Going International
International students are attractive to U.S. institutions because they bring financial resources, allowing schools to tap into a rich vein of tuition revenues at a time when affordability concerns in the U.S. are reaching fever pitch. But there are signs that this source of revenue is at risk. In March of this year, 40 percent of colleges and universities reported a decline in applications from international students. International students have reported that they are concerned about being able to get visas to study in the U.S., being unwelcome in the country, and not being able to work in the U.S. after graduation.
The politics and rhetoric of the current administration have not been altogether kind to foreign students. But even if the political winds were to shift, institutions face longer term vulnerability to the stream of revenues from international students: competition from abroad.
In the 2018 Times Higher Education rankings non-U.S. institutions took both the first and second spot—a first for the rankings since their inception in 2004. As international research universities become competitive with U.S. institutions, international students won’t have to travel across oceans to access elite brands. This is especially critical for Chinese students, which have come to constitute about a third of foreign students in the U.S. Over time, Chinese research institutions like Peking University and Tsinghua University have slowly built their research productivity, financial resources, and reputations, the three areas evaluated by the Times.
The End of the Road for the Traditional Business Model?
This is a big deal for U.S. colleges and universities. Faced with what is likely to be a tougher market for enrolling international students—not just in the Trump years, but over the long term—U.S. higher education may finally have exhausted its ability to squeeze more revenue out of the high-tuition/high-discount model.
In many industries, managers seeking more revenue, faced with a consumer who can’t accept higher prices, might look to increase the total number of customers, either by growing the market or by taking market share. Unfortunately this isn’t an option for the traditional higher education model, which has high fixed costs but also fixed capacity—only so many students can fit in a classroom, a dorm, or a cafeteria. In the push for prestige, colleges have prioritized maximizing revenues per student, which has left lower income students behind.
Colleges are sorely in need of a new business model. The search for full-pay students is a driver of inequality, as well as being unsustainable. Where can we go from here? This race to the bottom leaves an opening in its wake: innovative models in online and competency-based that can increase access at a lower cost to students and taxpayers. We are seeing enrollment in those programs rise as students flock to lower-cost programs with strong outcomes. Traditional higher education needs to either make fundamental shifts in its business model, or find a way to control cost growth. We are quickly running out of full-pay students, at least in this sector of the galaxy.
[Editor’s note: This post was originally published on the Christensen Institute‘s blog.]
Alana Dunagan leads the Christensen Institute’s higher education research and works to find solutions for a more affordable system that better serves both students and employers. In this role, Dunagan analyzes disruptive forces changing the higher education landscape.
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