• Just Visiting

    A blog by John Warner, author of the story collection Tough Day for the Army, and a novel, The Funny Man, on teaching, writing and never knowing when you're going to be asked to leave.

Title

Here Comes the Discounting Death Spiral

If you work at a non-elite public institution, the revenue picture is bleak and getting bleaker.

November 30, 2016
 

 

 

A proposition: The vast majority of non-elite public higher education institutions are at peak revenue, meaning, relative to inflation, they will never again have more total revenue from which to work than they do at this very moment.

This is going to be true regardless of larger macroeconomic trends. Even a booming economy beyond our wildest dreams will not boost our non-elite public institutions[1].

A couple of things to settle before the larger argument. I suppose these are arguable, but I’m pretty confident in them.

1. Student tuition is the dominant revenue stream for public higher education.

As the executive vice chancellor and provost of Cal-Berkeley Carol Christ said recently, “Colleges and universities are fundamentally in the business of enrolling students for tuition dollars.”

Put another way, all non-elite public institutions (and this is almost all public institutions) are tuition dependent.

2. Public sources of additional revenue at either the state or federal level are incredibly unlikely to materialize. The reclaiming of education as a public good is at explicit odds with the dominant governmental policy at just about every level.

Privatization of the previously public space is a fait accompli.

3. Most institutions cannot grow their way to additional revenue. Many schools simply cannot become physically larger. Additionally, the total number of traditional college-age students is decreasing.

There may be some exceptions for schools that are able to spin-up robust online programs, but if your school isn’t already in this game, they’ve lost. Even those that have decided to play will see a similar outcome as the chase for prestige, some winners, many more losers.

4. It’s unlikely we’ll see more tuition revenue from the same number of students. When 7 in 10 graduates[2] have student loan debt[3] that averages nearly $29k and rising, it’s difficult to imagine a model where increasing tuition is sustainable.

Additionally, the amount of available aid to students is unlikely to increase during a Trump administration. In fact, it’s likely that the possible re-introduction of banks into the lending process and/or the imposition of penalties for institutions when students default on loans will reduce the pool of potential students as well as shrink institutional revenue.

5. For years, public institutions that can manage it have been trying to make do by increasing their proportion of out-of-state students and charging them significantly higher tuition.

But as many colleges are now experiencing, you can only inflate prices so far before the demand dries up. My sort-of employer, the College of Charleston is an object example, experiencing a budget shortfall of over $2 million because of a failure to meet out-of-state enrollment goals.

At $29,544/yr, out-of-state tuition is more than two-and-a-half times higher than in-state tuition of $11,386.

While the school has much to recommend it in terms of the education students experience and its setting in one of the great small cities of the world, it is not “elite” in the ways we measure these things. It is not the kind of place that can win a competition for “prestige,” nor should it be, mind you.

If that isn’t enough, Moody’s predicts slow growth in tuition revenue for all institutions, with public higher ed essentially staying even with inflation.

Anyway…

There isn’t going to be more money folks, and it gets worse. The schools that have been on the losing ends of these trends have opened competition in another realm: price.

Enter the University of Southern Mississippi, which is not at peak revenue because it has experienced an enrollment “dip” of around 2000 students. Their perfectly sensible response is to drop their out-of-state tuition from $16,259 to $9,964, even as their in-state tuition increases by a modest 4% to $7963.

In the words of Douglas Vinzant, USM VP of for finance and administration, "I really believe that this pricing strategy is going to open us up to people looking at the University of Southern Mississippi from places we traditionally haven't drawn from."

USM is following the lead of smaller rural regional institutions (such as Delta State and Alcorn State) that no longer charge differential tuition at all in an effort to keep enrollments up, but USM is a research university in a different class. It is also a step beyond the University of Maine, which has been offering in-state tuition for “high-achieving” students only.

As USM attracts out-of-state students from neighboring Texas or Louisiana, those state institutions will experience enrollment shortfalls, which will merit a response and so on, and so on.

Over time, revenue will decline for everyone. We will find ourselves in a discounting death spiral.

Belts will have to be tightened.

How much tighter do you feel your institution’s belts can get?

Some will be spared. State flagships will get off relatively unscathed due to their inherent prestige and ability to attract outside funding. Niche schools in desirable locations (perhaps like College of Charleston) will muddle along, but many others will not survive. If you want to see a portrait of the future, look at Illinois under the multi-year budget stalemate, where U of I is able to soldier on while Chicago State is on the verge of closure.

Or Wisconsin, where legislative caps on tuition have already put the squeeze on revenues. UW-Madison survives, though in a diminished capacity, as for the first time in 45 years they find themselves outside the top 5 research universities.

At UW-Lacrosse, the situation is far more dire. They’re losing faculty to the local technical college because they can’t pay competitive wages. Cutting of faculty is inevitable.

Following the current trajectory, as we head toward the inevitable end of a culture of competition the future of higher ed looks something like the famous “Always be closing,” speech from Glengarry Glen Ross.

“First prize is a Cadillac El Dorado. Anyone wanna see second prize? Second prize is a set of steak knives. Third prize is you're fired.”

Free marketers will tell you this is the natural state of things, that those schools that can't compete don't deserve to stick around. I think a world where only a select few have access to quality educational opportunities isn't consistent with our core values.

I hope I'm wrong about these trends. I'm eager to have someone show up in the comments and tell me that we're not all destined for third place.

 

 

[1] Private institutions or elite publics that are adept at getting their hands on endowment money from wealthy individuals will continue to do okay.

[2] Graduates, mind you, not just people who attempted higher ed.

[3] Only loan debt as well. Many of these graduates will also have consumer/credit card debt.

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