Private colleges vulnerable to more closures amid financial pressure



By 07/05/2018

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FALL 2018 / VOL. 18, NO. 4

 

Private colleges vulnerable to more closures amid financial pressure

Predicted drop in number of high school graduates forecasts mounting trouble for small schools

July 5, 2018—Predictions of a bursting bubble have given way to forecasts of higher education’s slow death (“Here’s How Higher Education Dies,” The Atlantic, June 5, 2018). Is now the beginning of the end? A 2015 report from Moody’s Investors Service on four-year colleges projected that the number of closures would soon triple and the number of mergers would double. In a new article for Education Next, Stephen Eide of the Manhattan Institute explores the changing higher education landscape and the forces that pundits predict will accelerate the decline of America’s private four-year colleges.

The institutions that are struggling tend to be small and less selective, in addition to commanding fewer financial resources due to their modest endowments. Although tuition prices are lower at these less-selective schools, students receiving financial aid pay roughly the same tuition price as do students attending elite institutions, potentially lowering the appeal and perceived value of a degree. Another looming complication for private colleges is that the number of graduating high school seniors nationwide is projected to fall beginning in the mid-2020s. The decline is already underway in the Northeast and the Midwest, where concentrations of private colleges are highest.

Among the pressing problems facing private colleges, Eide identifies:

Tuition discounting. Subsidizing tuition has become so common that, according to a 2017 analysis, the rate of growth of institutional aid flowing out has outpaced the rate of growth of net tuition revenue flowing in. Nearly 90% of freshmen attending a private college now receive financial aid, and the average grant covers half their tuition, up from 38% in 2005.

Competition from state schools. As state higher-ed budgets shrink, public colleges have compensated by ramping up recruitment efforts and attracting the private college market by creating small honors colleges within their larger systems. Not only are public colleges more affordable than private— the national average for the net price (tuition and fees less aid) at a four-year private college is roughly twice that of what in-state students pay at a four-year public institu­tion—but with more academic programs for students to choose among, public colleges are often considered a less risky educational investment.

The free tuition movement. In 2017, New York became the first state, through its Excelsior program, to offer tuition-free education for middle-class students at four-year state schools (in addition to offering tuition-free programs for low-income students). A November 2017 report by the Commission on Independent Colleges and Universities in New York found that 30 of its member colleges that enrolled mostly New Yorkers had experienced enrollment drops since Excelsior launched.

The uncertain future for private four-year colleges raises an important question for leaders in higher education. “What kind of higher-education system do we want?” asks Eide, “One that’s composed mainly of elite schools for top students and public universities for everyone else? Or a system that offers a variety of choices, in both the public and private spheres, for all kinds of students?”

To receive an embargoed copy of “Private Colleges in Peril: Financial pressures and declining enrollment may lead to more closures” or to speak with the authors, please contact Jackie Kerstetter at jackie.kerstetter@educationnext.org. The article will be available Tuesday, July 5 on educationnext.org and will appear in the Fall 2018 issue of Education Next, available in print on August 30, 2018.

About the Author: Stephen Eide is a senior fellow at the Manhattan Institute.

About Education Next: Education Next is a scholarly journal committed to careful examination of evidence relating to school reform, published by the Education Next Institute and the Harvard Program on Education Policy and Governance at the Harvard Kennedy School. For more information, please visit educationnext.org.




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