After years of seemingly being willing to pay whatever colleges sought, students and their families have become intensely price-conscious. As tuition continues to rise ahead of family income, fueling student debt, a record 43 percent of freshmen nationwide surveyed by the University of California, Los Angeles in fall 2012 said cost had been a major factor in their college choices, up from 31 percent a decade ago. During the 2011-12 academic year, families spent 13 percent less on college than they did two years earlier, according to the student-lending corporation Sallie Mae, suggesting that they’re picking less expensive schools or getting more financial aid.
Fewer students are choosing private colleges, whose market share slipped from 22 percent in 2006 to 20 percent in 2011. Yet the number of applicants to the public University of Massachusetts Amherst, which costs less than half of what many area private colleges charge, is up 70 percent since 2005. “When times get tough, [parents] start saying, ‘This is just as good or maybe better, and it costs a lot less,’ ” says Jack Wilson, former president of the UMass system.
The bond-rating company Moody’s reports that 41 percent of private colleges are seeing their enrollments fall. Nearly half predict enrollment declines again in 2013. For Massachusetts private colleges, most of whose students come from within the state or region, this problem is compounded by a projected 10 percent decline in the number of New England public high school graduates through 2028. Meanwhile, in Massachusetts, a 15 percent decline is expected by 2020 in white non-Hispanic high school graduates, on whom many private colleges have historically depended. “Not only is the enrollment declining, the demographic of the student that often goes to those kinds of colleges is changing,” says Wilson, now a professor of higher education at the University of Massachusetts Lowell.
One way private colleges are trying to reverse this trend is by spending more money on financial aid to lure fence-sitting families. Nationally, private colleges pay out 37 percent of their tuition revenue as undergraduate financial aid, up from 34 percent in 2001. This is called the discount rate. Some Massachusetts private colleges now have higher discount rates than the national average, and the numbers are climbing. The discount rate at American International College and Wheaton is at least 42 percent, according to the most recent records filed with the IRS, around 45 percent at Pine Manor and Lasell colleges, 46.5 percent at Dean, and 51 percent at Elms.
Deeper discounts may be great for cash-strapped students, but they’re bad for colleges, which can dole out money for only so long before they run out of it. This cycle also means that, even as they keep increasing tuition, colleges are falling behind. In 2012, revenues at many institutions rose less than the inflation rate, according to Moody’s — and the problem was worst at small private colleges. “What has to be even more troubling for them is that, even at 50 percent discount rates, they’re not filling their classes,” says Bain’s Denneen. The Council of Independent Colleges called in January for slowing the rise of discount rates, which it also described as unsustainable.
“The discount rate is killing them. It’s absolutely killing them,” says Denneen. “It’s not affordable in the long term. The schools in this segment are getting 95 percent or more of their revenue straight from tuition, so every dollar they’re giving away is seriously impacting their financial stability.”
Some Massachusetts private colleges are looking farther afield for students, to high-growth places like Florida, Texas, and California — three states that together produce an estimated half of the nation’s high school graduates. But they’re competing with everyone else, including public universities on the hunt for higher-paying out-of-state students. And in their pitches to prospects, Massachusetts private colleges somehow have to overcome the fact that they cost, on average, 20 percent more than their private competitors in the rest of the country. Their tuition, room and board, fees, transportation, and other expenses averaged $50,692 in 2012, compared with the national figure of $42,224.
Hunting for students out of state has dramatically driven up the cost of recruiting. Private colleges now spend an average of $3,043 to recruit every student who enrolls, NACAC says. That’s 40 percent more than five years ago. “It’s expensive to recruit [in places like Florida and California], especially when there’s only a trickle of interest,” says former Bentley president Joseph Cronin, now a higher education consultant. “How many people in those states want to come to ice-cold New England, where we greet spring with 6 inches of snow?”Continued...