Tuition Crunch Hurting Cash-Strapped Colleges

Money is becoming a matter of even greater concern for colleges and universities as more schools have failed to keep their funding at healthy levels in difficult financial times, a recent survey has shown.

As the recession ended, a survey by Moody’s Investors Service showed nearly half of colleges and universities are not generating enough revenue. A cycle of disinvestment and falling enrollment that places a growing number at risk is reflected by the survey that involved almost 300 schools.

For two decades, schools enjoyed rising enrollments and routine increases of 5% to 8% in net tuition. Sadly, that is not the case now; grimmer prospects crowd the schools: precarious job prospects after college, depressed family incomes and a shrinking pool of high-school graduates.

Schools are being prompted to rein in tuition increases while increasing scholarships by the softening demand for four-year degrees. Net tuition revenue, the amount of money a university collects from tuition, minus school aid is cutting into those moves.

For 44% of public and 42% of private universities included in the survey, net tuition revenue is projected to grow less than the nation’s roughly 2% inflation rate this fiscal year, which for most schools ends in June. For private schools, net revenue will fall to 19% while for public schools; it will fall to 28%.

“We’re all kind of holding our breath,” said James Edwards, president of Anderson University in Indiana. The private Christian school suffered a 7% drop in enrollment this year, prompting cuts to faculty and several majors, including theater, French and philosophy. “The really big question is; where is all of this heading?”

According to Douglas Belkin of The Wall Street Journal, this is the fifth year private schools have endured stagnant net revenue, and the impact has been compounding, as faculty wages are frozen and capital improvements and maintenance are put on hold, said Karen Kedem, the author of the Moody’s report that accompanied the survey. The drop is just now hitting public universities, amid falling state aid and research dollars.

Public schools are significantly more reliant on tuition revenue than they were a decade ago. The same survey found 18% of private schools and 15% of public ones projected a decline in net tuition revenue in 2012.

“It’s concerning because colleges and universities are mostly dependent on tuition to raise revenue,” Ms. Kedem said. “If they’re not able to invest in programs, personnel and facilities over time, their ability to attract students, faculty and donors will deteriorate.”

Thorny is the word for contraction among public schools. The number of out-of-state students, who pay two or three times the tuition as in-state students, has flat lined at about 17% for public schools. And the market for international students, who also generally pay top dollar, is becoming more competitive. Many schools see those markets as keys to their financial future.

Nick Bruno, president of University of Louisiana at Monroe, said that generating more revenue from out-of-state students, international students and online students is critical to making ends meet, because the state has sliced its subsidy by more than half in the last five years.

“We don’t know where the bottom is; if we knew, we could structure appropriately,” said Mr. Bruno, with regard to the budget cuts. The result: “We have to look at a different business model; we can’t just depend on our region anymore.”

However, schools with the strongest brands are less vulnerable to these trends.