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Higher Education Policy and Practice

Should We Be Worrying About a Student Debt Crisis?

“The cost of a college education is rising faster than the cost of medical care and as much as three times as fast as consumer prices in general. But that’s just the beginning of the price of admission. Americans now owe more on their student loans than they do on their credit cards — a debt fast approaching $1 trillion with no end in sight.”

The preceding quote is from a December 21, 2010 MSNBC article on the web entitled Student Loans Leave Crushing Debt Burden. This article is the most recent commentary in major news sources on the fears expressed by students and especially parents about the rising costs of earning a degree.

The question for college presidents: Does this fear of paying for a college degree matter to them?
The reality, as Moody’s Investors Service has noted, is that colleges sell a product that everyone wants because parents and students believe they need it to succeed in life. Another way to state the question: Is price reaching the level where enrollment demand will fall?

The demand for education is driven by the desire to earn a degree coupled with the income and subsidies to support the degree. There is some evidence that the recession has forced some families to slide down the price scale by enrolling in public institutions instead of private colleges or universities. However, the change in demand has not had a significant impact on most private colleges. In fact, it appears that public institutions are facing the greatest criticisms from parents because they have been forced to push up tuition rates faster than in the past because of severe cuts in support from state legislatures.

The concern about pricing may also come from the state and federal governments introducing legislation to limit increases in tuition rates. The federal government is already considering legislation that would regulate pricing. They also intend to introduce rules that
require for-profit colleges to prove that their students can find employment where the pay is adequate to cover debt and living expenses. If this regulation begins by targeting for-profit institutions, there is probably a good chance that it will move to cover nonprofit
institutions.

Going back to the question whether should presidents worry about tuition rates, the answer is they should worry! Higher rates may soon reach levels where tuition exceeds the ability of students or parents to pay off loans. In addition, continuation of the national trend in higher tuition rates could result in federal regulation of tuition rates. Even though no single college has a major impact on the national trend, presidents need to be cognizant of how those trends affect their college.

What should presidents do? It is in the interest of the college, its president, and the board of trustees to find ways to cut the cost of operations without reducing the ability to deliver on the promise of the colleges’ mission.

How can this be done?

  1. Determine the major factors influencing the cost of operations.
  2. Evaluate all revenue generating programs to determine if they produce sufficient income to cover the costs of administration and student services.
  3. Evaluate the relationship between enrollment and the number of employees needed to support enrollment.
  4. Conduct a benchmark analysis comparing per student costs against best practices.
  5. Set up a forecast model to estimate future tuition rates and the effect on tuition and cost if enrollment falls or if the government limits the rate of increase in tuition.
  6. Identify how close your institution is to the “equilibrium gap” if enrollment falls or if the government limits the rate of increase in tuition.

Please contact us at Info@StevensStrategy.com if you would like to schedule a time to talk about what your college needs to do to respond to the intensifying pressure to restrict the
rate of increase in tuition.

Originally posted December 31, 2010

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