The Biggest Challenges Facing Higher Education Institutions

September 09, 2019

n this first post of our Enrollment series, we’ll look at the top factors disrupting college admissions today. Then stay tuned for subsequent entries dedicated to helping enrollment professionals navigate the rough waters of recruitment in the 21st century.

A New, Nail-Biting Normal

Ballooning tuition. Admissions scandals. Outsized debt and college closings. In the court of U.S. public opinion, the institution of higher education has seen better days. And that’s only the consumers’ side. Weakening student demand coupled with shifting U.S. demographics has university recruitment officers feeling the pressure.

Their worries are justified, according to a recent Chronicle of Higher Education (CHE) article. CHE forecast that a broad swath of private colleges would miss their enrollment goals for the 2019 fall semester. Just as notably, it predicted that the list of colleges falling short would include some institutions that have rarely, if ever, had to worry about filling classes.

A recent article in Inside Higher Ed describes how the Great Recession, which ended 10 years ago, is still impacting the state funding going to higher education institutions. Barb Rosewicz, project director of Pew’s Fiscal 50 project on states’ fiscal health described the effect: “This was the most widespread example we encountered of a lingering consequence from the Great Recession,” Rosewicz said. “Higher ed spending was below pre-recession levels in a total of 40 states.”

This decrease in spending doesn’t just affect public institutions. Students who choose to attend private universities also rely on state-funded grants to offset the costs of tuition. Many private institutions have had to make up for a loss in state grants by increasing the institutional financial aid their students receive.

The residual financial impact of the Great Recession is not the only thing driving down college enrollments. Below we explore a few other factors.

Weakened demand

For decades, the higher education sector has enjoyed gangbuster growth. Through good financial times and bad, the number of two- and four-year colleges kept rising, increasing by more than 30 percent between 1990 and 2010, according to the Education Department. But as the country entered the millennium’s second decade, the wheels on the train began to wobble.

One of the easiest culprits to identify is demand. The Centers for Disease Control and Prevention reports that America’s birthrate has been in steady decline since 1986. In fact, 2018 saw an all-time low, down 2 percent from the year before. Unsurprisingly, these dips have led to a decrease in the country’s current high-school population.

The good news is that more and more students are completing high school. Data from the National Center for Education Statistics shows that U.S. graduation rates rose from 79 percent in 2011 to 84.6 percent in 2017. But the not-so-good-news (at least for college recruiters) is that these rates don’t equate to increased college enrollments. In spring 2019, overall postsecondary enrollment decreased by 1.7 percent, or nearly 300,000 students, from the previous spring.

So where are all those high-school graduates going if they’re not ending up in college? “Cyclical economic forces would seem to explain most of this,” writes Justin Fox, a Bloomberg business columnist. “[A] strong job market is giving those for whom the decision is between attending college and immediately entering the workforce lots of reason to choose the latter.”

Higher graduation rates and a stronger economy seem like obvious good news, but the reality is a bit more complicated. For example, students without a college education stand to earn significantly less during their lifetimes. And without enough students to fill seats, vulnerable institutions are at risk. In 2013–2014 (the peak of college numbers), the U.S. was home to 3,122 four-year colleges, according to Education Department data; four years later, the number had dropped by 7 percent, to 2,902. While the decrease can certainly be viewed as a Darwinian market correction, it bears noting as a warning to surviving colleges to examine their offerings and reputations.

Increasing consumer scrutiny

Fewer students (and colleges) aren’t the only indicators of trouble. So, too is the overall financial picture for families considering how (or if) to pay the cost of higher education. When adjusted for inflation, the price of college has more than doubled since 1986. And during that same time period, the price has increased almost eight times faster than wages. This divide means that today’s graduates are struggling harder to pay off student loans, and putting off other important financial steps such as buying homes and saving for retirement.

The U.S. is in a class of its own,” says Andreas Schleicher, the director for education and skills at the Organization for Economic Cooperation and Development. “Spending per student is exorbitant, and it has virtually no relationship to the value that students could possibly get in exchange.”

Temple University economics professor Doug Webber disagrees. “Given the choice, I would much rather be a 22-year-old college graduate with $30,000 in debt … than an 18-year-old who decides not to enroll in college at all. The direct financial rewards of a degree are enormous, and don’t even begin to capture the many other dimensions that attending college can positively impact one’s life.[1]

Speaking purely in financial terms, Webber’s assertions are valid. The “million dollar difference” (so-called to quantify the variance in lifetime earnings between college and high school degree holders) was again confirmed by a 2016 study from Georgetown University. And the Pew Research Center finds that the median yearly income gap between high school and college graduates is around $17,500.

Still, these long-term numbers can be a tough sell to students and families considering near-term mountains of loan debt.

“I feel I kind of ruined my life by going to college,” confesses Jackie Krowen, 32, to Consumer Reports (CR). “I can’t plan for an actual future.” Krowen graduated with $128,000 in debt, and says that buying a house or having a family seem financially impossible.

“You shouldn’t have to go to war to get an education,” laments Saul Newton, 28, in the same expose. After two years of tuition hikes, Newton dropped out of college and joined the Army. He eventually completed his degree under the GI Bill, but says that while in Afghanistan he was careful never forget to make his monthly payment. “It was kind of crazy that a soldier in a war zone had to worry about student loans,” he says. “But I believed that if I didn’t pay, my credit would be shot.”

Discount Rates

Increasing skepticism. Diminishing trust. Rising student loan debt and decreasing demand. Together, these factors account for incredibly keen competition for students between the nation’s colleges. Those with the strongest reputations and largest endowments may enjoy some breathing room, but for many, survival comes down to how successfully they can balance their discount rate.

Discount rates reflect institutional grant dollars as a percentage of gross tuition and fees, or in other words, “real” price versus sticker price. The higher an institution’s discount rate percentage, the more revenue it is foregoing in order to secure student enrollment.

Rising discount rates are particularly prevalent at private, nonprofit four-year institutions, where the average discount rate for first-time, full-time freshmen is expected to reach a record high of 52.2% in the 2018-19 academic year. This is according to a new survey of more than 400 colleges and universities by the National Association of College and University Business Officers (NACUBO).

As institutional funding grows in order to woo desirable prospects, colleges are looking at ways to offset their costs. According to NACUBO’s data, the top three strategies, reported by at least two-thirds of institutions, were changes in recruitment, retention, and financial aid. Smaller shares of respondents said they added or changed academic programs (39.2%) and facilities (24.3%).

Additionally, some colleges have taken to resetting tuition rates, and others to freezing them. Their goals are to present a clearer picture of net cost, and to appeal based on lower cost respectively. But some institutions are doubling down instead—banking on the marketing principle that higher cost equates to a better reputation and higher lifetime value. “For decades, most private college pricing has reflected the Chivas Regal effect,” says Tamar Lewis to the New York Times. “[It’s that] notion that whether in Scotch or a school, a higher price indicated higher quality.”

Final thoughts

Today’s enrollment professionals are facing an unprecedented challenge. Not only must they convincingly market institutional ROI against a backdrop of flattened wages and jaw-dropping tuition increases, but they must do so while attempting to balance the right geographic, racial, and socio-economic diversity mix for their institutions. And yes, that all needs to happen while keeping a lid on their tuition discount rates.

It’s a daunting juggling act, but not impossible. In the posts to come, HAI will share how you can level the playing field by using quality data and predictive modeling to help identify where growth is possible at your institution.

Want to learn more about our work? Visit our higher ed solutions page for an overview of our decades-long experience in the industry, including building predictive models, creating enrollment and financial aid strategies, and more.