Late night thoughts on higher education finance

As summer starts winding down towards fall and the new academic year, we have the perspective to think in broad strokes about the near future. In my last post I shared some educators’ fears about what they see happening to colleges and universities. In this post I’d like to return to the topic of higher education’s economics.

How are we going to pay for college? How are universities responding to economic stresses? Trying to answer these questions causes me to ask another question: are higher education’s finances stabilizing after the crisis, or are they seizing up and worsening?

Short version: most campuses are feeling an ongoing budget cramp.  American families aren’t spending more money for college, even as campus fees rise.  And enrollments just ticked down a bit.  This could be a new normal.

Or it’s a sign that the machinery of higher ed financing is seizing up.  College costs are likely to keep on rising, since the body of tenure-track faculty continues to exist and become more expensive, and there’s no sign of slowing the amenities arms race.  Meanwhile families and politicians fiercely demand a reduction in cost, and improvement in quality.  There’s no sign of compromise or middle ground.

Long version:

To begin with, consider this summer’s survey of American campuses’ chief financial officers. The CFOs are generally unhappy with their institutions’ outlook over the next five years, and gloomier still for the five years after that.   Most see no new funds coming in, so they will have to shift funds around to meet needs (who’s going to lose in that game?).

Meanwhile, one recent study finds that American families have stopped paying more for college.  Sometimes this is due to downshifting institutional ranking, as in sending a teenager to a state school instead of a private college, or to community college instead of a big public school.  Another factor is cutting non-tuition costs “by having their children live at home or add roommates”, which might do some interesting things to living arrangements over time.  However we do it, Americans have dug in their heels in the face of increasing costs.

At the same time schools can’t count on increasing numbers of students any longer.  That’s because the total amount of students has gone down.  This means increasing institutional competition for a slightly smaller pool of applicants, and raising prices won’t play well in that game.

I can read these developments in two very different ways. Competing scenarios: either the education market just corrected itself into new levels, or the higher ed funding crisis just got worse.

I. The New Normal.  America has just experienced a very large correction.  We hit Peak Student Population in 2011, and have ratcheted down that population a bit.  As consumers and families of consumers, we decided that college costs shouldn’t rise any further.  Campus leaders in turn have focused their sober attention on budgets, and won’t be boosting them anytime soon.

In a short while some educators will refer to 1990-2010 as the go-go years, the epoch of ebullient growth.  Others will have more sour terms for the period.

Parents are not delighted, nor are adult learners, but they grudgingly accept that colleges are at least trying to respond to their requests.  And the college premium, that lifetime earnings bonus associated with a degree, remains viable.

 2. The Machine Seizes Up.  Institutional leaders want to cut costs, but have run into limits.  For years they trimmed where they could, expanding the number of adjuncts, retiring older staff, postponing major projects.  Now they are faced with locked-in constraints: slow endowment growth and/or reduced state contributions; guaranteed compensation growth for tenure-track faculty; a solid cadre of administrators, either established for regulatory compliance or simply entrenched.  The campus physical plant must be maintained, and peer institutions aren’t showing any signs of backing off on the next climbing wall or souped-up wellness center.

Students and families, meanwhile, are outraged as rising prices.  They are not mollified by the various reductions made possible through discount rates.  Instead, they dread debt.  Additionally, they are skeptical of campus value. State and national politicians of all stripes join their chorus.  They demand more for less.

(This is where distance learning comes in, be it MOOC or otherwise.  A Hail Mary play, an unusual approach to reduce costs. )

Yes, these are huge generalities, and I admit to all kinds of exceptions.

So which is it?  Is academic financing hitting a wall, or morphing into a new stability?  Or is there a third way of reading these tea leaves?

(machine photo by zigazou76)

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