As student enrolment slows, US college revenue struggles in 2018
Both public and private colleges in the United States saw a revenue decline in 2018, raising concerns about falling enrolment, decreasing state funding, and spiraling costs.
A series of reports from Moody’s Investors Service, and reported by Education Dive, found falling tuition revenue was a major cause for concern for both private and public institutions. This was further compounded by dwindling state funds for public colleges.
Spending cuts on higher education have hit many colleges hard but have, surprisingly, gone largely unnoticed by the American people. A recent survey from American Public Media found most Americans actually believe state funding for public colleges has either increased or stayed the same over the last decade.
In reality, however, states have collectively scaled back their annual funding of public colleges by US$9 billion since 2008, according to the Center on Budget and Policy Priorities.
These two factors combined – falling tuition and gutted state funding – placed revenue growth below 3 percent at more than half of public colleges, with the median value falling to 2.4 percent from 2.9 percent a year ago.
Private colleges have had their own spending issues as expenses continue to go up, counteracting any growth in revenue.
According to Moody’s, private colleges’ median revenue growth held steady at 2.4 percent year-over-year, though it trailed a median 2.9 percent increase in expenses for the third-straight year.
As student enrolment looks set to decline over the next decade, many colleges are trying desperately to avoid any hike in tuition fees that could scare away any financially concerned prospective students.
Private colleges are fighting declining enrolment with discounts on tuition costs. According to a recent survey from the National Association of College and University Business Officers (NACUBO), those discounts are set to hit a record high in academic year 2018-2019, with the average tuition discount rate for first-time, full-time first-year students at private, nonprofit four-year institutions expected to reach 52.2 percent.
But some universities simply can’t afford to take the financial hit themselves, namely public colleges who, under shrinking state funds, are being forced to increase tuition costs.
Many have been struggling to recover since the 2008 global financial crisis and as the majority states have failed to recover completely, especially in education funding, the tuition hikes have been astronomical. For public colleges to keep pace, their tuition increased by 43 percent per student from 2008 to 2018. Meanwhile, state support of higher education was 13 percent below its 2008 levels per student in 2018.
Moody’s also found smaller colleges and institutions tend to be harder hit than the larger ones, as they struggle to convince people of their need to pay increased tuition costs. The impact varies depending on region of the United States too.
Alaska recently announced a devastating cut to higher education in order to grapple with the state’s mounting debt. The University of Alaska System is set to lose US$135 million in funding, forcing layoffs and closures across their three campuses.
In order to attract more students, many institutions are investing in bigger and better facilities, something to make them stand out to any prospective student. But this, in turn, is a catch-22 for colleges as they then struggle with the upkeep and maintenance of not just old, ailing buildings but brand new ones with mounting operation costs.
As universities went through a building boom after the financial crisis in a bid to entice new students, the facility management costs spiraled, reaching an 11-year high in 2018.
This doesn’t look set to change as public colleges are taking on more debt to finance “competitive facilities,” Moody’s analysts wrote. The concern is that universities are left with huge, impressive campuses, and inflated costs, but fewer students to fund them.