The Necessity to Do: Market Conditions Impacting the Higher Education Industry

Market-smart insights delivered across three sessions at Summer Seminar (co-hosted by Lawlor Advisory earlier this month) gave attending private higher education senior administrators a comprehensive look at the economic, demographic, and financial forces impacting their industry.

Chris Farrell, author and senior economics contributor for the public radio program Marketplace, summarized the current state of the U.S. economy and its near-term prospects, then homed in on the family incomes of traditional-aged college students. Nathan Grawe, author and Carleton College economics professor, summarized the magnitude of coming demographic changes in that population and its anticipated effect on college enrollment numbers. And Susan Fitzgerald, senior vice president at Moody’s and manager of its global higher education and not-for-profit ratings team, discussed the business conditions that are affecting the financial health of the higher education sector. Collectively, their market intelligence indicated a challenging set of circumstances that is definitely a catalyst for fostering more doing:

  • The United States is approaching its longest economic expansion in the modern era, but there are signs that growth is weakening. The effects of the fiscal stimulus are fading, and trade tensions are undermining competitiveness and stalling investment.
  • It’s been a lost decade for wage growth, considering that household income is only now recovering to its pre-recession level. So, while families are doing okay, it still feels like a struggle to them.
  • People are deeply suspicious of the price tag of college (likely due to knowing it will be discounted) and extremely wary of taking on a student loan debt burden. The financial benefits of a college education still exceed its cost (at an average 14% return), but there’s a lot of variability—and thus risk—within the spectrum of earning outcomes.
  • A decline in the national fertility rate, combined with changes in immigration rates and interstate migration, will create a drop-off at around the year 2025 in the number of students attending college.
  • Steeper competition for students is already constraining net tuition revenue. With private institutions needing to discount so heavily, they have less pricing flexibility and can’t reach the minimum healthy net tuition revenue annual growth of 3%. In fact, a quarter of private institutions predict a drop in their net tuition revenue.

In keeping with Summer Seminar’s theme, “The Power of Do,” each of the three presenters encouraged the higher education administrators to make proactive changes in response to market conditions. Suggestions ranged from revising academic programs to focusing more on access and retention to targeting the aging population with lifelong learning modules. No matter what, “to keep doing the same thing the same way is a bad idea when you’re faced with actual data showing it won’t work,” said Grawe.