• July 22, 2014

As Tough Times Persist, Colleges Must Live With Last Year's Decisions

Private colleges are weighing tuition and aid—hemmed in by the economy, and by past strategies, too

Setting Next Year's Tuition and Aid, Coping With Last Year's Decisions 2

Justin Sullivan, Getty Images

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Justin Sullivan, Getty Images

Investments have bounced back, but not to their former heights. Job losses have slowed, but unemployment remains high. And some kinds of loans are still hard to get.

That is the financial backdrop as many private colleges set next year's tuition and financial-aid budgets in the coming weeks. As if that weren't complicated enough, everybody is wondering: How are families feeling?

Some college leaders think parents are more confident about their prospects than they were a year ago. Others worry that parents have had more than a year to think about their current seniors' plans while knowing the economy was shaky, and may have written off more-expensive colleges when it was time to apply. That wasn't the case for this year's freshmen.

And as colleges try to find the magic balance between tuition and financial aid, they, like families, are working with limited resources. In many ways the decisions they make depend as much on last year's strategy as on the current economic climate.

Last year many private colleges kept tuition increases low and had unusually large increases in their financial-aid budgets. A survey conducted by the National Association of Independent Colleges and Universities last summer put the average tuition increase at its colleges at 4.3 percent, the lowest in decades. Over the past 10 years, tuition had gone up an average of about 6 percent a year. At the same time, the survey found, the colleges raised aid by an average of 9 percent. (The group had not tracked that figure before.)

Some colleges had already planned for strategic or philosophical reasons to offer a lot more aid. Franklin & Marshall College, for instance, made a long-term decision to put more resources toward need-based aid so it could begin to meet students' full need. Others chose to offer more money to prospective freshmen to bring in the best candidates—or simply enough students to fill the class. At the same time, a number of states cut their merit or need-based scholarship programs, and some colleges decided to spend more of their own money to bridge the gap.

Becker College, in Massachusetts, responded dramatically to families' financial woes, freezing its tuition for 2009-10. "I don't think we could have done it for two years in a row," says Joseph W. Bascuas, the interim president. After all, Becker's costs were not frozen. Mr. Bascuas expects the college to raise tuition by about 4 percent for 2010-11, still a smaller increase than in previous years.

While most colleges did account for an increase in students' financial need last year, not knowing how bad the economy would get made it hard to plan.

Augustana College, in Illinois, kept its tuition increase low and put more money toward aid. But in hindsight, says W. Kent Barnds, vice president for communication and enrollment, the college was too focused on its budget and was not quite generous enough. The class came in 40 students short, and when the college polled students, those who were admitted but did not enroll indicated that cost was their No. 1 reason for turning away.

So Augustana is working even harder to be affordable. It will have a smaller tuition increase than last year, less than 3 percent, and is planning a 9-percent increase in its aid budget.

As always, colleges are keeping an eye on the competition. Indiana Wesleyan University raised its tuition 5.7 percent for 2009-10, its lowest increase in several years. But for this fall, the increase will be only 3.5 percent. The university likes to keep its price at about the midpoint of the other colleges in the Council for Christian Colleges and Universities, and many of its members had low tuition increases last year, says Kris Douglas, vice president for enrollment management and marketing.

Even a college that changed nothing in its aid policies last year may have spent more than usual, says Kathy Kurz, vice president of the higher-education consultants Scannell & Kurz Inc. "The same policies, implemented with a needier class, cost more."

That is true not just for new students. Colleges have to continue to support returning students, too. Under normal circumstances, few students see a big jump in their institutional aid over the course of their college careers. But as unusually high numbers of continuing students ran into unexpected financial problems, like a parent losing a job, that changed. As a result, many private colleges saw their tuition-discount rates creep up. Tuition discounting is the difference between what students actually pay to attend an institution and its sticker price.

Some colleges that spent more than they intended on aid, like the University of San Diego, are changing the way they award it this year to ease the pressure on their bottom line. Others hope to return to a pre-recession discount rate, in the belief that their students' family finances are beginning to right themselves.

"Last year, it seemed anxiety was the biggest issue," says Jonathan R. Burdick, dean of admissions and financial aid at the University of Rochester. Mr. Burdick, who was particularly concerned about supporting continuing students, got approval to spend an additional $3-million on financial aid, on top of the planned increase of $2.5-million. He ended up using $2.1-million of the extra money. This year the picture looks better for Rochester's families—and the university plans to return to normal tuition and aid-budget increases for this fall.

Trying to Stay Competitive

Hamline University, in Minnesota, is also trying to bring its pricing back to normal. Last year Hamline had a smaller-than-usual tuition increase, about 4.5 percent. The university was hearing from families of current students asking for more aid for fall 2009, and it set aside money from its contingency budget for appeals, says Pamela A. Johnson, associate vice president for enrollment, who joined the university in November 2008.

Hamline had also budgeted more aid than usual for last year's incoming class. Even so, Ms. Johnson could tell the aid offers were not competitive. Students who made deposits to hold their places in the freshmen class received, on average, $1,500 more in financial aid than those who hadn't made commitments. So, in April, the university repackaged aid awards for about two-thirds of accepted students, mostly those who had yet to make deposits.

If Hamline hadn't done that, the university's modeling shows, the class would have come in 100 students below its target of 430. As it was, only 401 freshmen materialized. Even the transfer-student cohort came up short—110 students instead of the desired 125.

Hamline has already set a tuition increase, of 4 percent, for next year, to help families plan their finances. For the fall, Hamline is also rolling out a new approach to scholarships, offering certain levels of support to students who meet various targets of test scores and class rank. Ms. Johnson says she doesn't expect the new policy to make a big difference in how much aid any particular applicant is awarded. The idea, she says, is to give applicants a better sense of what merit aid they would be eligible for.

Hamline plans to bring its discount rate back to normal this fall, she adds, because "we think the economy is stabilizing." People are feeling less panicked than a year ago, she believes, and those who have managed to hold on to their jobs this long are less worried about being laid off.

At least in Minnesota, she says, "the bleeding seems to have stopped."

Reining in Merit Aid

The University of San Diego, too, spent more than it had hoped on financial aid. For the freshman class, the university spent an extra $3-million, a 20-percent jump from the year before. Admissions at San Diego are need-blind, and awards are based on a consideration of academic qualifications and other qualities in addition to need. Last year many more students qualified for need-based aid, and they also had higher levels of need.

The university can't do much about the neediness of its class, but it can control how it rewards merit, says Stephen Pultz, director of undergraduate admissions. The university has what he describes as an "aggressive" merit-aid program.

The scholarship criteria have not changed in five years, but San Diego's average SAT score has gone up 30 points, so many more students are qualifying, Mr. Pultz says.

Now, instead of deciding in advance how much merit aid to award to students who meet certain criteria, the university will look at the pool of admitted students first. The plan is to spend $16-million in merit and need-based aid for the freshmen who enter in 2010, compared with the $17.8-million spent on current freshmen. The university also hopes to enroll about 50 additional students in next fall's entering class.

Even so, San Diego is raising tuition only 3.5 percent, compared with 5 percent last year. Tuition increases are noticeable mainly to returning students, and the university wants to be mindful of their circumstances. After all, no one said families' finances were back to normal.

Comments

1. 11132507 - February 11, 2010 at 08:01 am

This was inevitable - the high tuition/high discount rate, spiraling ever upward year after year, was obviously unsustainable, yet so many schools could think of no other way to meet their budgetary and enrollment goals. I worked for years at such a school, and my responsibilities included financial aid and net revenue forecasting, but with a VP for Enrollment Mgmt who called all the shots no matter what I said or how accurate my projections were. When I created a model that would cut tuition roughly in half and drastically reduce discounting, resulting in the same net revenue and perhaps boosting applications thanks to the positive publicity of slashing tuition, the powers that be couldn't tell me to shut up fast enough. It was all about playing with the "big boys" who also charged too much, the Chivas Regal effect (which is starting to get pretty old). That school now has a $50K+ cost of attendance, with a 49% tuition discounting rate, while its endowment, way too small to support what was being done even in robust times, has shrunk significantly. But that Publishers Clearinghouse-style letter telling students about their big merit scholarship was the cornerstone of the college's recruiting strategy.

Many have wondered where it's going to end. Don't touch that dial, I think that part comes next.

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