Will Colleges Face More Financial Headwinds?
Two of the main financial ratings services for colleges and universities have suggested that campuses will, Higher Ed Dive has reported. Moody’s Investors Service has predicted that institutions will continue to be hit by inflation in 2024 in a number of areas, including food, utilities, construction, and labor, which will “spur difficult decisions and force higher education leaders to reprioritize how they allocate resources,” the publication said. Meanwhile, Fitch Ratings has warned that many small colleges that don’t cut costs and otherwise improve their finances “may be forced to restructure, close, or merge,” Higher Ed Dive reported separately.
At the same time, an inflation index specifically for colleges, Commonfund’s Higher Education Price Index (HEPI), rose only 5.2 percent in fiscal year 2022 compared to a more than 9 percent jump in the consumer price index. Higher Ed Dive credited the discrepancy to faculty salaries, which rose the least among the eight cost categories that HEPI measures. Moody’s has reported that as much as about two thirds of college budgets go to pay for labor, and the American Association of University Professors (AAUP) has found that, after adjusting for inflation, full-time faculty wages fell 5 percent in 2021–2022. But while those costs may be down, lower or stagnating employee compensation has also created other pressures—it is helping fuel more labor strikes at institutions around the country, according to AAUP.
Adding to the financial strains: “Many institutions are hesitant to pass rising costs along to students amid broader societal concerns about higher education’s affordability. And public colleges are often at the whims of their state’s legislature when setting tuition prices,” Higher Ed Dive concluded.
How are chief business officers feeling about these and other current challenges? When Inside Higher Ed asked them to rate their confidence in their institution’s financial stability over the next five or ten years, 72 percent reported being confident over five years and 65 percent reported being so over ten years. But that confidence is “unevenly held,” Inside Higher Ed wrote. While 69 percent of business officers at private nonprofit institutions expressed confidence about the next decade, only 36 percent of CBOs from public master’s and baccalaureate institutions did. Also, only about a third of public college business leaders expect to be better off in 2024 than they are now, and roughly half expect their institution’s enrollment and net tuition to decline.
Finally, a survey by Washburn & McGoldrick, an advancement consulting firm, predicted financial challenges when it comes to institutions’ ability to raise outside funds. It found that only about a quarter of senior college advancement officers at both public and private institutions are confident they will meet their fundraising goals, and two thirds report seeing “increasing concern among donors about the economy.”
Student Loan Debt in the Policy Spotlight
More than 43 million students owe the federal government money for their student loans, according to the New York Times, but a special relief measure during the pandemic allowed them to waive their payments. That measure ended this fall, however, with student loan interest resuming in September and payments due starting in October.
To help ease the financial burden on students and their families, the Biden administration announced a plan to forgive more than $400 billion of that financial aid debt, but the U.S. Supreme Court struck that plan down in July. Undaunted, President Biden soon after said he would follow a “new path” and forgive the student loans of more than 800,000 borrowers—in the process, “wiping out $39 billion in debt,” in the words of the Washington Post.
As the New York Times reported, “the debt forgiveness plan that the Supreme Court struck down relied on the HEROES Act, which gave the education secretary greater powers only in times of ‘national emergency’—as the government declared the coronavirus pandemic to be.” This time, however, the administration is citing a different law to provide relief to borrowers: the Higher Education Act (HEA), which “draws on the education secretary’s existing authority over loan repayment programs,” the Washington Post wrote.
Many observers immediately questioned the move. Virginia Foxx (R-North Carolina), chairwoman of the U.S. House of Representatives Committee on Education and the Workforce, stated “The Biden administration’s blatantly political attempt to circumvent the Supreme Court is shameful,” according to the Washington Post. Other critics said the $39-billion estimate would “underestimate the true scope of the measure, because additional borrowers will qualify in years to come,” added the Post. And an article in USA Today noted that some experts believe that Biden’s “backup plan for delivering student debt relief will likely face legal scrutiny for the same reasons his initial plan was knocked down by the Supreme Court.” Supporters of the new approach, however, argue that it doesn’t raise legal concerns “because it’s built on long-standing congressional authority over income-driven repayment plans,” the Washington Post wrote. It quoted Abby Shafroth, director of the Student Loan Borrower Assistance project: “Congress created these plans that provide debt relief to people who make payments based on their income for 20 to 25 years…. What we’re seeing today are some long-needed fixes to that program so that borrowers actually get the relief that Congress intended.” Advocates of Biden’s new approach contend that the HEA “more clearly lays out the administration’s power to forgive debt,” USA Today also reported.
Whatever the final outcome, Biden’s backup plan for student loan relief is likely to take at least a year, according to experts interviewed by Inside Higher Ed, and “involves a complicated regulatory process known as negotiated rule-making.” The department has already received thousands of public comments on the issue, the publication said. And it concluded: “What kind of debt relief the Biden administration will pursue or what plan will even emerge from the negotiation is unclear. What is clear is that the process will be lengthy, technical, and fraught with emotion.”
Affirmative Action Ruling’s Impact on Financial Aid
The U.S. Supreme Court’s June 29 ruling that affirmative action is unconstitutional focused on college and university admissions policies, but its implications could expand into other areas, such as scholarships and other forms of financial aid, according to Inside Higher Ed. And those implications will “have a more profound and wide-reaching impact on higher education … since the majority of institutions are nonselective and don’t use affirmative action when admitting applicants,” it said.
Some experts say the exact legal ramifications are still murky and that it’s just conjecture to assume the rulings apply beyond admissions. But Students for Fair Admissions, the group that initiated the lawsuits against Harvard University and the University of North Carolina for their admissions policies, has already sent a letter to colleges and universities with demands that include revisiting financial aid policies and practices, as well.
Moreover, as Inside Higher Education has reported, institutions are already feeling pressure at the state level. The same day that the Supreme Court ruled on admissions, the attorney general of Missouri “ordered all higher education institutions in the state to end all financial aid or scholarship programs that take race into account.” The general assembly speaker of Wisconsin has also been threatening to file legislation that would restrict institutions in that state from offering race-conscious grants.
Meanwhile, activist groups have been joining the fray. A case brought by the Wisconsin Institute for Liberty and Liability (WILL) in 2021 against the state’s Higher Education Aids Board over grants earmarked specifically for minority groups was dismissed. But the group has appealed and suggested that the recent Supreme Court ruling will help its argument. Rick Esenberg, WILL’s president and general counsel, told Inside Higher Ed, “It’s very difficult to see how a scholarship program where certain people are excluded from eligibility based on race can survive scrutiny now.”
How should colleges and universities proceed in this confusing time? In Inside Higher Ed, Ann Franke, former legal counsel at the education insurance company United Educators and now principal of her own consulting firm, advised them to assess their institution’s “risk appetite” at the leadership level when it comes to financial aid and grant programs potentially affected by the ruling. “Are you willing to explore the boundaries, or is your goal to lie low and not get sued?” she asked. She also stressed that regardless of how institutions answer that question, “Your institutional values need to underlie the legal analysis and advice.”
Public Confidence in Higher Ed Plunges Further
Various polls and surveys are finding that Americans’ confidence in higher education continues to plunge—“a troubling sign that could foreshadow further erosion of colleges’ enrollment, funding, and stature in the coming years,” the Chronicle of Higher Education reported. “The numbers are the latest indication—and a stark one—of higher ed’s image problem.”
In the past five years, the share of people who expressed confidence in colleges and universities dropped from half to just over a third in Gallup’s most recent survey. Moreover, less than half of those surveyed who were college graduates expressed confidence, and “the trust decline over time was even larger for those with advanced degrees.”
The Gallup survey specifically cited rising costs, student loan debt, and partisanship for the public’s increasing lack of trust. Although Democrats are less prone to say they have confidence in higher education today, Republican trust dropped much more: from 56 percent expressing confidence in 2015 to less than a fifth today. The Hechinger Report also explored reasons for the growing skepticism among the public, noting that many people increasingly question the worth of expensive college degrees and are confused about how admissions and financial aid works—and that even “the term ‘enrollment management’ can reinforce perceptions that colleges care more about their own bottom line than their students.”
The latest “Varying Degrees” report from New America reflected similar concerns about college prices. While about 70 percent of Americans surveyed believe those “with a college education have higher earnings and access to a livable wage compared to those with just a high school degree,” far fewer—“53 percent—think accessing high-quality higher education is affordable,” according to Inside Higher Ed. Those findings—“that higher education is perceived as valuable but increasingly unaffordable”—reflect why most Americans want to see the federal and state governments invest more in higher ed, the lead author of the report, Sophie Nguyen, told the news outlet. But that investment, she said, should be made at the “front end”—through, say, free community college—not just at the “back end” through student debt relief programs.
In a Forbes essay examining why “Americans’ Faith in Higher Education is Shaken,” Jamie Merisotis wrote that another reason for higher ed’s perception problem is that the public doesn’t see colleges and universities helping solve the big policy issues of our time, such as infrastructure challenges, climate change, economic inequality, and workforce training. To restore public trust, he advised, leaders should better make the case that higher education is “a sector that responds to society’s challenges by taking them on.”
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