This Week In College Viability (TWICV) for December 2, 2022 - Inflation mismatch and pressures on college admissions

gary_stocker (00:02.37)
Welcome back to another episode of This Week in College Viability. My name is Gary Stocker. The article I want to talk about today is from Julian Trevis. And if you follow my LinkedIn post, you'll know that I have high regard for Julian and the work he does, which is to really analyze the business and even the futures, I think, of higher education. And he has an article that just came out this week entitled Latest Inflation Statistics, and it talks about tuition.

And if you want to see the story, you can go to ctas.substack.com It's S, I'm sorry, it's ctas.substack.com to read the article. There's a couple of things that I want to talk about here. And the first is that colleges, while still raising tuition fees a little bit, have fallen behind in the amount they raise tuition in order to keep students coming in the door. That's the best way to look at it.

And as Julian knows in his article, there's almost a 6% gap between what colleges are doing to raise tuition and what the actual general rate of inflation is. He argues, and I agree, that this divergence, this almost 6% gap between what colleges are charging and actual inflation, is an important indicator because it really represents that colleges, that there's an oversupply, that there is an oversupply of college seats. And again, the market demand...

If there is not enough demand for your services, be it college seats or computers or cars, there is less opportunity to raise prices. He also notes that with about 75% of all U.S. undergrads attending a public college, he sees with his research that they are continuing and even increasing the amount of tuition discounting they do, these public colleges do, to get students to enroll.

Now again, you know, if you followed most of my posts or some of my previous podcasts, that private colleges in general, on average, are discounting their tuition about 55% on average. Some are higher, some are lower, of course. What happens to them as public colleges also wanting to increase the number of college students in their seats?

gary_stocker (02:20.414)
increase their tuition discount, lower their net cost of tuition to students. You'll see more and more of these private colleges either trying to stay in the game by discounting even more, but at some point these colleges will not have enough tuition revenue and even revenue from other sources to keep the lights on. They'll have to close, they'll have to merge. As I've talked about previously,

They'll probably wait too long to merge. They will have no significant value to any merging organization, and they'll probably have to scramble in many cases, not all, in many cases have to scramble and close on very short notice.

gary_stocker (03:04.77)
And when we talk about revenues, let's reinforce that it's not just pressure on tuition pricing, it's in combination with the decreasing enrollment that we see across the board. I would do reports for organizations, colleges, states throughout the country that wanna look at a set of colleges, and in almost every report that I pull up, most of the colleges, not all, most of the colleges have had decreasing enrollment.

combined decreasing enrollment with pressure on pricing, lower tuition pricing, and the pressure on cash, the pressure on revenue continues. But that's not even the worst part. And I'll wrap this up with something Julian talks about at the end that I've thought about for a long time. I'm not sure if I've written about it a lot, but he says, and I'm gonna kind of paraphrase here, that the cost pressures, because of lack of revenue that colleges face, may very well

cause colleges to look to skimp on educational rigor, on quality, if you will, so they get enough students to pay the tuition bills. They may, because of pressure on cost and the need for revenue, accept under-qualified students. Julian says they may pass enrolled undergrads who are doing poorly onto the next class and the next year just to graduate as many as possible. As this occurs, as this occurs,

the wider world notices or may notice more and more that many colleges just simply aren't preparing students for the work world period. Julian Travis argues this is a future. Here's my concern. I argue that it may already be happening. I have looked at enough college finances. I have looked at enough college audited financial statements. I've compared enough colleges.

through my very own college viability app to know the pressures are not short-term. The pressures have been around for a minimum of six years and probably longer. But here's the question I ask as I wrap this podcast up. What if there are already too many, if any, colleges who have lowered their qualifications, lowered their standards just to enhance tuition revenue?

gary_stocker (05:29.454)
The consequences are many, and maybe that'll be another topic for another broadcast on another day. This is Gary Stocker with this week in college viability. We'll talk next time.