, not to mention marketing.
        So the top-line schools survive, while the wanna-bes suffer? And, if so, the class divides deepen?

  6. Steven Kaye says:

    I’ve seen the claim that public university enrollment declined 0.7% in 2012, but the article didn’t give a source. A Moody’s January 2013 report (http://www.careercollegecentral.com/pdf/moodysreport.pdf) gives some interesting stats on enrollment, will see if I can find more recent.

    • NACUBO mentions this, Steven, according to reports; I can’t see the primary source, unfortunately. The Moody’s report has been influential in academic discussions.

  7. Mark Lewis says:

    My bet is on the first three scenarios happening to various extents. The third on, with the bubble popping is going to be a game of chicken. No one wants to be the first to lower their sticker price, however, eventually someone will do it and then I expect that lots of other places will get swept up in it. As I understsand it, there are already quite a few schools that are barely hanging on. It won’t take a huge shift for those schools to start folding.

  8. Nick Gidwani says:

    Great overview of the macro issues here. One other thing to consider is student-driven substitution. Not substitution of the degree at large (that might take decades), but perhaps substituting how students earn the majority of what is required for a degree.

    If PLAs (Prior Learning Assessments), Competency Based Learning, and online transferrable course credits proliferate, students could soon be able to “hack” the degree. Essentially earn 80% of the degree via cheap methods (perhaps costing $5-10k) and then maybe enroll for a semester or two to complete degree requirements and get the all-important degree itself. Since some of this will be driven by the DoE and State Gov’ts (which don’t care as much about protecting university tenured profs), it’s plausible the substitution effect can happen without the involvement of the schools themselves.

    Many schools will fight it (as they already are), and it may lead to an even wider gap between the Top 100 and the For Profits/rest. Or it could lead to enrollment management of a different kind: instead of discounting tuition, you could simply reduce the semesters on campus to what people can afford. Instead of a 4-year degree, we could start seeing a 2 + 2 type degree.

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