Editor’s note: Non-resident enrollment at the University of Colorado increased by 49% from 2002 to 2018 systemwide. At University of Colorado Boulder, non-resident enrollment increased by about 31% during the same time frame.
The University of Colorado Boulder is tackling an ambitious strategic financial plan in the hopes that it will make the university better prepared for the next recession and keep tuition rates stable.
But some experts wonder how many future recessions, and drops in state funding, higher education will be able to withstand long term.
Economists agree the chance for a recession in the United State increases significantly after 2020.
But, in most states including Colorado, public higher education funding is just starting to catch up after the Great Recession of 2008. Colorado is ranked 48th in the nation for higher education funding, even after making modest increases in recent years. Educational appropriations per full-time student are still 11.1% less than they were in financial year 2008.
Funding has not fully recovered since the 2001 recession in some cases, and public colleges and universities are becoming increasingly reliant on tuition as a result. Now, some experts worry this funding trend, if prolonged, could affect attainment and education quality.
For now, the University of Colorado system is working to create efficiencies and cut costs, as well as keep financial aid in place for students who need it. But it also relied heavily on federal funding from the American Recovery and Reinvestment Act of 2009 to stay afloat after the last economic downturn.
Protectionism and China
The National Association for Business Economics outlook report , published in June, found the majority of economists surveyed believe the odds of a recession increase by 60% at the end of 2020. The United States in July will hit the longest period of economic expansion it’s ever had.
However, panelists still expect to see growth, though most think it will start to decelerate around that time, according to Greg Daco, the survey chair and the chief U.S. economist at Oxford Economics, a global economic forecasting firm. .
While Daco said he couldn’t predict how extreme the recession would be, he said most survey participants believe it will be a “garden variety type of recession” that won’t slow down the economy as much as the Great Recession, which is considered the most significant economic downturn since the Great Depression.
The most likely cause of the next recession, respondents said, will be protectionism, Daco said.
“Protectionism hurts in an economy in that it raises the price of imported goods from abroad,” he said. “What that then means is that businesses tend to produce less because there’s a price effect on their business, and households tend to spend less because their spending power is less.”
While this would most likely affect trade-exposed sectors, the reason behind the issue could impact higher education. The Trump administration has imposed 10% tariffs on $200 billion in Chinese goods and is threatening to impose even more. What some observers call the “Trump effect” is making some international students think twice about coming to the United States, but an even larger issue is the potential for China to discourage students from attending, or even remove them from universities in this country.
There are more than a million international students in the United States, and most come from China. Universities have grown to rely on international students, who typically pay a higher rate of tuition.
Kelly Fox, senior vice chancellor and chief financial officer at the University of Colorado Boulder, said administrators are watching this issue and it “is a concern.” Last fall, the number of international students in the incoming class decreased, but Fox said CU Boulder also is seeing that when international students come to campus, they stay.
Non-resident and international enrollment is “very important,” according to Todd Saliman, vice president and CFO for the CU system. Between 2001 and 2018, non-resident enrollment increased by just 49% systemwide, and by about 31% at CU Boulder. Between 2002 and 2018, international enrollment increased by 112% systemwide and just less than 173% at CU Boulder.
CU Boulder noticed a decline in non-resident enrollment during the early 2000s recession, which led to the creation of a “tuition guarantee” for those students, who face higher rates, even before resident students, Fox said. The guarantee means incoming freshmen will keep the same tuition rate from their first year until their last.
Non-resident and international student enrollment “really makes it possible for us to be affordable for residents,” Fox said.
Data from the University of Colorado system shows it wasn’t spared during the last economic downturn. The system laid off 64 positions over two years, mostly in the president’s office and University Information Services.
CU Boulder also took a hit, reducing its budget by $22.3 million and eliminating 135.5 positions over two years, according to spokeswoman Melanie Marquez Parra. It also reduced funding for its strategic Flagship 2030 plan by $330,000, kept unfilled positions open longer and waited to invest in a new data-management system.
“We took a share the pain approach,” Saliman said, meaning each campus and the system made reductions.
State support also dropped, as it did in many other states. Support per resident student, adjusted for inflation, is still down more than 50% compared to where the system was in 2000, according to Saliman.
“It’s highly unlikely that state support will get back to that level by the next recession,” he said.
Federal funding from the American Recovery and Reinvestment Act of 2009 “protected” higher education during the last recession, he said. The CU system received $50 million in federal funding in financial year 2009, and another $121 million in financial year 2010, protecting it from steep drops in state funding.
“The impacts would’ve been much more severe if that funding hadn’t been available,” Saliman said. It’s impossible to predict how much, if any, of those funds CU would get in the next downturn, he said.
A study released this month from the National Bureau of Economic Research looked at how decreases in state funding affected educational and research output of public universities.
“The evidence we have assembled in this paper suggests that high-research public universities have started to resemble their private counterparts, as they increasingly depend on tuition revenues and private grants and gifts, while state funding now accounts for a minority share of resources,” the study states. “Our evidence suggests that declining state support for higher education has real effects which have long-term implications for economic productivity and the supply of high-skilled workers in the labor market.”
Using instrumental variable estimates, researchers found that for every 10% decrease in state appropriations total resident enrollment at research universities decreases by about 1.7%. They also found a 3.6% decrease in bachelor’s degree attainment and a 7.2% decrease in Ph.D. attainment at research universities.
During the Great Recession, Saliman was the budget director for the state.
“The most flexible piece is higher education,” he said.
When the state is faced with a downturn and little wiggle room for cutting items, it tends to go for higher education funds first, Saliman said.
Sophia Laderman, a senior policy analyst for the State Higher Education Executive Officers Association, said higher education is known as the “balance wheel,” and studies have shown budgets are often cut during tough times and restored during prosperous times.
However, a report from the association found funding has not been fully restored since the last two recessions. Laderman said that, generally, state flagship universities like CU Boulder are the most prepared for another recession, as they are better able to rely on revenue other than state funds.
“If this current level of funding becomes a new baseline, we’re not sure what will happen during the next recession,” Laderman said. “It’s unclear … whether this idea of higher education as a balance wheel will be sustainable through the next downturn, considering the increasing calls for affordability and the extent to which tuition rates have already risen.”
The most common way colleges weather declines in state funding is through tuition increases, Laderman said.
“In the next recession, we can expect tuition to rise sharply again as it has during prior recessions,” she said. “… When state funding stabilizes, tuition doesn’t go back down. So one of the possible effects is an even higher permanent reliance on tuition revenue. We expect that in the next recession, we’ll cross the 50% mark in which at least half of revenues come from student tuition.”
Historically, states used to fund 80% of higher education, and institutions relied on tuition for the other 20%.
Institutions also work on efficiency when faced with funding cuts. However, Laderman said they eventually will run out of things to cut and make more efficient. In those cases, institutions look to public-private partnerships, online courses and donations for revenue.
Saliman expects higher education funding in Colorado will get cut again in the next recession. What happens after that “completely depends on the economy.”
During the Great Recession, tuition at CU Boulder increased from $4,554 for arts and sciences degrees in financial year 2007 to $5,418 in financial year 2008, eventually reaching $10,248 in financial year 2018.
While resident undergraduate tuition stayed flat this year, in exchange for more state funding, non-resident undergraduate and graduate tuition has been increasing by an average of 3% for the last five years, according to CU Boulder data.
Despite this trend, CU has increased financial aid and CU Boulder has reduced out-of-pocket costs, which is the average cost of attendance minus average grant aid.
In 2007-08, CU Boulder provided $68 million in institutional aid. That number increased every year (although only slightly between 2009-10 and 2010-11), and was $153 million in 2017-18.
Out-of-pocket costs for the campus also have decreased since financial year 2014, according to CU system data. The largest decrease was for those with gross household incomes of $32,500 to $59,999.
Saliman said he hopes to look at tuition and financial aid last when navigating the next recession.
“I think all higher education institutions in Colorado have less flexibility with tuition,” he said.
‘Be more nimble’
To prevent tuition hikes, Saliman said the CU campuses are planning what buffers they need in downturns, and are looking at how revenues are changing year to year to gauge for vulnerability. Revenue diversification through federal grants, state funding and tuition protects the system, he said.
CU Boulder also has a “tuition guarantee,” which means resident undergraduates are locked in with the tuition rate offered their first year.
“We’re trying to make it cheaper to go to college,” he said.
One reason for the creation of Financial Futures initiative at CU Boulder was to prepare for the next recession, according to campus CFO Fox. The goal is to keep tuition rates stable during economic downturns by planning ahead, she said.
“We have been thinking about a potential recession for a good period of time,” Fox said. “… We’re trying to be more nimble than we have been in the past.”
The Financial Futures initiative started in 2018 and aims to align resources to CU Boulder’s mission, support the Academic Futures initiative and improve the school’s financial resilience. The campus community proposed more than 340 projects during the initial wave of brainstorming, and 85 are moving forward for the first implementation wave. Fox said the university expects to save $30 million through cost savings, efficiencies and new revenue created with these projects.
The system Board of Regents also voted this fall to require the four campuses to create a tuition stabilization reserve that is 4% of their annual education and general resources budget, which is the portion that includes tuition revenue. CU Boulder currently has 3.6% saved.
“My expectation is that, if it is a garden variety recession, we have strategies that I think can allow us to navigate that,” Fox said. If it’s similar to the Great Recession, plans might change.”