While COVID-19 has beset the higher education community with a number of pressing challenges, a new report has highlighted noteworthy trends that have been causing significant long-term disruptions for institutions. But many of those disruptions, the report argued, have gone somewhat unnoticed by the larger public as attention focuses on tuition sticker price and endowment size, leading to “a broad misunderstanding of the underlying economics of higher education.”
The findings — issued by Hamilton Place Strategies (HPS), an analytical public affairs consulting firm — outline budgetary challenges for colleges and universities that were well in effect before the novel coronavirus outbreak and are now coming to a head, further exacerbating the potential economic plight these financially weakened institutions face.
“No university wants to project an image of weakness. They want to be seen among their peers as building the best campus, attracting the best students, and hiring the best professors,” the report said. “Individually, this is the right strategy. But collectively they are contributing to a broad misunderstanding of the underlying economics of higher education. The result is a sector that is poorly positioned to seek public support or family understanding at this time of urgent need.”
Over the past 20 years, though there has been a steady increase in the sticker price of tuition, institutions of higher education have also seen a significant increase in distributed aid, resulting in minor growth in profits.
For private four-year institutions, for example, the report found the average annual increase in net price has actually been growing slower than inflation.
“As tuition has climbed, so too has the demand for discounts, and the reality has become such that an incremental dollar in tuition only raises a little over 50 cents in revenue for private four-year institutions,” the report read.
In recent years some schools have seen massive valuations of their endowments, but when the restrictions placed upon the funding structure are taken into consideration it becomes clear that many schools are unable to utilize the funds as an annual stabilizing revenue stream.
Additionally, HPS reported on how concentrated endowments have become and found that the 40 schools with the largest endowments account for 57% of all endowment assets, but educate only 8% of all students pursuing four-year degrees.
Another challenge is specific to public institutions. In the last decade, with more individuals pursuing degrees, public schools have had to educate more students at comparatively lower tuition rates.
“Even in cases where budgets have been increased, the reality of larger numbers of students pursuing higher education means that budgets have been reliably declining on a per-student basis,” the report read.
While public institutions have worked to supplement their decline in revenue from other sources, those outlets — including reliance on international and out-of-state students, as well as university-run hospitals — have faced their own budgetary shortfalls especially with COVID-19 impacting logistical operations.
These shortfalls for public institutions are further complicated by anticipated cuts to state budgets likely to take effect when COVID-19 recovery efforts begin to take their continued economic toll.
The report concludes by urging policymakers to take these findings into consideration to better understand the collective economic realities that schools will be faced with even if their needs related to COVID-19 are met in full.
Publication Date: 6/2/2020