Friday, November 21, 2014

Tuition Trails Inflation for Many U.S. Colleges

From the WSJ this week. Excerpts:
"More than half of public colleges in the U.S. are failing to bring in enough tuition revenue to keep up with inflation, and nearly as many private schools are facing a similar financial crisis, according to a new report from Moody’s Investors Service.

Universities are forecasting that fiscal 2015 will be their weakest year of net tuition revenue growth in a decade, with 51% of public schools and 41% of private institutions unable to increase revenue at or above Moody’s projected 2% rate of inflation. Last year, an estimated 49% and 39%, respectively, fell short.

Overall, public and private institutions forecast net tuition revenue growth of 1.9% and 2.7%, respectively. Just a decade ago, the majority of schools regularly boosted net tuition revenue by upwards of 5% a year.

The Moody’s report, based on a survey of 290 public and private, nonprofit schools, highlights the tightrope school administrators must walk, using discounts to attract cost-conscious students from a shrinking pool of high school graduates while still generating enough net revenue to stay in business amid higher operational expenses."

"On a per-student basis, public universities forecast net tuition revenue to grow 1.5% in fiscal 2015, while private institutions forecast 2.3% growth. That reflects both an inability by families to pay much more for college, as well as an unwillingness by schools to even try charging higher rates."

"Thirty-seven percent of public institutions, and 45% of private ones, expect enrollment declines this fiscal year."

"While troubling, the enrollment declines weren’t unexpected. The population of high school seniors ballooned a decade ago as children of the baby boom generation came of age, but those figures have since fallen, especially in the Northeast and Midwest regions."
 What is normally called financial aid comes upwhere it says "using discounts to attract cost-conscious students." They never really give you financial aid. There is not some vault of money that they open and take some cash out of to give you. 

They are really engaging in price discrimination. That is when firms charge different prices to different customers and the difference is not based on the cost of producing the good or service.

Different groups of consumers may have different demand curves so firms can make more profit if they charge each group a different price. For example, senior citizens might get a discount for lunch at restaurants. They have more time to shop around than others so price matters more to them. Their demand is more elastic.

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