What the Squeeze on College Budgets Means

Long-established patterns of college admissions have been disrupted. This has been attributed to the impact of COVID-19, but the pandemic only accelerated trends that had been building for a decade. One outcome of the disruption is that, while most colleges struggle with declining enrollment and budget pressures, elite institutions have seen a sharp rise in demand. Two models of admissions have arisen — one for the 60 or 70 most elite colleges and one for the other 4,300 colleges in the country. Students planning to apply to the other colleges should learn about the current state of admissions and use this knowledge to achieve their goals.

In budgeting for academic/fiscal year 2023-24, administrators of tuition-dependent private and public colleges can no longer postpone dealing with declining revenue. The $80 billion in Federal aid that helped them through the pandemic is gone and the hot economy that helped to absorb tuition increases has cooled.

Maintaining enrollment and tuition revenue is the most daunting task confronting colleges today. Total undergraduate enrollment fell by 4% in the fall of 2021 from a year earlier, according to the National Student Clearinghouse Research Center. Enrollment at public four-year colleges declined by 4% from 2020 to 2022, and community colleges were hit even harder. Enrollment at these colleges was down 25% in the fall of 2020 compared to 2019, then lost another 7% by 2022.

The decline in enrollment is the result of seismic changes in American demographics. Simply put, there are fewer high school seniors every year. According to Lee Gardner, writing in a recent issue of The Chronicle of Higher Education:

“Traditional-age college students were becoming increasingly scarce before Covid-19 complicated matters. More than half of the states are projected to lose as many as 15% of their college-bound high-school graduates by 2029, creating even more intense competition among colleges for the dwindling number of first-time, first-year students available. And the recent national conversation over the price, and worth, of a degree has made college a tougher sell for some students and their families.”

Public Institutions

The public institutions under the most pressure concerning enrollment are small regional and community colleges, which typically receive less state support per student than public flagship universities. Yet these schools serve the majority of first-generation and low-income students — the very students who are the most difficult to retain. This is a particularly vexing problem because state appropriations and tuition revenue are both tied to enrollment levels. The colleges being forced to make the largest budget cuts are those facing the most acute need to provide more and better student support services to reduce the attrition of enrolled students.

Private Institutions

Many private colleges are in even more precarious fiscal circumstances than public institutions. Schools that rely solely on tuition revenue face a future of increasingly expensive competition for a shrinking pool of applicants. In the past, these colleges often relieved financial pressure by raising tuition, but this a become a risky and  impractical tactic in 2023. There is widespread awareness of the burden of college debt along with the rising perception that an education at many colleges would flunk a cost/benefits analysis.

Adding to the dilemma is the rise of inflation. In the previous decade, inflation was flat at about 2% per year, which made planning and pricing easier. This remained true until 2020, when pandemic-induced shortages began to cause prices to rise by more than 6%. As costs rose, faculty and staff pressed for higher compensation. Other college operating costs also rose. Although inflation has fallen, it’s expected to be about 4% this year. But most colleges don’t foresee having sufficient revenue to be able to cope with upward pressure on labor and operating costs.

Near-Term Solutions for Colleges

Many colleges have too much physical plant in proportion to their enrollment, too many layers of management, and too many majors for which student interest has waned. Yet colleges still formulate budgets using last year’s budget as the base rather than adopting the zero-based budgeting methods of many large businesses.

Colleges are spending heavily to enhance their appeal. A better solution would be to increase spending on programs that raise student retention rates, such as academic-support and mental health. Retaining students will yield a better return on investment than fighting for marginally more enrollees than peer colleges.

Colleges should also consider aggressive partnerships, including agreements with other institutions to share back-office operations and aggregate purchasing power. Pooling operating resources among colleges offers huge potential for cost saving. Colleges should also seek to form new academic consortia. There are several consortia in the U.S. that have succeeded in protecting member’s enrollment levels by enhancing their collective appeal to applicants. College administrators should also pursue the potential benefits of merging with or acquiring other colleges.

Advantages to Applicants The grave fiscal condition of many colleges can work to the advantage of applicants. College’s need to increase enrollment will relax admission standards at many schools, so applicants with less than outstanding credentials will be accepted by schools that would have rejected them in the past. And, paradoxically, a well-qualified applicant is more likely to be offered a large tuition discount as an inducement to enroll. A college will prefer lower tuition revenue over none at all if there are a freshmen seats that might go unfilled

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s