Trends in Higher Education PRESENTATION TO OHIO TASK FORCE ON AFFORDABILITY AND EFFICIENCY IN HIGHER EDUCATION June 23, 2015
Market Pressures Impacting Higher Education DRAFT Persistent economic pressures and a changing marketplace are putting unprecedented pressure on higher education institutions, forcing university leaders to think differently. Economic Pressures Revenue growth has tapered to below 3%, combining with increased expenses to create heightened operating pressures Net tuition revenue growth is constrained by price sensitivity, leading to the slowest growth in 10 years Recent growth in state funding inadequate to reach pre-recession levels and coincides with significant changes in state funding models Changing Landscape Increasing adoption of disruptive technologies; calls to innovate or die Weakening demographics in the traditional college-age market affecting regional public universities, 30% of which lost enrollment between 2010 and 2013 states hit the hardest include Illinois, Michigan, and Ohio. Post-recession market growth has improved investment performance and fundraising Source: Moody s Investor Services, 2015 Outlook Higher Education, January 2015 In light of these pressures, Moody s has delivered a Negative outlook for the US Higher Education sector, a continuation of consecutive negative ratings since January 2013. 2015 Huron Consulting Group. All Rights Reserved. 2
US Dollars State Appropriation Trend (National) From FY2009-15, higher education spending increased nationwide 3.4%. The post-recession recovery has been checkered; while some states have increased investment, many others have faced stagnant or reduced support. $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 Median State Appropriations Per FTE (FY09 FY15) $0 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 (Moody's Fiscal Year Projected) Source: State Higher Education Executive Officers, FY14 Report 2015 Huron Consulting Group. All Rights Reserved. 3
$8,615 $8,520 $8,301 $7,842 $7,572 $7,670 $7,920 $8,006 $8,305 $8,577 $8,799 $8,717 $8,964 $8,638 $7,993 $7,457 $7,401 $7,764 $7,958 $8,081 $7,553 $7,013 $6,737 $6,122 $6,215 $6,552 Public FTE Enrollment (Millions) $2,792 $2,840 $2,937 $3,175 $3,377 $3,494 $3,587 $3,709 $3,762 $3,787 $3,789 $3,606 $3,736 $3,750 $3,834 $4,034 $4,193 $4,475 $4,547 $4,482 $4,560 $4,769 $4,962 $5,348 $5,624 $5,777 Dollars per FTE Net Tuition Revenue (NTR) & State Appropriations The burden for the cost of higher education has materially shifted in the last 25 years, from public support to individuals. 14.0 Public FTE Enrollment, Educational Appropriations per FTE, and Total Educational Revenue per FTE U.S., Fiscal 1989-2014 $14,000 12.0 $12,000 10.0 $10,000 8.0 $8,000 6.0 $6,000 4.0 $4,000 2.0 $2,000-1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Educational Appropriations per FTE (constant $) Net Tuition Revenue per FTE (constant $) Public FTE Enrollment (millions) Note: Constant 2014 dollars adjusted by SHEEO Higher Education Cost Adjustment. Educational Appropriations include ARRA funds. (HECA) $- 2015 Huron Consulting Group. All Rights Reserved. 4 Source: State Higher Education Executive Officers
$7,306 $7,312 $7,093 $6,477 $6,036 $6,359 $6,720 $7,078 $7,760 $7,926 $7,797 $7,872 $7,908 $6,996 $6,554 $6,270 $5,800 $6,046 $5,869 $5,795 $5,937 $4,922 $4,733 $4,115 $4,367 $4,434 Public Ohio FTE Enrollment (Millions) $6,285 $6,293 $6,788 $7,683 $7,548 $4,471 $4,494 $4,632 $4,963 $5,150 $5,124 $5,301 $5,484 $5,518 $5,790 $6,029 $6,084 $6,657 $6,965 $6,718 $6,542 Dollars per FTE $5,759 $5,784 $5,500 $5,475 $5,341 Ohio NTR and State Appropriations This trend is seen more drastically in Ohio; in 2004, state appropriations accounted for 51% of educational revenue per FTE, which dropped to 37% by 2014, despite almost identical educational revenue per FTE. 0.5 Public FTE Enrollment, Educational Appropriations per FTE, and Total Educational Revenue per FTE Ohio, Fiscal 1989-2014 $14,000 0.5 0.4 $12,000 0.4 $10,000 0.3 $8,000 0.3 0.2 $6,000 0.2 $4,000 0.1 0.1 $2,000-1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Educational Appropriations per FTE (constant $) Net Tuition Revenue per FTE (constant $) Public FTE Enrollment (millions) Note: Constant 2014 dollars adjusted by SHEEO Higher Education Cost Adjustment. Educational Appropriations include ARRA funds. (HECA) $- 2015 Huron Consulting Group. All Rights Reserved. 5 Source: State Higher Education Executive Officers
Louisiana Alabama Pennsylvania South Carolina Arizona Idaho New Hampshire Florida Nevada Oregon New Jersey Missouri Colorado Connecticut Virginia West Virginia Utah Washington Hawaii Kentucky Delaware Rhode Island Minnesota New Mexico Mississippi Ohio Georgia Massachusetts Tennessee Michigan North Carolina Oklahoma Iowa South Dakota US Kansas Wisconsin California Texas Maine Maryland Vermont Arkansas Nebraska Wyoming Montana New York Indiana Alaska North Dakota Illinois Percent (%) Change State Educational Appropriations per FTE Educational Appropriations per FTE remain 19% lower than in 2008, the year in which funding levels reached a high point prior to the Great Recession. 60% 50% 40% Educational Appropriations per FTE Percent Change by State, Fiscal 2008-2014 30% 20% 10% 0% -10% -20% -30% -40% -23% -19% -50% Note: Constant 2014 dollars adjusted by SHEEO Higher Education Cost Adjustment. Educational Appropriations include ARRA funds. (HECA) 2015 Huron Consulting Group. All Rights Reserved. 6
Arizona District of Columbia Hawaii Georgia Louisiana Florida California Washington Alabama Colorado Nevada Tennessee Virginia North Carolina Utah New Hampshire Rhode Island West Virginia Idaho Oregon Delaware Kentucky New Mexico Mississippi New York South Dakota Kansas Illinois Connecticut Michigan Massachusetts Alaska Oklahoma Vermont Wisconsin Texas South Carolina Pennsylvania Arkansas Minnesota Nebraska Indiana Wyoming New Jersey North Dakota Maine Iowa Missouri Ohio Maryland Puerto Rico Montana Percent (%) Change 42% 39% 36% 36% 33% 33% 32% 32% 32% 31% 28% 28% 27% 26% 26% 25% 23% 23% 23% 23% 21% 21% 21% 20% 20% 20% 20% 18% 18% 18% 16% 15% 14% 14% 13% 12% 10% 7% 4% 4% 4% 4% 74% 70% 69% 67% 64% 62% 58% 58% 53% 83% Tuition Pricing Trends As universities have struggled to face operating pressures in the face of state disinvestment, tuition pricing has risen drastically across the country over the same time period. Key Takeaways The number of institutions that charge students $50,000 or more for tuition, fees room and board rose from 123 in 2012 to 149 in 2013 (Chronicle of Higher Education, Almanac 2014) Changes in tuition prices do not fully reflect the burden placed on students, due to tuition discounting and debt 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Public University Tuition Increases Fiscal 2008-2015 2015 Huron Consulting Group. All Rights Reserved. 7
New Hampshire Vermont Pennsylvania New Jersey Illinois Michigan South Carolina Delaware Massachusetts Rhode Island Virginia Washington Connecticut Minnesota Arizona Ohio Hawaii Colorado Alabama Maine Kentucky California United States Indiana Oregon Texas Wisconsin Maryland Tennessee Missouri Georgia Kansas Iowa South Dakota Arkansas North Dakota Nebraska Louisiana New York Oklahoma Mississippi North Carolina West Virginia Idaho Nevada Florida Montana New Mexico Utah Alaska Wyoming Average In-State Tuition & Fees (2014-15) Average Tuition Pricing Declining state support has led to tuition increases across the nation. Despite higher sticker prices, however, demand for financial aid has increased as well, limiting the growth of net tuition revenue. $16,000 Public Four-Year Institution Average In-State Tuition and Fees (2014-15) $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $- 2015 Huron Consulting Group. All Rights Reserved. 8 Source: College Board Annual Survey of Colleges, October 2014
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Share of Institutions Tuition Discounting Over the past decade, the tuition discount rate has steadily grown, reaching a record high 46.4% in 2013. The rate of growth was projected to be approximately 1.6% from 2013 to 2014 alone. The majority of institutions are clustered around discount rates between 41% and 60%; more than two-thirds of institutions increased their discount rate for freshmen between 2012 and 2013. 50.0% Average Tuition Discount Rates Freshmen Discount Rate Distribution 46.0% 42.0% 70% 60% 50% 58.6% 38.0% 40% 34.0% 30% 20% 25.2% 30.0% First-Time, Full-Time Freshmen All Undergraduates 10% 0% 4.7% 6.7% 3.9% 0.7% N/A 0% - 20% 21% - 40% 41% - 60% 61% - 80% 81% - 100% 2012 Discount Rate Range Increased price sensitivity and the threat of declining yield rates and enrollment may limit efforts to reduce discount rates, especially at low-demand institutions. 2015 Huron Consulting Group. All Rights Reserved. 9 Source: NACUBO 2013 Tuition Discounting Study
Undergraduate Enrollment National Enrollment From 2000 to 2013, public 4-year institutions grew enrollment by 39% to enroll over 6.7 million students. Private non-profit 4-year institutions grew more slowly, at 29%. Public 2-year institutions demonstrated the greatest volatility in these years. 8,000,000 Total Undergraduate Fall Enrollment by Institutional Control 2000-2013 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Public 2-Year Public 4-Year Private Non-Profit 4-Year 2015 Huron Consulting Group. All Rights Reserved. 10 Source: IPEDS Digest of Education Statistics 2014
South Dakota Mississippi New Hampshire Nevada Missouri Alabama Wyoming Utah Oklahoma Arkansas Rhode Island Ohio Arizona Maine Michigan Iowa Kansas Wisconsin Oregon Nebraska Hawaii Illinois New Mexico Kentucky North Dakota South Carolina Vermont Colorado Massachusetts Montana Texas Pennsylvania Indiana California New York Florida New Jersey Tennessee Georgia West Virginia Washington North Carolina Virginia Alaska Louisiana Minnesota Connecticut Maryland Idaho Delaware Out of State Enrollment Changes Based on the dataset from National Council for Education Statistics most recent survey, 34 out of 50 states have increased their out-of-state enrollment percentage over the past five years. 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% Change in Percent Out-of-State Enrollment By State, Fiscal FY2009-FY2014 Note: Dataset used to produce the above chart included only 417 out of 647 possible public four year colleges due to lack of residency reporting by schools. 2015 Huron Consulting Group. All Rights Reserved. 11 Source: National Center for Education Statistics, IPEDS
Average Cumulative Debt (in thousands) $11,600 $12,000 $12,300 $12,100 $12,200 $11,900 $13,300 $21,400 $21,900 $22,300 $21,900 $22,000 $21,500 $14,100 $14,700 $15,100 $23,600 $24,600 $25,300 $25,600 Student Debt Levels Based on the latest available cumulative student debt data, average cumulative debt levels for student borrowers attending public institutions has increased by 16% since 2008. Average Cumulative Debt Levels in 2013 Dollars Public Four Year Universities 30 25 20 15 10 5 0 FY04 (54%) FY05 (55%) FY06 (55%) FY07 (55%) FY08 (55%) FY09 (55%) FY10 (56%) FY11 (57%) FY12 (58%) FY13 (59%) Per Borrower Per Bachelor's Degree Recipient Fiscal Year (Percent of Students who Borrowed) 2015 Huron Consulting Group. All Rights Reserved. 12
Drivers of Institutional Fiscal Health The following are primary indices of an institution s financial health. Primary Indicators Selected Metrics Considerations Market Pressures Capital Constraints Operating Performance Debt Situation Institutional Strategy & Management Selectivity, yield, draw Net tuition per student Tuition discount % Financial resources to debt Financial resources to operations Expendable financial resources per student Annual operating margin % Average operating margin % Average debt service coverage Conservatism regarding budgeting of debt service costs Use of bridge financing Covenant violations Long range planning capacity Budgeting practices Strength of the board Easy to take a broad view across all institutions A deteriorating balance sheet is often a catalyst for action Operating performance is a less ambiguous measure of financial health Strong indicator of financial health and cash flow Leads to deeper knowledge of the particular institution Source: Huron Consulting Group and Moody s rating approach to colleges and universities 2015 Huron Consulting Group. All Rights Reserved. 13
Changing Nature of Financial Management As a result, industry leaders are being forced to engage with the financial realities of their situation, often resulting in a shift from traditional financial management to more strategic practices. Traditional Financial Management Financial challenges were solved through cost reduction initiatives and tuition increases Financial management was the purview of vice chancellors of administration and finance Operations managed through budget, without focus on actual results or cash flows Portfolio of academic activities set irrespective of financial impacts or realities Belief that revenue diversification provided financial security Credit ratings were stable and debt portfolios were only reviewed when specific needs arose Strategic Financial Management Tighter connection between strategic plan and resource allocations Increased involvement of President and Provost in financial decision making Better understanding of the interplay between budgets, revenues and cash flows Understand opportunities for financial differentiation to fund strategic priorities Acknowledgment and understanding of risk tolerance External factors must be identified, monitored, and mitigated The increased complexity of university financial management dictates that institutional leaders develop clear and insightful analyses to support, or even produce, institutional narratives and inform strategic decisions. 2015 Huron Consulting Group. All Rights Reserved. 14
Huron Education Team DRAFT Laura Yaeger and Scott Friedman together bring more than 35 years of cross-functional experience exclusively in higher education. Laura Yaeger, Executive Vice President Higher Education Experience: 25+ years Focus Area: Laura specializes in helping research universities, academic medical centers, and hospitals become betterpositioned to achieve strategic and financial goals, manage risk, and plan for the future. Laura is the leader for Huron s Higher Education practice. Recent Clients: University of Michigan, University of Wisconsin-Madison, The Ohio State University, Northwestern University, Harvard University, Princeton University, Yale University, among many other public and private institutions. Scott Friedman, Managing Director Higher Education Experience: 10+ years Focus Area: Scott assists universities, academic medical centers, and research hospitals in making operational and organizational improvements, identifying and implementing process efficiencies, and strategic planning. Recent Clients: University of Wisconsin System, Pennsylvania State University., University of Colorado, University of California System, Stanford University, University of Kentucky, University of Florida, Drexel University Huron s team of 350+ professionals dedicated to serving the higher education industry bring with them insights and perspective related to public higher education, developed from extensive service to universities across the country. 2015 Huron Consulting Group. All Rights Reserved. 15