Tuition slowdown hits state higher ed budgets

Kathryn Scott Osler | The Denver Post | Getty Images

Students outside the Tivoli Student Union building at the University of Colorado Denver.

It may be good news for students and parents, but slower tuition increases are putting renewed budget pressure on public colleges and universities.

Just as the lingering impact of Great Recession fades, roughly half of public universities say they don't expect tuition to even keep up with inflation, according to a survey by Moody's Investors Service. About a quarter of those are projecting overall tuition revenues to decline.

After years of outpacing inflation, tuition increases have slowed at both public and private colleges and universities. On a per student basis, public universities are expecting tuition hikes of just 1.5 percent and private universities expect 2.3 percent growth, Moody's estimated.

Part of the reason for the slowdown in price hikes is that there are fewer students competing for each opening. More than 40 percent of public and private universities enrolled fewer students in fall 2014 than a year earlier.

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Enrollment declines are steepest in the West, Midwest and Northeast, where lower numbers of high school graduates have sparked intense competition among colleges looking to fill freshman classes. Colleges in the Midwest and Northeast are seeing weaker growth in tuition and are offering deeper tuition discounts, according to Moody's.

Until recently, lower tuition at public universities provided them an edge in recruiting students But tuition hikes have pared that, according to Karen Kedem, a Moody's senior analyst who follows education finance.

"They may be reaching a tipping point in price because they've really eaten away that pricing advantage," she said.

Faced with state budget cuts, many public universities boosted enrollment of out-of-state students, who typically pay more than state residents.

"That's becoming less of an option as universities approach sometimes a quarter or third or more of their enrollments from out of state," Kedem said. "There's the question of are they really serving the public mission of their state if so many students are coming from outside."

The tuition squeeze comes as state budgets are still shaking off the lingering impact of the Great Recession. Nationwide, funding for public higher education has not yet recovered to pre-recession levels.

As a result, of a range of cost containment strategies, expenses have been rising closer to the inflation rate.

To keep a lid on costs, public universities have deferred spending on facilities—or looked for new ways to finance them.

In Georgia, voters recently approved a referendum to privatize student housing by leasing existing dormitories to private firms, who collect rent and maintain them. The leases, expected to last between 30 and 65 years, would give the university some control over how much students pay.

The University of Kentucky has launched a privatized housing project on its Lexington campus. By the fall of 2016, Memphis-based developer EdR will have added about 5,700 new beds to the campus.

The budget squeeze has also forced public colleges and universities surveyed by Moody's to tighten personnel spending, said Kedem of Moody's. Those moves include staff cuts, leaving open jobs unfilled and replacing retired tenured facility with adjuncts.

Bigger university systems have also been able to find the biggest savings through efficiencies like centralizing procurement.

"Regional public universities and smaller private colleges without a well-defined niche face the strongest challenges," Kedem said.