In order to maximize net tuition revenue, higher education employs a high-price, high-discount model. But just as trees don’t grow to the sky, this strategy can’t work forever—the U.S. is running out of students who can pay full tuition. Students are tapped out: in the 2014-15 school year, 86 percent of first-time full-time freshmen received financial aid.
This means that when schools increase tuition, only the remaining 14 percent of students can actually afford to pay more, creating a disconnect between raising tuition and actually getting more cash in the door. Tuition rose by 4.8 percent per year between 2006 and 2016—adding up to an eye-popping 60 percent over the past decade.
But tuition revenues per student grew by only half as much. Schools are having to discount even to attract wealthy students: private four-year schools are offering 33 percent discounts to students whose families are in the top income quartile. There is, so to speak, very little blood left in the turnip.
On the Hunt
The hunt for full-pay students has taken schools far afield. At public schools, out-of-state students generally pay far higher tuition than in-state students, which goes a long way in explaining why out-of-state enrollments are on the rise at most public flagship institutions. The issue is becoming politically thorny. An audit in California found that out-of-state students were able to gain admission with lower qualifications than in-state students—resulting in a legislative limit on how many out-of-state students the system can accept. A recent audit in Pennsylvannia had similar findings.
Defenders argue that colleges have been forced to reach for revenues because state governments are rapidly disinvesting in higher education. There is merit to this; most states are spending far less per student than they did pre-recession.
But even in states like North Dakota, for example, which has seen a rise in state appropriations to higher education since the recession, schools are still reaching for revenue. In 2000, the University of North Dakota enrolled just over 6,000 North Dakotans, constituting slightly over 56 percent of the school’s population. Fifteen years later, despite boosting overall enrollment by nearly 4,000 students, the number of enrolled students hailing from North Dakota actually fell by over 1,000 students. Today, out-of-state students make up the majority of the student body.
But out-of-state American students are the small potatoes. The big game is international students—and we’ve seen their numbers rise nearly five times faster than US student enrollment growth over the past ten years. In North Dakota, for example, international enrollment is now 6.1 percent.
(Next page: Is this the end of the road for the traditional business model?)
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