COLUMN-Will the price of U.S. college tuition fall with enrollment?

Reuters

By Liz Weston

LOS ANGELES, Nov 18 (Reuters) - U.S. college enrollment isdeclining. That may cause students and their parents to hopetuition costs will go down, but they should not count on that.

In classical economics, lower demand typically triggerslower prices, at least until unprofitable companies merge or goout of business and shrink supply. It does not necessarily workthat way, though, in the world of higher education.

In the fall of 2012, published tuition and fees for in-statestudents at four-year U.S. public schools rose just 2.9 percentfrom a year earlier, the smallest increase in 33 years, theCollege Board reported. At private schools, published pricesrose 3.8 percent, lower than the increases in recent years.

At the same time, the number of students enrolled incolleges and universities fell by nearly half a million aftertwo decades of substantial growth, according to the U.S. CensusBureau.

Moody's rating service has warned that enrollmentdeclines threaten the finances of many colleges.

Enrollment was certainly on the minds of 916 collegeadministrators and consultants attending a recent strategicenrollment management conference hosted in Chicago by theAmerican Association of Collegiate Registrars and AdmissionsOfficers.

"Everybody - two-year, four-year, private, public, Christianschools - they all raised concerns about meeting theirenrollment goals," said Michael Reilly, the association'sexecutive director.

The lower enrollments mostly reflect a better economy, whichlured students into the workforce and away from two-year andfor-profit schools, said Jennifer Ma, a policy researchscientist for the College Board. In coming years, though, thereis a more worrisome trend for schools: a smaller pool of highschool students.

The number of high school graduates peaked in 2011 at 3.4million, according to a report by the Western InterstateCommission on Higher Education.

The group expects that number to drop to between 3.2 millionand 3.3 million and not start to grow again until 2020, thereport said. Even then, the growth rate will not match the boomexperienced between 1990 and 2011.

But although people aged 18 to 24, those known as"traditional age" college students, are an important part ofenrollment, they are not the whole story. In fact, they are noteven most of the story.

Older learners now make up the majority of the 21 millionU.S. college students, said Terry Hartle, senior vice presidentof the American Council on Education.

"Traditional age students are now the distinct minority,"Hartle said.

In addition, the trend of fewer high school graduates couldbe ameliorated if a larger percentage decides to attend collegein the future, said the College Board's Ma. The rising number ofjobs that require higher education, and economists' direpredictions that those without degrees will not stay in themiddle class, may persuade more to extend their education beyondhigh school.

ECONOMIC IMPACT

The economy plays a significant but complex role in collegeenrollment and costs. Improved economies tend to bring increasedspending on public education, as legislators restore the fundingthey slashed during bad times, Hartle said. That should moderatefuture price increases for the public schools that 80 percent ofcollege students attend, he said.

Private schools, particularly mid- and lower-tierinstitutions, face different challenges. Most spend more oneducating students than they collect in tuition, making up thegap with gifts, endowments and alumni contributions, Reillysaid. Lower revenue may result in a bigger gap with no obviousway to fill it.

In the past, high demand has allowed these schools to raisetuition at faster rates than inflation even as family incomesdropped. But less demand, more competition and families'increased reluctance to borrow for education may imperil thatapproach, Reilly said.

"Small institutions without strong endowments ... willstruggle," Reilly said.

Some say the competitive pressures will be too much for manyschools.

One quarter of today's colleges and universities will eithermerge or disappear in the next 15 years, predicted Michael Horn,co-founder and executive director for education programs at theClayton Christensen Institute for Disruptive Innovation, a SanMateo think tank.

"The financial model is breaking down and pricing out themiddle class," Horn said. "There are fewer high school studentscoming up the ranks, plus there's the pressure of onlineinnovations in education. It's a perfect storm of forces thatwill hurt a number of institutions quite severely."

Hartle, on the other hand, thinks most colleges anduniversities will adapt and survive. He points to a book fromthe early 1970s that predicted a "Great Depression" in highereducation and to business guru Peter Drucker's forecasts in the1990s of widespread college closures.

"We've been here before," Hartle said. "Private colleges anduniversities are very hardy in the U.S. They don't close veryoften."

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