Higher Education Headwinds

November 5, 2020

Source: College Board, Annual Survey of Colleges Source: College Board, Annual Survey of Colleges

The onset of the coronavirus has shined a light on the headwinds facing higher education. Colleges have added significant debt and expenses in recent years and have consistently raised tuition rates while the value of the product being sold is being questioned. With many institutions not offering the same “experience” due to pandemic-inflicted limitations, are degree offerings enough to keep tuition-payers coming?

Student demand has become increasingly sensitive to price. While headline sticker prices for public and private universities have risen steadily for 20 years, net tuition and fees as a percentage of published tuition have not followed this path. This week’s chart shows the net tuition and fees as a percentage of published rates over the last 20 years. Note the particularly sharp drop at private institutions. Since the financial crisis, public universities have recovered a bit but are still below the pre-crisis-level high. Net tuition and fees are derived after adjusting for grants, scholarships and other aid. Sluggish net tuition revenues have universities struggling to find other sources of income.

Student enrollment is slowing, particularly as international demand has declined as a result of increasing overseas competition and greater U.S. restrictions. International student enrollment is off its peak seen in 2017. Meanwhile, the National Center for Education Statistics reports a 5% decline in total undergraduate enrollment over the last decade. In addition, demographics in the U.S. are not encouraging as the 16- and 17-year-old population has decreased.

This smaller pool of students is also confronted with an increasing number of alternatives to the traditional college experience. Online course options have exploded due to their tremendous flexibility, convenience and cost advantages over the traditional model. The University of Phoenix and Southern New Hampshire University (SNHU) have grown significantly from their online efforts. SNHU’s online enrollment is now well over 100,000 students, an impressive increase from just 3,000 in 2003.

Key Takeaway

While the perceived value of a college degree may be declining, the median salary of an individual with a bachelor’s degree is still more than 160% greater than for individuals with a high school diploma (no college), according to the Bureau of Labor Statistics. However, the impact of COVID-19 is causing many students and parents to question tuition levels and the value of translating a degree into a career. At a time when higher education headwinds are numerous — highlighted by challenging demographics and pricing power, as well as education alternatives — I think it is wise to focus higher education positions in those credits with strong brands and resources to adapt their business models and effectively navigate the new college environment.

Tags: Coronavirus | higher education | students

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