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.

Features Icon
show comments
© The American Interest LLC 2005-2017 About Us Masthead Submissions Advertise Customer Service