April 21 2017 0Comment

Costs of higher ed and strategies for increasing enrollments.

This is the first of a three-part series on how higher ed institutions can grow enrollments by helping students better afford tuition

The cost of higher education continues to be a pressing issue for institutions of higher education. Leaders increasingly are grappling with finding the balance between keeping tuition affordable while also optimizing the organization’s function. In an increasingly turbulent world, it’s imperative that higher education leaders look systemically at the bottom line of higher education and explore novel approaches to help the organization remain fiscally viable.

Tuition’s Role in Funding Higher Ed

Higher education leaders increasingly are finding that the old budgetary model that relied on increasing tuition rates has become unsustainable, and a large number of potential students now find themselves priced out of higher education

The first place to look is at the rising cost of education. Federal Reserve Bank of Cleveland economist Peter Hinrichs found that tuition revenue per student at public universities rose from $3,600 in 1987 to $9,300 by 2013. Tuition revenue at private institutions reached $20,000 per student by 2013. During those years, state and local support for higher education plummeted, he found. For public colleges and universities, revenue from state and local sources was more than three times the level of tuition revenue in 1987, but by 2013, tuition revenue was nearly equal to revenue from state and local governments.

Many will suggest that these students should just work their way through college like earlier generations did. However, it’s no longer that easy. New data from the Urban Institute found that college is too expensive for students to work their way through unless they receive financial assistance from their family. Back in the 1960s and 1970s, a student who worked 10 hours a week during the school year and 35 hours a week over the summer could pay for tuition, fees and most of the charges for room and board at an average four-year college. Now, according to these researchers,  a student who works a similar work schedule will only be able to cover about a third of the average cost to attend a four-year college.

These findings are particularly alarming when considering low-income students. These students pay for almost one-third of their college costs using their own earnings. Their family contributes just 2 percent of the total bill. In comparison, upper-income families pick up 81 percent of college costs for their college-age children.  Other variables such as cost for room and board and the time it takes to complete a degree program often add costs to the tuition equation.

Trends in student borrowing also appear to be changing, according to a new data from the New York Fed. Default rates among higher-balance borrowers (such as those who pursued degrees in medicine and law) have worsened notably among those who borrowed more to attend college.

Based on all of this evidence, it’s not surprising that research conducted by The Change Leader indicates that higher education leaders see student debt as the top issue facing higher education students. We’d suggest that it’s the perfect time to change the paradigm in the way we look at tuition.  For instance, University Business suggests six practices for managing delinquent student accounts:

  • Establish a student-first culture that is designed to help students reach their goals.
  • Communicate policies clearly and in advance with students.
  • Be proactive with students whose accounts are slipping into delinquency.
  • Make it personal by finding out about students’ situation and helping them come up with an affordable payment plan.
  • Offer payment plans so that students can continue to take classes while also paying off debt.
  • Build campus-wide support by showing colleges and other departments that the business office cares about students.

 

So, what are the implications for students and administrators?  Here are our suggestions:

  • Many students are not able to afford the quality of education they want. To attend more competitive higher education institutions will require students to go into debt. A recent report from the Institute for Higher Education Policy, a nonprofit focused on promoting access to higher education, analyzes how the increasing price tags for more than 2,000 colleges are making higher education unaffordable for large segments of the population.  For example, the wealthiest students can afford to attend 90 percent of colleges in the sample; however, students who had fewer financial resources could only afford to attend between 1 and 5 percent of colleges. “Our analysis confirms what many low- and moderate-income Americans already know – and what policymakers and institutional leaders need to understand – about how unaffordable college has become.… While it is clear that very few colleges meet a reasonable threshold of affordability for students of modest means, federal, state, and institutional policymakers can help level the playing field.”
  • Colleges are seeing reduced enrollments at a particularly treacherous time as President Trump and state policymakers are slashing (or looking to slash) higher education budgets.  This is especially impactful on those institutions who rely on international (out-of-state) students to bring in higher tuition revenues. Therefore, higher education leaders must find more creative ways to keep institutions financially solvent. Otherwise, this downward spiral will continue and for many institutions may eventually become irreversible.
  • Ultimately, the decline in college affordability becomes a social issue. A key purpose of higher education is to help attendees improve their lot in life by preparing them to be a contributing member of society as well as their profession. This premise is highlighted by the influx of soldiers into colleges on the GI Bill after World War II. Many of these men had few resources after the war, but were able to gain a college degree and then achieve significant professional and personal success, giving rise to the “middle class” which has driven the US economic engine for decades. They also gave back to their communities, thus cementing their title as “the Greatest Generation.”
  • Today, the opposite is happening. The increasing number of people who do not receive their degree becomes more challenging for society as working class jobs increasingly become automated and factory workers requires more technical skills and/or lose jobs. Furthermore, the loss of this educated group perpetuates the social challenges that education is supposed to solve.

Next week will be the second installment of our series, which will address institutional budgets.

 

ryan