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Revenue Squeeze Hits Higher Ed

Decades of steady tuition increases may finally be coming to an end at American universities: The Wall Street Journal reports that a number of schools are beginning to cut back on tuition increases in response to waning student demand. But these cuts are beginning to take a toll on revenue.

According to a recent survey by Moody’s, the number of schools experiencing a net decline in revenue has shot up dramatically over the last couple years. Four percent of public schools and 10 percent of private schools saw their revenue drop in the last fiscal year; this fiscal year, the decline has risen to 15 and 18 percent, respectively. The WSJ has more:

The financial pressures signal that many schools are starting to capitulate to complaints that college has become unaffordable to many American families, observers say. At least two dozen private colleges froze tuition this fall, roughly double the previous year’s total.

“It’s pretty clear that pricing power of colleges has reached an inflection point,” said John Nelson, a managing director at Moody’s who oversaw the survey team.

For colleges, the declines in net revenue could portend cuts to academic programs and a search for alternative sources of revenue such as more online courses and recruiting wealthy students from overseas who can pay full tuition

College presidents may disagree, but this is actually good news for American higher ed.

The problems facing the industry have become painfully apparent over the past few years: administrative bloat first and foremost, an expensive “time served” approach to credentialing, degree programs that are often an ill fit for the job market, the mismatch between the priorities and cost structures of research universities and undergraduate degree programs and, most importantly, the crippling student debt students have taken on to pay for their degrees. But as long as universities could continue to increase tuition without losing students, they could continue to keep spending money on expensive facilities and massive bureaucracies.

Now that students are finally beginning to balk at high tuition prices, schools will need to be more judicious about where they spend their money. This will be a difficult adjustment for many college administrators and staff, but the end result should be a more streamlined, efficient system that gives students more bang for their buck, particularly if schools begin seriously competing on price.

As always, higher ed combines three functions: ground breaking research, providing a classic liberal education and providing specific skills and competencies that help students earn a living. The training side of higher ed needs to get much more focused and efficient. The liberal education side needs to think hard about what liberal education really is and how it can best be provided. The relationship of the research function to the training and education functions of the university needs to be rethought.

The country needs more higher ed, not less; figuring out what kind of system can provide the level of education we need (and provide lifetime re-education for workers as the job market continues to evolve) at a cost we can pay is going to lead to profound changes in the American university system — comparable to those after World War Two when higher ed went mass market for the first time.

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