In this month’s edition of our Program Economic Analysis (PEA) use case series, we talk through a topic that is top of mind for most institutions right now—federal funding for tuition and fees.
Recent news about the impact of federal funding on colleges and universities has largely focused on a small group of elite, research-based institutions. These cuts are already proving disruptive.
However, at the majority of other institutions, conversations about revenue typically focus on driving enrollment to academic programs. Many institutions use tuition discounting to this end, and many institutions end up collecting less tuition revenue overall as a result. A thorough review of discounting practices is certainly in order.
There are other considerations on the revenue side as well, including the fact that a good portion of net tuition revenue is not actually paid by students. If you’re a public institution, some of your tuition revenue is from state appropriations. If you’re a private institution, the net tuition revenue that you collect from students comes from a combination of direct payments and federal funding in the form of student loans and grants. What would happen to your programs if those federal funding sources were significantly reduced or lost altogether? This is an important strategic question, and not just because it would fundamentally alter your institutional revenue assumptions. The loss of Pell Grants and student loans would affect some programs more than others because needs and costs are not evenly distributed across majors. This means you need strategies that are program-specific, not institutionwide.
If you are a PEA client, you can start answering this question in your PEA Program Tuition dashboard.
- Set View Choice 1 to “Program.”
- Scroll down to the “What Drove Net Tuition?” table. You’ll see something like this for each of your academic programs.
What Drove Net Tuition?
| BA-BA in Psychology in General Psychology emphasis | |||||
|---|---|---|---|---|---|
| 2017 | 2018 | 2019 | 2020 | 2021 | |
| Student Enrollment | 49.0 | 49.0 | 60.0 | 49.0 | 60.0 |
| Gross Tuition | 741 | 765 | 796 | 757 | 812 |
| Discount Choice | 204 | 239 | 240 | 262 | 250 |
| Net Tuition | 536 | 527 | 556 | 495 | 562 |
| Discount % | 28% | 31% | 30% | 35% | 31% |
The emphasized row is the net tuition revenue per credit hour for students in that program. However, as noted above, a good portion of that revenue is not coming directly from students. If you were to disaggregate this net tuition revenue for each academic program, what percentage of the revenue would come directly from students? What percentage of the revenue is from Pell Grants and other income-based grants? What percentage of revenue is paid by student loans? What would happen if one of those revenue sources was suddenly reduced or severely restricted indefinitely? The answers will be different for each program. Forvis Mazars can work with you to build these disaggregated numbers right into your dashboard, or you can do this analysis yourself using institutional data.
For instance, let’s take the psychology example provided above. Undergraduate psychology isn’t a professional degree program associated with licensure or with a defined career path. According to reputable sources like Payscale,1 it’s one of the lowest-earning degrees five years after graduation. This makes psychology fodder for proposed federal tuition funding cuts, which have been targeted toward programs that produce lower-earning graduates. The Biden administration would have possibly accomplished this through financial value transparency reporting rules, and legislation from Congress, such as H.R. 6951, The College Cost Reduction Act (CCRA), aimed to do the same.
For many reasons, it may be unlikely that you will sunset highly popular programs and limit your institution to only those endorsed by whatever administration is in place at the moment. That wouldn’t be particularly strategic, and it’s not a recipe for long-term sustainability of your brand. But you can start thinking about how you will pay for these popular programs if you can no longer count on federal tuition support to sustain them. Here are a few things you can ask yourself once you’ve completed the analysis above. You should consider these questions at the program level to develop effective responses.
- Will you increase your tuition and fees in this program?
- Will you reduce your operations in this program to match whatever revenue comes directly from students?
- Will you identify strategic partnerships with other institutions that will allow you to sustain this program moving forward?
- Will you ask your advancement team to secure donor funding to sustain this program in perpetuity?
How Forvis Mazars Can Help
You won’t be able to answer these questions until you know which programs are most likely to be affected if tuition funding is cut. See our other PEA use case articles to discover numerous ways PEA can help provide strategic value to your institution. Please contact our higher education consulting team if you have any questions or if you’d like to hear more about how to build these data points into your dashboards.
- 1“10 College Majors With the Lowest Starting Salaries.” usnews.com, July 21, 2022.