I just came back from NACUBO’s annual meeting where I had the privilege to participate on a panel facilitated by Josh Moody, a reporter from Inside Higher Ed, Bill Guerrero, Senior Associate Athletic Director for Financial Affairs at UConn, and Richard Mills, President and CEO of United Educators. Our discussion was prompted by the release of the recent survey results from Inside Higher Ed and appropriately titled, “What keeps CBOs up at night?”
For context, the responses represent 40% private and 60% public institutions. A small percentage of respondents represented the most vulnerable institutions with enrollments of 2000 students or less. Perhaps this is why there was so much optimism in the responses, or perhaps so much has changed in the higher ed landscape in the past 6 months that responses today would be more tempered.
For example, 93% of CBOs believed that their institution is a good value. When we look at the post-COVID decline in enrollment across all income brackets $75,000 and below, I think the market is telling us they do not believe it is good value in all instances. Yes, earnings are higher if you hold a degree, but remember value is defined by the customer and is a formula, Value = Price x Outcomes. While families know earnings are higher, the price they are willing to pay for the outcomes they want may not be aligned.
This confidence in our value proposition is leading many CBOs to be optimistic about the financial future of their institutions. While that optimism may be warranted by selective institutions, I do not think it is warranted for many.
Here is why: College enrollments post COVID have declined on average by 9% (only represents families completing FAFSA) while the number of students graduating high school increased by 4%, this represents a 13% decline, which I believe is largely based on the “value question”.
Net tuition for income brackets below $75,000 has remained fairly stable with small growth over the past decade. At the same time, those families earning $75,000 or more have seen the most significant increases in net price. In fact, the largest decline in FAFSA enrollments has occurred in the $75,000-110,000 income bracket, where net tuition represents about 30% of the family income. These are also families that will not qualify for any federal financial aid.
Even the most selective institutions cannot escape pricing pressures. With the enrollment cliff upon us, and increasing pressure on international enrollments, the most selective institutions will need to make up for losing these full-pay students through increased discounting and perhaps adjusting their selectivity to reach enrollment goals. Add to this the new PLUS loan limits for undergraduate and graduate students. Many of these schools have already felt immense pressure from the reduction in research funds.
This will of course cascade down through all institutions resulting in the least selective institutions who already have the highest discounts feeling the most pressure. These already fragile institutions will face immense pressure over the next few years. It is important to consider that these institutions often provide opportunities for the poorest students and serve as an economic engine in their communities. I refer to this pressure on the top and the bottom as the enrollment vice.
Perhaps the institutions in the middle will be the winners as those fragile schools close their doors, reducing the competition. With their (often) lower prices, these mid-tier institutions may be able to gain market share from the more expensive, more selective institutions.
So, what keeps me up at night is that the looming enrollment declines will cause us to fight with other institutions based on price, driving a race to the bottom (lowest price). All of this is distracting us from the real problem, which requires us to consider what students and employers want, and how much they are willing to pay for it. This should start by:
- Understanding what your regional employers and families want from an education (outcomes) and how much families are willing to pay for it
- Deciding what you are good at and launching new verticals in those areas (if it is supported by labor demand)
- Considering shorter term or hybrid programs, which cost less to deliver, resulting in a lower price to families
It is important to end on a positive note: There is nothing like a crisis to spark change. The institutions I work with, who are approaching this moment head on know they will close in 5 years if they don’t find a different way to approach the problem. The ones that have 15 years are not yet willing to consider anything other than adding new degree programs which was part of the original problem.
I can’t wait to see all of the new innovative models we have developed 10 years from now.
Photo by Greta Bartolini on Unsplash