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At Postsecondary Institutions, Enrollment Is Up, Revenue Is Down

Apr 08, 2010

The National Center for Education Statistics (NCES) just released their First Look report on postsecondary education for the 2008-2009 school year. The report offers statistical data that backs up early observations of the effects of the recession on higher ed: As college enrollment has climbed, so has the gap between revenue and expenses.

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Economic Downturn

School Finances Reflect Country's Economic Woes

The National Center for Education Statistics (NCES) manages the Integrated Postsecondary Education Data System (IPEDS), the go-to resource for federal statistics on higher education. They recently released the report from their spring 2009 data collection, which covers five main components of the 2008-2009 school year:

  1. College finances for fiscal year 2008.
  2. Total enrollment for fall 2008.
  3. Financial aid for full-time, first-time undergrads.
  4. Graduation rates within 150% of normal program completion time.
  5. Graduation rates within 200% of normal program completion time.

Education Costs

This year's data set is particularly interesting because of what it reveals about the early effects of the economic downturn on higher education. We've all been watching California's troubles and hearing anecdotes about other schools' recession-related struggles, but this report offers the first official, nationwide picture of the changing financial and enrollment picture in postsecondary education.

One major impact the recession has had is a growing gap between revenue and expenses. For 4-year public colleges and universities, revenue has remained mostly steady, growing a little bit from $213.1 billion to $215.5 billion between 2007 and 2008. However, expenditures skyrocketed to $208 billion. Private colleges only saw an $8 billion growth in expenses from $124 to $133 billion, but their revenue fell dramatically from $182 billion in 2007 to $139 billion in 2008. The report identifies a major reduction in investment return as the primary reason for private schools' drop in revenue.

The report breaks down revenue sources and types of expenditures. NCES found that 4-year public institutions only received 18% of their revenue from tuition and fees, as compared to 36% at private nonprofit colleges and 88% at for-profit schools. Other major sources of revenue include government appropriations and grants, private grants and contracts, investment income and sales and services of educational activities and auxiliary enterprises.

There are, of course, many different types of expenses for educational institutions. Perhaps the most interesting for the educational community are the funds spent on instruction and research. Public 4-year institutions spend 26% of their budgets on instruction and about 12% on research, whereas public 2-year colleges spend about 40% of their budgets on instruction and nothing on research. Private nonprofit colleges spend 33% on instruction and about 11% on research, and private for-profit institutions spend 20.6% on instruction and only 0.1% on the combined category of 'research and public service.'

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Economic Downturn Drives Up Postsecondary Enrollment

Another recession-related change can be found in enrollment. Historically, Americans have gone back to school during difficult economies, either due to joblessness or a desire to gain more advanced training. Overall, enrollment at colleges and universities that award federal aid grew by 4.8% in the fall of 2008. That's nearly double the 2.6% increase from 2006 to 2007. Four year private colleges saw the largest enrollment gain, with an increase of 21.1% in a single year. Two year private colleges, which have been slowly disappearing, were the only sector that saw a drop.

One of the most interesting enrollment shifts is the growing market share of for-profit institutions. In 2002-2003, the ratio of students enrolled in private nonprofit colleges as compared to private for-profit schools was almost 3 to 1. In 2008-2009, that dropped to 2 to 1, with private for-profit institutions representing about 9% of the total postsecondary enrollment.

Although that's still a relatively small base, it represents a startling shift in Americans' attitudes toward for-profit, or proprietary, education. Education experts note that the recession is probably at the root of this change. Federal Pell Grant distribution shows that the majority of the students attending for-profit colleges are low-income. When the community colleges and public universities that normally serve this group become overcrowded, low-income students are more likely to turn to for-profit private institutions that promise vocational training than nonprofit private colleges that tend to have staggeringly high sticker prices. For-profit schools also typically offer conveniently located campuses, night classes and an emphasis on e-books, all of which makes education far more accessible for low-income individuals and degree-seeking professionals.

Financial Aid

Financial Aid and Graduation Rates

Although financial aid information in the NCES report lags a year behind enrollment data, it still shows the early effects of the recession. The overall percentage of undergraduate students receiving financial aid climbed from 73.4% in 2006-2007 to 76.4% in 2007-2008, but the proportion of full-time, first-time students receiving aid did vary by type of school:

Type of Institution Percentage of First-Time Students Receiving Aid
Public 4-Year 77.5%
Public 2-Year 62.6%
Private Nonprofit 4-Year 86%
Private Nonprofit 2-Year 84.5%
Private For-Profit 4-Year 76.2%
Private For-Profit 2-Year 86.9%

For the 2007-2008 academic year.

Graduation rates are the final statistic collected by the NCES in their annual reports on postsecondary institutions. Unfortunately, their data collection methods are less than ideal on this statistic. There are many problems, but the primary complaints levied against the NCES' methodology are that the organization only counts students who started as full-time, first-time freshmen and that it excludes students who transfer, even if they do go on to graduate. As a result, the rates they report leave out a large segment of the college-going population who do actually end up graduating.

Policymakers are looking at implementing major changes to IPEDS in the hopes of rectifying this problem. In the short term, they've tried to cast a slightly wider net by tracking students for a longer period. Typical graduation rate statistics only include students who graduate within 150% of the normal time-to-degree. That would be six years for a 4-year degree program, or three years for a 2-year degree program. This year, NCES has also included data for 'original' students who graduated within 200% of the standard time-to-degree.

Overall, they found that 36.1% of original students earned a bachelor's degree in four years, 57.5% in six years and 60.6% in eight years. At 2-year institutions, 18.9% of first-time students earned their degree in two years, 31.4% in three years and 37.3% in four years. For certificate programs, 47.3% of students finished in the expected amount of time, 67% finished in 150% of normal time and 71.5% finished in 200% of normal time.

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