Coming Up Short

For several years now, college officials have worried about the possibility of major economic shifts in the higher education market that might foreshadow major financial problems in the near future.

What Loyola University New Orleans experienced this summer probably won’t put them at ease.

The university faces an expected budget shortfall of up to $9.5 million after first-year enrollment deposits came in almost 300 students short of the university’s expected goal of 875 students. Since the deposit deadline of May 1, the college has taken steps to enroll more students, including increasing financial aid awards, and university administrators now expect to enroll a class of about 600 to 625 students.

Loyola is the second college this summer to announce a large enrollment shortfall, following an announcement in May by St. Mary’s College in Maryland that its deposits were about 110 students short of its expected enrollment goal of 470, a shortfall the college predicted at the time to equate to a budget shortfall of about $3.5 million. Loyola and St. Mary’s do not have large endowments, meaning the shortfalls likely affect them more than they would institutions with more diverse revenue streams. For tuition-dependent colleges, shortfalls of 40 or 50 students are cause for concern but occasionally happen. Being off by as much as these two colleges are is much more serious.

The large shortfalls at both Loyola and St. Mary’s, combined with what finance officials expect to be numerous smaller enrollment and revenue shortfalls at other institutions, raise the specter of a more widespread dropoff in higher education enrollments and revenue that college administrators have feared since the 2008 recession. The combination of increased financial need among prospective students, declines in traditional college-going populations, greater competition over students from both public and private institutions, and a decreased willingness on the part of some families, particularly wealthy ones, to pay high tuition prices – particularly at non-elite private institutions – might be resulting in a market that can’t sustain so many students. St. Mary's College is public, but it bills itself as competing with private liberal arts colleges.

“I think that price increases that have been too high for too long, and the pushback has been held in check – the pushback has been more restrained than it should have been – because there was a growing economy,” said Dan Lundquist, vice president for marketing and enrollment at the Sage Colleges who also runs a consulting firm that works with colleges on pricing and marketing strategy. “Now these places with high overheard, high tuition and sticker prices, they’re losing ground in selectivity. And there are a lot of examples that are much less dramatic than Loyola."

The full price at Loyola for students who live on campus for 2013-14 is about $48,700. For students who do not live on campus, tuition and fees total about $36,900.

Loyola's president, the Rev. Kevin Wildes, said the university has not fully explored the cause of the shortfall, but he said that much of it is likely attributable to an effort to decrease the college’s discount rate – the amount of aid awarded as a share of gross revenue – by reducing the amount of aid it awarded to incoming students. “My intuition is that [we] did a much more draconian drop in financial aid than we should have,” Father Wildes said. “And I think the market reacted.”

If that proves to be the case, it could also be a warning to other universities – many worried about the same thing – about taking that approach.  In survey of college and university business officers released today by Inside Higher Ed and conducted by Gallup, 34 percent of respondents at private universities either agreed or strongly agreed with the statement “Our current tuition discount rate is unsustainable.” About half of all respondents at private universities said decreasing the discount rate was “very important” to increasing revenue.

Many colleges still have open seats following the May 1 deadline. But the shortfalls at Loyola and St. Mary's are uncommon for those institutions and larger than most. Father Wildes said he was not aware of the shortfall until after the deposit deadline of May 1. Loyola’s vice president for enrollment management, Sal Liberto, resigned in May when the shortfall became apparent.

It is likely to have both an immediate and long-term impact on Loyola. The university’s annual budget is around $165 million, so the $9.5 million gap is a sizeable share. In the near term, the university has already announced a hiring freeze effective August 1. Administrators also said they’re considering voluntary retirement packages, reducing some positions’ hours, reducing employee benefits and increasing the university's draw from its endowment.

Some of the costs of the shortfall are likely to be spread out over the next few years, and the smaller-than-average class size will likely ripple through the university for at least four years. Father Wildes said the shortfall has also sparked discussion about the university’s overall size as well as its pricing and financial aid strategies.

“We’re going to take a hard look at the institution and really pull things apart,” Father Wildes said. “We’re going to take a hard look at the assumptions we make about the right size of the undergraduate population. For a number of years we always made the assumption of 875 freshmen. I’m wondering whether we can look at it and reshape it another way.”

The publicity surrounding the shortfall and the associated cuts could also harm future recruiting efforts, though Father Wildes said he’s not as worried about that.

Father Wildes said the college increased its discount rate in the years following Hurricane Katrina in 2005, partly to attract students to the campus. It recently began an effort to slowly lower the discount rate “a half a percent at a time.” Last year the college's discount rate for undergraduates was about 57 percent, said Roberta Kaskel, the interim vice president for enrollment management. She said this year the discount rate is likely to be about 55 percent, but it came at the cost of fewer students. Father Wildes said he suspects that the college moved too quickly this year.

Lundquist said he’s talked with administrators at multiple institutions in the past few years who are worried about their increasing discount rate and are eager to bring it down.

Father Wildes said there was nothing in the past few years that would have suggested the college would struggle to enroll students this year. Applications have increased over the past few years, with the current year seeing a record number.

Multiple studies, including an annual survey of students and their families by Sallie Mae, have shown that families are not spending as much on higher education as they did in the pre-recession years. Some of this is attributable to shifts in the market, with many nontraditional students going back to school, typically at low-cost community college.

But part of it is also attributable to shifts in the traditional market, administrators say, affecting places like Loyola and St. Mary’s. Financial need has increased both because many parents’ employment changed and because more low-income students are entering higher education. Students are also shifting their college choices, moving to cheaper options, such as public universities or community colleges.

“Loyola is not alone in facing enrollment challenges this year,” Father Wildes wrote in a letter to the campus in May announcing the shortfall. “We know that many other schools have confronted the same or similar issues in the past few years.  Higher education costs have been in the news, and we compete in a marketplace where price and value are key considerations in students’ enrollment choices. It is not business as usual in higher education.”

“The nation’s economy has had a difficult time these past few years, and a lot of people don’t have the confidence to pay these high tuition prices,” Father Wildes said in an interview Thursday. “There are these big macro shifts, and I’m sure that’s a big piece of the background that’s important to this.”