As another academic year winds down on campuses nationwide, the news about the financial underpinning of colleges and universities keeps getting worse. Two studies out in the past week show that key revenue sources at public and private universities continue to shrink without any immediate signs of slowing.
The first comes from a study that shows states have increased spending on public welfare programs since 1987 at the expense of public higher education, the only major budget category to see a decline since then. Medicaid is the single biggest cause of the decline in higher education spending at the state and local levels, said the study’s author, Doug Webber, an associate professor of economics at Temple University.
Webber found that since 1987, average state and local spending on public welfare has increased from about $645 per resident to $1,930 per resident in 2015, about what states spend on K-12 education. Meanwhile, spending on higher education remained flat in the same period, at about $250 per resident.
As a result, the rising cost of operating public colleges has been passed on to students through higher tuition. College students and their families, who a little more than a decade ago paid for about one-third of the cost of their education at a public university, now pay for most of it in about half of the states.
The financial news is not much better at private colleges, where fewer students are paying anything close to the full sticker price. A second study released in the past week shows that the average discount for first-year students — what families actually pay after colleges dole out “financial aid” from their own coffers — has reached a record 49.9 percent on private campuses. That’s half off the published sticker price of tuition, and up from about 40 percent just eight years ago.
These two trends show that the revenue picture for public and private colleges is deteriorating, even in a good economy. So what happens when the economy slows, as it inevitably will? How do colleges look for ways to lower costs? What does higher education look like a decade from now?
Those were among the questions I asked two panels I led about the future of higher education at national conferences in recent weeks. The experts painted a slightly more optimistic picture for colleges and universities than the one anticipated by the two studies. They argued that the future economy demands more education, and few institutions are better positioned to provide that than existing colleges and universities. But that will require more than incremental changes to the status quo.
The most common response to my question about the future was that the decade ahead is likely to be a period of mergers and acquisitions in higher education. There are some 4,700 degree-granting colleges and universities in the United States. About 40 percent enroll 1,000 or fewer students. Another 40 percent enroll fewer than 5,000 students. Since 2010, the smallest institutions, below 1,000 students, have been shedding the most enrollment, a decline of 5 percent compared to institutions with more than 10,000 students, which have grown slightly, on average, according to the U.S. Department of Education.
In the next 10 years, “we might see 200,000 students in a distributed network of universities under one brand,” said Kevin Guthrie, president of Ithaka, a nonprofit organization focused on technology and academic transformation. He spoke at the ASU/GSV Summit, an annual gathering of those in education technology.
John Katzman, founder of an education-search company called Noodle, said he could imagine colleges following the lead of the software industry. Over the past decade or so, it has moved away from intricate and self-contained programs, and instead offers “software as a service” through Web-based programs with information stored in the cloud. There’s no reason for hundreds of colleges to essentially offer the same Economics 101 class, Katzman said at ASU/GSV. If universities partner, they could more easily share courses — just one instance of potential cost savings.
As colleges consolidate, those that remain will survive by better differentiating their offerings, said Mitch Daniels, the president of Purdue University and former governor of Indiana. That would be good for students, he added, because it would offer more variety. That would include the traditional — but expensive — residential experience, and a blending of online and face-to-face learning, online-only courses and a bigger assortment of degree options beyond conventional associate and bachelor’s degrees.
“We have 80 million people who graduated from high school but don’t have a college degree,” Daniels said at the Milken Global Conference. “Yet we have thousands of colleges going after 18-year-olds.”
Indeed, one of the biggest growth opportunities for colleges is the adult student. Of the adults without a college diploma, about half attended college but left before graduation. Last year, Purdue acquired the online Kaplan University, partly as a strategy to better reach adult students. Earlier this year, the name was changed to Purdue University Global.
Despite the negative financial trends, there is a path forward for many campuses to survive in the decade ahead. It will require many schools to think differently about their mission, student body and academic programs. The question is how many will decide to take a different path before it’s too late.