By David Pendered
The nation’s colleges and universities face a new post-recession challenge in meeting their budgets, according to a report released Thursday by Moody’s Investors Service.
High school students who apply to college are less likely than ever to enroll. That’s because students are applying to a record number of schools and then enrolling where they get the best deal. Schools left in the lurch run the risk of providing too many resources – teachers and classes and such – for the actual student body.
This matters because the entire U.S. higher education sector already is facing tremendous fiscal challenges.
In July, Moody’s reaffirmed its dour outlook on U.S. colleges and universities, which Moody’s changed in 2013 to a negative outlook. Revenues of all types are depressed, from tuition and fees, to investment income, to state payments.
In this environment, the emerging X factor on the colleges’ bottom line is the phenomenon of students applying to more than five universities.
Evidently, the trend is too new for Moody’s to provide case studies. None are in the report. But the document does raise a warning flag as states, including Georgia, enter their budget cycles for the coming fiscal years and try to provide the sort of higher ed system that will raise the quality of life.
In ancient times, meaning before the recession of 2007, the majority of students applied to no more than four colleges or universities, according to the Moody’s report.
Schools knew how to program their resources in that environment.
Since 2008, there’s been a steady increase in the proportion of students who apply at five or more schools, Moody’s found. And the increase is sharp: It grew from 45 percent to 55 percent in the five years ending in 2013.
Students are price shopping. They’re applying to as many schools as possible and seeing what sort of discount they are offered. Discounts are couched in terms called financial aid or scholarships.
Here are a few tidbits from the report:
- “Twelve percent of private universities now have a tuition discount rate (i.e. financial aid or scholarship) of over 50 percent compared to 5 percent of private universities in 2004.
- “Public universities are increasingly employing similar strategies as the privates as they look to expand their geographic reach in response to demographic and economic pressures in their own states, as well as limitations on increasing in-state undergraduate tuition rates.
- “According to Moody’s, 44 percent of regional public universities and 39 percent of flagship universities and systems now discount tuition by over a third.”
Moody’s report states, “Three new norms in enrollment management contribute to the following challenges:
- “Application growth leads to an artificial and inflated view of increased demand. Between 2004 and 2013, applications increased nearly 70 percent for private colleges, compared to a 5 percent increase in the number of high school graduates over the same timeframe.
- “Disappearing yield contributes to greater enrollment uncertainty. The percentage of admitted students who choose to enroll, known as the yield, is dropping. A growing number of colleges enroll less than 20 percent of their accepted students, making it increasingly challenging to predict and budget enrollment.
- “Savvier prospective students as well as economic and political conditions will keep tuition constrained despite increasing applications. To enroll students, colleges are increasingly competing on price, limiting growth in tuition revenue and increasing discounting. In (fiscal year) 2013, net tuition per student failed to grow by at least 2 percent, our proxy for inflation, at 35 percent of private universities and 26 percent of publics. Our tuition survey projections for FY 2014 highlight even greater price sensitivity.”