The Wall Street Journal reported yesterday that half of American colleges and universities are not able to generate enough revenue to beat inflation. “For 44% of public and 42% of private universities included in the survey, net tuition revenue is projected to grow less than the nation’s roughly 2% inflation rate this fiscal year,” reported the WSJ, citing a report from Moody’s. Also, more than a quarter of public universities are seeing net decreases in revenue.
It’s a confounding development because the general trend in higher education over the past decade has been substantial increases in tuition costs. Data from Collegeboard, the organization responsible for administering SAT and AP examinations, indicates that for four-year private colleges tuition has risen by over 10 percent on average for 10 years, while for four-year public institutions the hike has been an average of over 20 percent.
Tuition hikes abound concurrently with increases in federal subsidies and tax credits, along with subsidies and grants on the state level. Analysts tend to agree that federal and state subsidization of tuition has the unfortunate effect of encouraging colleges to charge higher prices for tuition. And yet in spite of increases in the percentage of students who receive federal aid and only minor decreases in federal outlays total, enrollment is down.
Traditional colleges are becoming less profitable, inspiring major universities to resort to fundraising efforts and tapping their donor/alumni base, and setting the stage for non-traditional education models to flourish. Harvard University has been offering courses for free online. In the realm of K-12 education, homeschooling has grown substantially over the past decade, with homeschooled students generally receiving higher test scores on standardized exams than their public counterparts. The Khan Academy, a private non-profit that provides free education resources, offers higher-education tools and workshops alongside its K-12 programming.
Expect to see lots of free online courses and degrees appearing in subsequent years—perhaps even from old institutions with strong reputations. If the economists who project that government subsidies make tuition more expensive are right, then feds are unintentionally forcing a process of creative destruction in the university system. Who would have guessed that inflation and subsidies would become more important market forces than supply and demand?