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Higher Ed Bubble
More Ominous Statistics for Higher Ed Industry

Barely a week goes by without the release of new statistics pointing to the utter unsustainability of America’s existing higher education model. Last week, we reported that, thanks rising default rates, Moody’s is considering downgrading securitized student debt—a $1.2 trillion (and growing) problem fueled in part by federal subsidies for overpriced graduate programs. This week, the National Association of College and University Business Officers released a report showing that despite ballooning sticker prices, private four-year colleges have stagnant revenue because they have been forced to boost “tuition discounts” (grants, aid, and scholarships) to keep enrollment up. Nonetheless, enrollment is barely growing. The Chronicle of Higher Education summarizes NACUBO’s findings:

Tuition-discount rates at private, nonprofit colleges have once again hit an all-time high, and appear to be holding down net tuition revenue, according to preliminary estimates from the National Association of College and University Business Officers’ annual survey…

Colleges might decide to provide more institutional aid as part of a strategy to grow enrollment, or increase net revenue, or both. If those were the outcomes participating colleges were going for, though, the strategy doesn’t seem to be working terribly well for them, at least not as a group.

Forty-eight percent of responding colleges indicated that freshmen enrollment stayed steady or decreased between fall 2013 and fall 2014. Nearly a third reported steady or decreased enrollment for both freshmen and all undergraduates…

Meanwhile, projected average net tuition revenue for full-time freshmen barely budged in 2014, growing by a projected 0.4 percent. Once inflation is factored in, it dropped by 2.5 percent. The net-tuition revenue trend for all undergraduates was similar.

The data point to serious trouble on the horizon for non-elite colleges, which are being squeezed the most. While more students are willing to play the sticker price (or something close to it) for selective institutions, non-elite colleges are forced to compete for students by jacking up aid further and further, and losing revenue as a result. As Time reported:

Nearly a third of schools—mostly large, selective, wealthy universities with plenty of applicants—didn’t increase their discounts last year, NACUBO reported. The most selective colleges on MONEY’s Best Colleges list—those with admissions rates of 33% or less—gave only about half of their students grants.

But that still leaves more than 1,000 non-elite private colleges attempting to attract students with ever-bigger scholarships or discounts off their ever-higher tuition. In fact, among the 736 colleges in MONEY’s rankings, nearly 100 award a scholarship to every single freshman. Those schools accept an average of 66% of applicants.

Higher education professionals are clearly concerned about the rising discount rates mean for the future of the industry. If revenue and enrollment stay flat, lower-tier colleges will be squeezed harder and harder, and perhaps some will need to close their doors.

At Via Meadia, however, we don’t think that a shock to the industry would necessarily be such a bad thing. As we wrote last week, the higher education industry is characterized by “a combination of federally mandated costs and controls, runaway cost inflation driven by insiders who keep jacking up the price, perverse market incentives in a warped marketplace, dysfunctional mandates, guild controls and crony regulations.” All of these factors have converged “produce a system in which costs are increasingly out of line with true value—and with society’s ability to pay.”

The fact that discount rates are rising indicates that students are becoming less willing to go deep into debt to pay for an overpriced education that might not even the skills they need to pay it back. This might be bad news for the sclerotic higher education industry and its army of blue-model employees in the short term. But it could be good news in the long term, if it finally nudges the industry in the direction of meaningful reform.

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  • johngbarker

    What a mess! And there are some great teachers out there, who still are helping scared kids ( like I was) make something of their lives.

  • Boritz

    “the higher education industry is characterized by “a combination of federally mandated costs and controls, runaway cost inflation driven by insiders who keep jacking up the price, perverse market incentives in a warped marketplace, dysfunctional mandates, guild controls and crony regulations.”

    The people presiding over all of this dysfunction are the products of what?

    • Ellen

      The same industry that they are now running. It reminds me of the problems of the Soviet Union. Once you have a self-selected elite running the politburo, who have been chosen for their adherence to the politically correct doctrines of those days in that country (eg, communism produces utopia, the police state is necessary to weed out the saboteurs who are opposed to utopia, etc) and no dissent is allowed, you get a self-perpetuating system that cannot improve itself. By definition, perfection cannot be improved upon. What brings the whole thing down is the problem of economic bankruptcy. The Soviet Union, at the end, could not finance itself and its lying system any longer. That is what is bringing down much of American academia, and a good thing too.

      Political correctness is another name for lies, and the sooner the current academia mafias are destroyed, the sooner American youth will discover the truth about the world.

  • Blackbeard

    The education industry is one of the pillars of the Democratic Party so look for President Hillary to work strenuously to alleviate this problem, at the taxpayers expense naturally. Is it sustainable in the long run? No, but that won’t stop the D’s from propping it up as long as long as possible.

    • Pete

      Exactly right!

      Where would the Dims be if the colleges/universities were brainwashing millions of kiddies in leftwing ideology?

  • teapartydoc

    Military Industrial Complex, Medical Industrial Complex, Education Industrial Complex, Philanthropy Industrial Complex, Agricultural Industrial Complex, NGO Industrial Complex. Crony capitalism everywhere, and all because of a system of government connections and licenses to maintain a ruling class in the lifestyle they have become accustomed to. Don’t be surprised when a new Jacobin Club is formed. But those on the left are welcome to be surprised at who forms it.

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