College enrollments are going down, but will college tuition too?
College enrollment is declining. That may cause students and their parents to hope tuition costs will go down, but they should not count on that.
In classical economics, lower demand typically triggers lower prices, at least until unprofitable companies merge or go out of business and shrink supply. It does not necessarily work that way, though, in the world of higher education.
In the fall of 2012, published tuition and fees for in-state students at four-year U.S. public schools rose just 2.9 percent from a year earlier, the smallest increase in 33 years, the College Board reported. At private schools, published prices rose 3.8 percent, lower than the increases in recent years.
At the same time, the number of students enrolled in colleges and universities fell by nearly half a million after two decades of substantial growth, according to the U.S. Census Bureau.
Moody's rating service has warned that enrollment declines threaten the finances of many colleges.
Enrollment was certainly on the minds of 916 college administrators and consultants attending a recent strategic enrollment management conference hosted in Chicago by the American Association of Collegiate Registrars and Admissions Officers.
"Everybody - two-year, four-year, private, public, Christian schools - they all raised concerns about meeting their enrollment goals," said Michael Reilly, the association's executive director.
The lower enrollments mostly reflect a better economy, which lured students into the workforce and away from two-year and for-profit schools, said Jennifer Ma, a policy research scientist for the College Board. In coming years, though, there is a more worrisome trend for schools: a smaller pool of high school students.
The number of high school graduates peaked in 2011 at 3.4 million, according to a report by the Western Interstate Commission on Higher Education.
The group expects that number to drop to between 3.2 million and 3.3 million and not start to grow again until 2020, the report said. Even then, the growth rate will not match the boom experienced between 1990 and 2011.
But although people aged 18 to 24, those known as "traditional age" college students, are an important part of enrollment, they are not the whole story. In fact, they are not even most of the story.
Older learners now make up the majority of the 21 million U.S. college students, said Terry Hartle, senior vice president of the American Council on Education.
"Traditional age students are now the distinct minority," Hartle said.
In addition, the trend of fewer high school graduates could be ameliorated if a larger percentage decides to attend college in the future, said the College Board's Ma. The rising number of jobs that require higher education, and economists' dire predictions that those without degrees will not stay in the middle class, may persuade more to extend their education beyond high school.
The economy plays a significant but complex role in college enrollment and costs. Improved economies tend to bring increased spending on public education, as legislators restore the funding they slashed during bad times, Hartle said. That should moderate future price increases for the public schools that 80 percent of college students attend, he said.
Private schools, particularly mid- and lower-tier institutions, face different challenges. Most spend more on educating students than they collect in tuition, making up the gap with gifts, endowments and alumni contributions, Reilly said. Lower revenue may result in a bigger gap with no obvious way to fill it.
In the past, high demand has allowed these schools to raise tuition at faster rates than inflation even as family incomes dropped. But less demand, more competition and families' increased reluctance to borrow for education may imperil that approach, Reilly said.
"Small institutions without strong endowments ... will struggle," Reilly said.
Some say the competitive pressures will be too much for many schools.
One quarter of today's colleges and universities will either merge or disappear in the next 15 years, predicted Michael Horn, co-founder and executive director for education programs at the Clayton Christensen Institute for Disruptive Innovation, a San Mateo think tank.
"The financial model is breaking down and pricing out the middle class," Horn said. "There are fewer high school students coming up the ranks, plus there's the pressure of online innovations in education. It's a perfect storm of forces that will hurt a number of institutions quite severely."
Hartle, on the other hand, thinks most colleges and universities will adapt and survive. He points to a book from the early 1970s that predicted a "Great Depression" in higher education and to business guru Peter Drucker's forecasts in the 1990s of widespread college closures.
"We've been here before," Hartle said. "Private colleges and universities are very hardy in the U.S. They don't close very often."
First published November 19 2013, 7:37 AM