Tuition Dependency and the Impacts of Declining Enrollments
Institutions that rely on tuition to provide more than 60 percent of total revenue are classified as tuition-dependent. Tuition dependency is defined as the ratio of net tuition revenue to total revenue and is often considered an important measure of financial condition. At a time when institutions are increasingly tuition-dependent, even modest enrollment fluctuations and retention rates can have a significant impact on an institution’s bottom-line.
An Inside Higher Ed survey revealed that more than two-thirds of college and university CFOs expressed deep concern over stagnant and declining enrollment numbers. In fact, many institutions have failed to meet enrollment targets for many consecutive years creating more alarm over long-term sustainability and affordability measures.
The issue is not confined to the higher education industry. A recent Enterprise Risk Management (ERM) survey conducted by RCM&D for the National Catholic Education Association (NCEA) found that Tuition Dependency was ranked as the top concern for private, Catholic educational institutions. A recent study by Education Next found that over the span of four decades the number of Catholic schools in the US has decreased by 37 percent. Furthermore, a recent study by Nathan Grawe noted that the declining birth rate in the United States will result in a 15 percent decrease in the college-going population between years 2025 and 2029 and will continue to decline by another percentage point or two thereafter.
Strategic Enrollment Management
Consumerism and marketing are key components of a well-reasoned strategy for enrollment management. Strategic Enrollment Management (SEM) includes managing tuition and net revenue with marketing tactics to get the right students enrolled without compromising diversity, fundraising and other internal initiatives.
Similar to an Enterprise Risk Management (ERM) strategy, key stakeholders must identify and communicate otherwise independent objectives and channel it into a unified and consistent strategic plan. In doing so, administrators must take into consideration the impact of tuition dependency on all operational domains and enterprise risks to prevent unintended consequences.
Ultimately, all meaningful outcomes must happen with a logical and strategic plan that moves beyond the operational and tactical level.
The ongoing net tuition and enrollment issue that many institutions are dealing with is not only an operational and financial risk but also have deep insurance impacts. Underwriters can restrict terms, increase retentions, and increase rates if certain financial metrics do not meet underwriting guidelines.
The issue of Declining Enrollment was ranked as one of the top risks for education institutions in the RCM&D report 2019 Outlook: Top Risks for Education Institutions. To receive a copy of the full report, please complete the form below.