Jan 112013
 

January 10, 2013

Downturn Still Squeezes Colleges and Universities

By ANDREW MARTIN

An annual survey of colleges and universities found that a growing number of schools face declining enrollment and less revenue from tuition.

The survey, released by the credit ratings agency Moody’s Investors Service on Thursday, found that nearly half of colleges and universities that responded expected enrollment declines for full-time students, and a third of the schools expected tuition revenue to decline or to grow at less than the rate of inflation.

“The cumulative effects of years of depressed family income and net worth, as well as uncertain job prospects for many recent graduates, are combining to soften student market demand at current tuition prices,” Emily Schwarz, a Moody’s analyst and lead author of the report, said in a statement.

The growing financial challenges for colleges and universities come as students and graduates have amassed more than $1 trillion in student debt, and many are struggling to pay their bills. Nearly one in six people with an outstanding federal student loan balance is in default, the federal government says.

Before the financial crisis of 2008, colleges and universities routinely raised tuition with little effect on the number of prospective students who applied. Some private colleges said that applications actually rose when they increased prices, apparently because families equated higher prices with quality.

But that attitude has changed, in part because family incomes have declined. Ms. Schwarz also noted, “Tougher governmental scrutiny of higher education costs and disclosure practices is adding regulatory and political pressure to tuition and revenue from rising at past rates.”

In addition, she noted that budget negotiations in Congress could lead to cuts in student aid programs while the share of students that depend on government help continued to rise. At public universities, federal loans finance a median of 40 percent of student charges; at private schools, the median is 21 percent.

While nearly half the schools that responded to the survey expected enrollment declines, the changes are expected to be minimal and overall enrollment should remain relatively flat. The enrollment declines are more pronounced among graduate programs; small, lower-rated universities; and public schools in the Northeast and Midwest, where the number of high school seniors is declining.

By comparison, about 15 percent of the schools that responded to the survey in the fall of 2010 reported enrollment declines.

Daniel J. Hurley, director of state relations and policy analysis at the American Association of State Colleges and Universities, said he was not surprised by the findings. He said that after years of cuts, he expected an uptick in state financing for public colleges and universities in the coming year.

In addition, he said states had become more strategic in how they finance higher education, offering incentives for schools that provide more graduates in critical fields, like engineering.

Tony Pals, spokesman for the National Association of Independent Colleges and Universities, which represents nonprofit private schools, said the report confirmed the tough realities of higher education. “Economic, demographic, marketplace and technological trends are converging to cause an unprecedented time of change for higher education. The new reality is that colleges are expecting to have to do more with less for years to come,” he said in an e-mail.

But Mr. Pals noted that his members had a history of resiliency and innovation. “We are seeing a jump in three-year bachelor’s degree programs, so-called no-frills satellite campuses and academic partnerships between four-year private colleges and local community colleges.”

Over all, 18 percent of private universities and 15 percent of public schools in the survey projected a decline in net tuition revenue for fiscal 2013. A much larger share, one-third, said net tuition revenue would decline or grow by less than 2 percent.

“Such weak revenue growth often means a college cannot afford salary increases or new program investments unless it cuts spending on staff and existing programs,” the Moody’s report said. By comparison, in fiscal 2008, only 11 percent of private schools and 9 percent of public schools did not increase tuition revenue by 2 percent or more.

Since the financial crisis, tuition at public schools has grown more rapidly than private ones, largely to offset sharp costs in state financing. Public universities have responded by recruiting more out-of-state and international students, who can pay more than in-state students.

Private schools have provided more and more financial aid to students to offset their higher price, a trend that many view as unsustainable.

Moody’s has a more upbeat view of the most elite private schools and flagship public universities, which continue to have strong student demand and, in many instances, many other sources of revenue.

The Moody’s survey included 165 nonprofit private universities and 127 four-year public universities.

via Colleges Expect Lower Enrollment – NYTimes.com.

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