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Bigger Picture, Smaller Numbers

September 14, 2012

While “do more with less” is a constant refrain for how colleges and universities are going to tackle financial troubles, MaryAnn Baenninger, president of the College of Saint Benedict, has actually pulled it off.

Over the past few years, Saint Benedict, a women’s college in Minnesota, has slowly decreased the size of its incoming classes in an effort to improve its financial and academic position, a move that goes against a trend of similar colleges increasing the size of their student bodies to generate new revenues and economies of scale.

Faced with a decrease in the college's traditional demographic – suburban, middle-class, high-achieving students in the Midwest – Saint Benedict’s president, MaryAnn Baenninger, said the college was going to have to expend significant resources, particularly in the form of discounted tuition, to attract a greater number of new students. That strategy would likely result in deficits for several years. 

So the college switched direction. “The big question then was how are we going to increase or keep stable our academic profile without spending all that money, and we decided that the only way we could do that reliably was to increase demand by stopping getting larger or gradually getting smaller,” she said. “So far that plan has worked.”

Since 2008, the college’s overall enrollment has dropped from 2090 to 2017, and administrators said it is likely to drop further over the next few years. The net tuition revenue per student – the amount the college makes after aid is factored in – has steadily increased. The college has actually generated more money overall by enrolling fewer students. Saint Benedict has not run a deficit for any year of Baenninger’s tenure, and the academic profile of its incoming class has improved. The college has also increased the proportion of the student body made up of students of color.

Baenninger said that last figure is important for the university. “Maybe we increased overall money, but it would have been at the expense of the real reasons we’re here, which are so much more important,” she said.

Year Students (FTE) Aggregate Net Tuition Revenue Net Revenue per Student
2008 2,090 $30,287,000 $14,800
2009 2,078 $31,911,000 $15,400
2010 2,057 $31,736,000 $15,400
2011 2,059 $33,166,000 $16,500
2012 2,045 $34,700,000 $17,000
2013 2,027 $34,986,000 $17,200

Financial Headwinds

Saint Benedict, like a lot of private liberal arts colleges, faces an unfriendly financial picture. In addition to the decrease in their traditional student markets, many private nonprofit institutions are struggling to generate more revenue per student as families have become more consumer-oriented in their approach to college selection, trying to maximize the return while minimizing cost.

A survey of private colleges and universities earlier this year by the National Association of College and University Business Officers found that the discount rate – institutional grant aid awarded to undergraduates as a percentage of an institution’s gross tuition revenue – has climbed to about 45 percent, meaning those colleges are only collecting about 55 cents for every tuition dollar they charge.

A story Monday in The Wall Street Journal explained ways families maximize their financial aid awards. And survey released earlier this year by Sallie Mae found that students and parents are concerned with the value proposition of a college education and are more likely than in the past to consider price in their decisions. That survey suggested that families were turning to less expensive options – public four-year or two-year schools – to keep their costs down.

In a recent survey of college and university business officers conducted by Inside Higher Ed, 56.2 percent of business officers at private baccalaureate colleges said their current tuition discount rate was unsustainable. About 55 percent said the current business model of non-elite private four-year institutions was unsustainable. More than 80 percent said increasing net tuition revenue was “very important” to their institution’s ability to increase revenue over the next two to three years.

To combat this slowdown in revenue growth, many private colleges have taken to adding new academic programs, such as professional schools and majors such as sustainability, or extracurricular programs, such as sports programs, to attract students who are able and willing to pay more.

Adding students also has the benefit of generating economies of scale. If a college has capacity in classrooms and housing and other facilities, adding additional students doesn’t cost the college much more.

Against the Tide

Against this backdrop, Saint Benedict’s effort to decrease enrollment stands out.

In rating the college a year ago, Moody’s Investors Service noted that Saint Benedict’s net tuition revenue per student, $17,547, was less than the median for other small colleges with Baa ratings. The rating report also noted that “[t]he competition and need for financial aid will constrain future net tuition growth." That number was larger than previous years, and grew this year as well.

For several reasons, Baenninger said, growing the college wasn’t really an option. For one, it already went through that phase. The college grew fairly quickly prior to Baenninger’s arrival on campus, which Baenninger agrees was the right move for the time. The college also generates economies of scale through a unique relationship with Saint John’s University, a college for men six miles down the road. While they are two distinct institutions, the two share an academic program and faculty, and students take classes on both campuses.

So many of the savings from growth would be minimal, Baenninger said, while the drawbacks – a less intimate feel, the cost of new instructors and facilities – would be great.

Baenninger said the decision to follow the path of shrinking was partly influenced by her previous experience at the College of New Jersey, a public, liberal-arts-oriented institution, which roughly halved its enrollment during the 1980s and 1990s in an effort to become better academically. The decrease in enrollment helped the college lower its student to teacher ratio. “I’ve always carried this notion that sometimes getting smaller is the right thing to do,” she said.

By decreasing enrollment while reaching out to new markets – such as Denver, San Antonio, and Salt Lake City -- to make up for the demographic decline, the college could increase demand for each seat in the entering class. That demand would allow it to be more selective. “When you contract supply, and demand stays constant – the applicant pool stays constant – that’s going to put pressure on student quality,” Baenninger said.

By becoming more selective, the college would also be able to focus on enrolling students who were enthusiastic about coming. Those students tend to be willing to pay more, meaning the college could spend less trying to enroll students through discounting tuition. Since the college has an endowment of only $40 million, according to the most recent NACUBO survey of endowments, what it spends on aid is often simply lost revenue.

At the same time as it began decreasing class size, the college began increasing its tuition price. In 2007, the year before the college began decreasing its enrollment, tuition was $26,530, roughly the average for private colleges in Minnesota. This year it will be $34,308, roughly 6 percent more than the state's average. While the college’s discount rate has remained steady, net revenue per student has grown. Even in recent years, as many colleges its size have held tuition increases to inflation, Saint Benedict’s has been near 6 and 7 percent.

The tuition increases hit current students harder than incoming students, since the former don’t see their aid packages change significantly. Despite that, Baenninger said the increases have not met with too much backlash because students are seeing it reinvested in their educational experience. “They recognize that the money is going into a better experience,” Baenninger said.

Mary Piccioli, an enrollment management consultant with Scannell and Kurz, which did not advise Saint Benedict, said the college's move is not one she sees often, and she said she could not recall another college taking similar steps. “I will say, however, that a number of institutions are undertaking a vigorous review of cost of programs,” she said.

Piccioli said there are a handful of situations in which it might make sense for a college to decrease its enrollment in a fashion similar to Saint Benedict. If it has an expensive program with low enrollment, it might make sense to eliminate that major, thereby reducing enrollment. Or a college might be spending heavily to recruit students who end up leaving prematurely.

Baenninger noted that the top liberal arts colleges have built their reputations around not getting bigger. “The goal isn’t to get bigger, the goal is to get better,” she said.

 

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