Colleges in Dire Financial Straits

[marshwiggle]

Discounting only adds to revenue if there is an increase in the number of students attending which offsets the loss in net tuition revenue per student. Otherwise, that institution's demand is so soft that they are practically begging students to attend, and while they have butts in seats, the net tuition revenue is falling. Since costs tend to increase over time (unless you are streamlining operations somehow, which has its own limits with the cost disease), for colleges in dire financial straits, increasing discount rates *are* a problem.

I think what is at issue is the marginal cost per student. If classes aren't full, then the cost of adding one student comes down to the incremental increase in grading, etc. added for that student. That may only be a couple of hundred dollars per course under the right circumstances. (And if they're good students, needing little or no extra help, etc., then it could be even lower.)

[dismalist]

Discounting only adds to revenue if there is an increase in the number of students attending which offsets the loss in net tuition revenue per student. Otherwise, that institution's demand is so soft that they are practically begging students to attend, and while they have butts in seats, the net tuition revenue is falling. Since costs tend to increase over time (unless you are streamlining operations somehow, which has its own limits with the cost disease), for colleges in dire financial straits, increasing discount rates *are* a problem.

I think what is at issue is the marginal cost per student. If classes aren't full, then the cost of adding one student comes down to the incremental increase in grading, etc. added for that student. That may only be a couple of hundred dollars per course under the right circumstances. (And if they're good students, needing little or no extra help, etc., then it could be even lower.)

Absolutely, Marsh. Accepting anybody willing to pay above marginal cost adds to profit, which stays home at non-profits.

Higher ed is a tad trickier than movie theaters [adults vs. kids prices] in the sense that the smartness of your college's customers affect demand, too, and you don't want to wreck your reputation, wherever you might be on the quality spectrum. Hence, discounts for both the poor and the smart.

There is no loss of tuition revenue from discounting.

[mamselle]

Meant metaphorically...the dependence on a rigorous orthodoxy of econo-splaining wears thin after awhile.

M.

[Ruralguy]

Yes some of these explanations start sounding like "Well that's just the way it is, so how could it be anything that it is not?" Everything is precisely as it is supposed to be, so no complaining allowed please!

[dismalist]

Yes some of these explanations start sounding like "Well that's just the way it is, so how could it be anything that it is not?" Everything is precisely as it is supposed to be, so no complaining allowed please!

I'm telling you what's happening and explaining why, and even why it gets more students. I'm not telling anybody that it's supposed to be like this. My preferences are -- well, very different. Others' preferences will differ from mine.

If you want a different process which will lead to a different outcome, you gotta get the Feds and/or the States to change the rules and spend more cash. That means elections would decide. You can of course allocate resources to higher ed through the market or through politics or something in between. I think the magic of higher ed is gone, so best of luck of with the politics.

Complaining is allowed, of course. But it seems to usually boil down to the two-year-old's lament -- I want more.

[Wahoo Redux]

I think the magic of higher ed is gone, so best of luck of with the politics.

But it seems to usually boil down to the two-year-old's lament -- I want more.

Yeah, that's a fair evaluation of those people who are currently watching their careers die on the vine.

Good magic is expensive. 

[TreadingLife]

Yes some of these explanations start sounding like "Well that's just the way it is, so how could it be anything that it is not?" Everything is precisely as it is supposed to be, so no complaining allowed please!

Complaining is allowed, of course. But it seems to usually boil down to the two-year-old's lament -- I want more.

On a thread about colleges in dire financial straits, its not about wanting more. It's about not wanting to close. It is about schools admitting 90% of their applicants and still failing to make a class size that keeps the lights on. It's not about the cost of the last student admitted, it is about the money from the total headcount at the school failing to cover total operating costs. No matter how you slice it, revenue is falling at dire places, despite schools offering discounts and despite some schools enrolling more students (and quite frankly I'm seeing the opposite where schools are having trouble making their desired class sizes.) The plan isn't working, and we're hearing about those schools on this thread and seeing the writing on the wall at other places. Schools doing "Hail Mary" things like tuition resets, discount rates of 75% or more, and whatever else they can think of, still aren't getting enough students enrolled to run the institution. Enticing one more student off the couch isn't solving this problem. They can add that student's small financial contribution to revenue, but overall total revenue is falling due to the combination of heavy discounting and declining headcounts. Some schools are already past 75% discount rates. To me, that's a leading indicator of a problem at that institution. Sure, a school can mark up its tuition all its wants to mark it down, but there is a limit to how much a school can discount and still receive a positive payment from students. And schools can't grow their way out of this problem, at least not all of them. Unless we can all be above average.

[Ruralguy]

Yeah, you can only do a heavy discount on a list price that is pretty close to what the consumer would expect from a similar college (give or take several thousand...but not 10 or 20 thousand). Though colleges can't collude on price, they certainly can see over time what other colleges are charging, and decide whether they want to do that, or whether they could get away with higher. Some might want to try to get away with pricing lower, but most colleges insist that would degrade their brand. People would think "that place must be cheap because its low quality".  My feeling is that heavy discounting off a bogus list price only works because its stroking everyone's ego---you call the discount some sort of scholarship, and also recruit them for a sport, and they think they are genius and an ace quarterback.

[dismalist]

Yes some of these explanations start sounding like "Well that's just the way it is, so how could it be anything that it is not?" Everything is precisely as it is supposed to be, so no complaining allowed please!

Complaining is allowed, of course. But it seems to usually boil down to the two-year-old's lament -- I want more.

On a thread about colleges in dire financial straits, its not about wanting more. It's about not wanting to close. It is about schools admitting 90% of their applicants and still failing to make a class size that keeps the lights on. It's not about the cost of the last student admitted, it is about the money from the total headcount at the school failing to cover total operating costs. No matter how you slice it, revenue is falling at dire places, despite schools offering discounts and despite some schools enrolling more students (and quite frankly I'm seeing the opposite where schools are having trouble making their desired class sizes.) The plan isn't working, and we're hearing about those schools on this thread and seeing the writing on the wall at other places. Schools doing "Hail Mary" things like tuition resets, discount rates of 75% or more, and whatever else they can think of, still aren't getting enough students enrolled to run the institution. Enticing one more student off the couch isn't solving this problem. They can add that student's small financial contribution to revenue, but overall total revenue is falling due to the combination of heavy discounting and declining headcounts. Some schools are already past 75% discount rates. To me, that's a leading indicator of a problem at that institution. Sure, a school can mark up its tuition all its wants to mark it down, but there is a limit to how much a school can discount and still receive a positive payment from students. And schools can't grow their way out of this problem, at least not all of them. Unless we can all be above average.

Good thoughts, Treader.

One must distinguish between the situation of individual colleges and the situation of higher ed as a whole. Individual colleges, by pursuing discounting, are doing the best they can given the situation in higher ed as a whole. If what they do is not enough, they will disappear. It's no different from candy stores or milk deliverers, should anybody remember.

My strong urge is merely to understand that, given the situation, discounting is a solution for individual colleges, not a problem.

Stopping discounting would require a change in the law, as competition would have to be curtailed. That's politics, and I doubt there'd be sufficient support for more resources for higher ed.

[marshwiggle]

I think the magic of higher ed is gone, so best of luck of with the politics.

But it seems to usually boil down to the two-year-old's lament -- I want more.

Yeah, that's a fair evaluation of those people who are currently watching their careers die on the vine.

Good magic is expensive.

The problem is that the underlying assumption in peoples' laments seems to be that "someone" (be it administrators, governments, etc.) can and should "fix" the problem. The demographic decline in certain areas is not "fixable", (especially since it's a global problem), and institutions which now exist would not be built in those same areas today because they would not be viable. "If only" thinking is not the healthy way to face any serious problem. Potential action has to be grounded in realistic possibilities with likely outcomes.

Sympathy for job losses is one thing; supporting magical thinking is quite another.

[Wahoo Redux]

I think the magic of higher ed is gone, so best of luck of with the politics.

But it seems to usually boil down to the two-year-old's lament -- I want more.

Yeah, that's a fair evaluation of those people who are currently watching their careers die on the vine.

Good magic is expensive.

The problem is that the underlying assumption in peoples' laments seems to be that "someone" (be it administrators, governments, etc.) can and should "fix" the problem. The demographic decline in certain areas is not "fixable", (especially since it's a global problem), and institutions which now exist would not be built in those same areas today because they would not be viable. "If only" thinking is not the healthy way to face any serious problem. Potential action has to be grounded in realistic possibilities with likely outcomes.

Sympathy for job losses is one thing; supporting magical thinking is quite another.

Yes, Marshy. 

I was responding to dismalist's little jab about a two-year-old "wanting more," which is not the situation.

You picked up the "magical thinking" business from Polly, huh?  You are wrong.  Polly was wrong.  No one has magical thinking. 

[Mobius]

Sounds like a fac senate meeting at every place I've worked. Every department wants more lines, more money, etc. Infrastructure is also crumbling. State might pay to fix some of the infrastructure issues, but not for more money for operations.

[Hibush]

Over at IHE, columnist Rachel Toor writes about her university in dire financial straits, or "circling the drain" as she puts it. (She is professor of creative writing at Eastern Washington University in Spokane, WA)

She describes her view of the situation as

Our industry has not changed for hundreds of years. It's a giant, slow-moving ship that now must turn quickly. You can learn to turn with it. You can stay and listen to the strings play "Nearer My God to Thee" as it sinks, or you can head for a lifeboat.

My view of "our industry" of higher education is that it has been continuously changing. Basically the opposite impression of Prof. Toor. The department I joined does not exist, but I'm part of a new, stronger department. Our curriculum, nominally in the same subject, reflects current student needs and interests because the field's technology and economy have changed a lot. Even the local community college has vastly changed its curriculum as the economy and regional higher-education offerings have changed.

There are certainly conservative aspects to the university, such as the institution's reason for existing is the same as at the founding, and the basic funding model is sound. That conservatism at the center lets us be responsive at the edges. Departments start new initiatives and drop those that are not longer useful. Is that the difference between a college in dire financial straits and one that is not? Has the lack of necessary change at CWU resulted in its challenges? 

[marshwiggle]

Over at IHE, columnist Rachel Toor writes about her university in dire financial straits, or "circling the drain" as she puts it. (She is professor of creative writing at Eastern Washington University in Spokane, WA)

She describes her view of the situation as

Our industry has not changed for hundreds of years. It's a giant, slow-moving ship that now must turn quickly. You can learn to turn with it. You can stay and listen to the strings play "Nearer My God to Thee" as it sinks, or you can head for a lifeboat.

My view of "our industry" of higher education is that it has been continuously changing. Basically the opposite impression of Prof. Toor. The department I joined does not exist, but I'm part of a new, stronger department. Our curriculum, nominally in the same subject, reflects current student needs and interests because the field's technology and economy have changed a lot. Even the local community college has vastly changed its curriculum as the economy and regional higher-education offerings have changed.

From the article:

But if I can convince myself I have a brand-new role, one in which I help prepare students for careers completely different from mine, I may be able to keep going. That means I have new challenges and must ask hard questions about what they need to learn, not just what I enjoy teaching.

If it's only recently that she's had to ask hard questions about what students need to learn, then she does represent that large, slow-moving ship.

There are certainly conservative aspects to the university, such as the institution's reason for existing is the same as at the founding, and the basic funding model is sound. That conservatism at the center lets us be responsive at the edges. Departments start new initiatives and drop those that are not longer useful. Is that the difference between a college in dire financial straits and one that is not?

It may not be the whole story, (due to demographic shifts and such), but it's certainly going to be a major factor.

[aprof]

What a vapid article.  It seems mostly written to generate publicity for her new book.