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Tuition Can't Keep Pace With Inflation as Colleges Struggle

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  • Schools expect 3% or less revenue increase, Moody's says
  • Universities offer tuition discounts to attract students

The growth in revenue that universities get from tuition is barely keeping pace with inflation, with many forced to offer deep discounts to attract students, Moody’s Investors Service said.

About a quarter of the 169 private, nonprofit universities surveyed said they expect net tuition revenue increases of no more than 3 percent next year, Moody’s said in an annual study released Thursday. A similar number said they expect tuition revenue to decline by as much as 5 percent, the New York-based credit rating company said.

An even greater percentage of the 129 four-year public universities surveyed said they expect such softness in net tuition revenue, for some because of restrictions on increases imposed by state legislatures, Moody’s found.

Price Conscious

While the cost of going to college has outstripped inflation for decades, many smaller and lesser-known colleges particularly in the Midwest and Northeast have struggled to recover from the last recession that ended in 2009. Facing a shrinking population of high school graduates and more price conscious students, they’ve deeply discounted tuition to fill seats, said Erin Ortiz, the lead author of the report.

“The number of students going to college is lower because of demographics,” Ortiz said in a telephone interview. At the same time, “students and families are becoming much more educated consumers,” she said.

Almost half of the private universities surveyed said they discounted tuition for first-year students by more than 50 percent, with some schools struggling to fill seats, Ortiz said. Top-rated schools, which have rebounded from the recession, offered discounts to maintain or increase campus diversity, she said.

Tuition Discounting

Tuition discounting by many of the most creditworthy institutions is financed by gifts and endowment income, according to the report.

While endowments at wealthier universities have thrived following losses in the recession, they’ve come under scrutiny for how little they typically spend offsetting student costs and may face a proposed Congressional bill. Victor Fleischer, a law professor at the University of San Diego, said in an op-ed in the New York Times in August that by his estimates some of the schools are spending more annually on money management fees for their endowments than on financial aid for students.

The price tag for college has risen more than U.S. inflation. Between the 2005-2006 school year and 2015-2016, the sticker price for in-state tuition and fees at public four-year schools rose at an average annual rate of 3.4 percent per year over inflation, according to a report this month from the College Board, the New York company that owns the SAT.

Average published charges, which include tuition, fees, room and board and exclude discounts, this year at nonprofit colleges were almost $44,000, up 3.5 percent from last year. Average published charges were $19,500 for in-state public schools, up 3.3 percent from a year ago.

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