Randy Lyhus for The Chronicle
With tax revenues beginning to rebound in most states and endowments on the rebound at many private and public institutions, colleges and universities are growing more hopeful about their financial outlook and instituting new strategies to take advantage of the opportunities. Yet as the economic recovery has slowed in the past few months, questions remain about the lingering effects of the recession and whether colleges need to be held to a more stringent level of accountability.
On the whole, college finances have recovered slightly after several years of budget cuts, layoffs, and furloughs. Based on projected state budgets for the coming year, the American Association of State Colleges and Universities expects a 0.9-percent increase in spending on four-year state universities, with 30 states increasing their support over last year’s.
Other sources of revenue grew more appreciably. The return on investments for college endowments rose by an average of 19.2 percent in 2011, up from 11.9 percent the previous year, and private donations to colleges and universities rose by 8.2 percent in 2011. Donations were up by 4.8 percent over last year, adjusted for inflation, marking the first time that that rate had increased since before the recession.
Pay for university and college employees grew on average. Professors saw improvement in the 2012 fiscal year after two years of flat salaries, although the rate of increase did not outpace inflation. Executive pay, in contrast, continued to rise at a rate that surpassed the rate of inflation.
The positive economic news was tempered, however, by a sense that the recovery was lagging. “We think we’re probably in a slow-growth environment,” John S. Griswold, executive director of the Commonfund Institute, told The Chronicle last winter. “There are still a tremendous number of challenges economically.”
Many of the financial belt-tightening measures instituted in the midst of the recession are still in force, reflecting the cautious atmosphere, and colleges are seeking more revenue. All types of institutions continued to raise their tuition. Tuition at public colleges increased faster than that at private institutions, as the public institutions sought to make up for cuts in state support. Among the states, in 2011, per-student support fell to $6,290, the lowest level in the last 25 years, according to the latest data from State Higher Education Executive Officers.
Community colleges continued to try to serve a larger number of students on limited budgets. In 2009 the two-year colleges were spending nearly the same amount of money to educate each full-time student as they were a decade earlier, in inflation-adjusted dollars, says a report from the Delta Project on Postsecondary Education Costs, Productivity, and Accountability.
Even in states that have not cut back financial support significantly this year, four-year public universities are still reeling from the huge reduction in state appropriations in last year’s budgets. Lawmakers across the country are considering more cost-cutting measures, such as merging campuses.
Higher Expectations
In this uncertain climate, legislators and accreditors are focusing more and more on completion rates as a quantitative measure of an institution’s success. College retention and graduation have been central to President Obama’s education policy, and states are increasingly focusing on those two issues by directly linking state appropriations to completion rates. Performance-based measures to allocate money have passed in at least six states, including Indiana and Michigan, and are being considered in over half of the remaining legislatures, says Julie Davis Bell, education program director of the National Conference of State Legislators.
Yet budget cuts at many institutions make administrators doubtful about the success of those new programs. Researchers at the University of Pennsylvania found that attempts to institute those policies have been marred by a lack of communication between legislators, universities, and higher-education agencies. Adding to the difficulties, in many states, like Nevada and California, institutions don’t have the capacity to accommodate the rising number of students, a survey of community-college directors found.
The effects of changing demographics are compounded by the aging of the physical infrastructure on many campuses. At certain midsize state universities, needed maintenance and rebuilding projects have been postponed because of a lack of funds. “There’s a lot of universities out there that have infrastructure and buildings that haven’t been renovated in decades,” said Daniel J. Hurley, director of state relations and policy analysis at the American Association of State Colleges and Universities. Those institutions generally don’t have endowments as large as those of private colleges and receive less money for research than do larger universities.
To finance and execute new building projects, state universities are increasingly turning to private development companies. Those groups can provide some of the money, increasingly through private equity or corporate debt, and can circumvent some of the bureaucratic red tape that slows construction projects. Colleges’ own levels of debt were also on the rise.
New Opportunities
Despite the challenges, the recent success of fund-raising programs and the slow but steady growth in the economy has allowed states and universities to develop new, innovative ways to manage their money and better serve their students.
At the national level, President Obama’s budget for 2013 focused on strengthening financial aid and developing job-training programs. Eight billion dollars was pledged for the “Community College to Career Fund,” which seeks to build relationships between community colleges and local businesses so that the colleges can more effectively serve the economic needs of the state.
Private colleges have also continued their efforts to offset rising tuition by offering more financial aid, said Richard Ekman, president of the Council of Independent Colleges. Even public colleges were able to increase spending on student aid in the 2011 academic year, as state allocations for aid rose by 2.5 percent over the previous year. While most of the funds were for need-based aid, the percentage increase in state support for merit-based aid was five times greater than the percentage increase for need-based scholarships.
Tuition discounting, a tool that colleges use to increase enrollment, appeared to be losing its effectiveness. More than half of private colleges saw a decline or no change in the number of freshmen they enrolled in 2010-11, in spite of rising discount rates. An institution’s tuition discount rate is the share of gross undergraduate tuition and fee revenue that it returns to students in the form of scholarships, fellowships, and other grants.
Colleges and universities are also trying to develop better measures to judge how they distribute aid, says Travis J. Reindl, program director of the education division of the National Governors Association. Colleges are “asking the question of, Are we getting the most of our federal aid dollars?” Mr. Reindl said. He added, “At the end of the day, governors are looking for evidence of return on investment.”