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Fall Forecast

An economic low-pressure front hovers over fall’s headcount numbers. While many institutions have contingency plans to address every condition from “stormy” to “sunny,” it’s unclear just how many students will show up.

By Anna-Louise Jackson

BarometerIn mid-September 2008, an ominous cloud hung over Wall Street. In the course of one week, Lehman Brothers filed for bankruptcy, Bank of America purchased Merrill Lynch, and AIG was in need of a federal bailout. The following weeks brought more uncertainty as stock prices seesawed and the Dow Jones Industrial Average lost a record 777 points in a single day.

While the sky was falling on Wall Street, the fall semester was in full swing at Buena Vista University in Storm Lake, Iowa. The small, independent university was on track for a solid year, with an entering freshman class 20 percent larger than in 2007 and strong interest in its professional and online programs. Amid the demise of the nation's financial giants, some Buena Vista students began rehearsing for a school play, aptly titled "After the Fall."

October brought little relief to U.S. financial markets, despite passage of a $700 billion federal stimulus plan to restore health to the financial sector. Like all investors, administrators at Buena Vista monitored the markets closely.

At the conclusion of the university's board of directors fall meeting, President Fred Moore gathered his executive team. "We have to get to work," he told them. During the next several months, the university developed optimistic, realistic, and pessimistic contingency plans for the fall 2009 semester. This August, when students return to campus, university leaders will find out how their months of planning paid off.

This anxious optimism is shared by college and university leaders across the country as they eagerly await their fall semester enrollment reality. The once-dependable forecasting tools are no longer reliable barometers in this current economic climate. While some institutions will emerge as leaders for their innovative response and tactical approaches taken in the face of financial uncertainty for parents and students, other institutions could fall under the additional stress put on an already-weakened business model.

Footing the Bill

Late last year it became official: The U.S. economy entered a recession in December 2007. Aside from confirming what many people already suspected, this news opened the door for countless comparisons to past economic downturns. These comparisons are unfair when it comes to higher education, says Kevin Crockett, president and chief executive officer of enrollment management consulting firm Noel-Levitz. The amount of leverage in the postsecondary education system is unprecedented by historical standards. Family dependence on all types of loans increased dramatically for the period between 1997-98 and 2007-08, according to a 2008 study by the College Board. On an inflation-adjusted basis, nonfederal private-sector loans experienced a 536 percent spike during this period, from $3 billion to $19.1 billion.

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Once-dependable forecasting tools are no longer reliable barometers in this current economic climate.

For years, many students and parents relied heavily on the loan industry to foot the bill for higher-than-inflation-adjusted tuition rates. Now those same families may struggle to finance higher education because of what is happening in the rest of the economy, says Barmak Nassirian, associate executive director of external relations at the American Association of Collegiate Registrars and Admissions Officers. Lines of credit are disappearing, investments have shriveled in value, unemployment rates are up, and consumer confidence is in the gutter. As a result, families lack a strategy to make up for the portion of the tuition bill recently financed through loans. "It's the perfect storm, because it really closes every avenue of responsible planning for some families," says Nassirian.

In recent years, parents have increasingly turned to the admissions office for financial aid advice. Today these parents are leveling tougher questions at admissions officers, says David Hawkins, director of public policy at the National Association for College Admission Counseling. The problem is that admissions office staff are prepared to answer basic financial aid questions, not to dole out personal advice. Often, families ask questions not specific to the institution. This makes the job of admissions officers even more difficult.

Given the concerns of families about footing the bill for college during so much economic uncertainty, institutions need to do a better job of communicating with parents over the summer, says Brian Zucker, president of Human Capital Research Corp. While colleges and universities exercised moderation when setting tuition for the 2009-10 academic year, tuition increases have still outpaced inflation. For parents, price is the underlying issue of great concern. Zucker urges institutions to start a serious dialogue about the price of a degree, rather than the price of attendance. "Cost is finally reaching a threshold that's going to take us to some sort of discontinuity," he says. "A family is really expected to have considerable resources to put toward college before demonstrating need. And they just may not have it."

Trickle-Up Challenges

Some good news that may partially mitigate the growing strain on family budgets is the availability of additional student aid and tax relief stemming from passage of the American Recovery and Reinvestment Act passed in February. This stimulus bill raises the maximum Pell Grant award for the 2009-10 academic year by $500, from $4,850 to $5,350, and increases the Federal Work-Study Program by $200 million. The American Opportunity Tax Credit (formerly the HOPE tax credit), temporarily expands coverage to four years of college expenses rather than two years; increases the maximum credit by more than a third, from $1,800 to $2,500 per year; and expands the types of expenses that qualify for the credit by including textbook costs.

Unearthing Tuition Discounting

Some institutions are looking to the past to gain insight about how to tackle today's economic downturn. Since 2004, members of the New American Colleges and Universities Association—formerly, Associated New American Colleges (ANAC)—have been taking a hard look at net tuition revenue. Now, with six years of comparative data under their belts, these institutions will get a head start analyzing what worked and didn't work in the 2009-10 academic year.

During the late 1990s and early 2000s at the University of Redlands in Redlands, California, tuition discounting was getting out of hand. So, in 2004, Phillip Doolittle, executive vice president and chief operating officer, approached the university's longtime tuition discounting consultant, Bill Hall, president of Applied Policy Research, about collecting data to help inform financial aid decisions for ANAC colleagues.

For the past five years, Hall's research firm has helped analyze six key data elements from 18 to 20 participating institutions: the number of entering freshmen; tuition and mandatory fees for entering students; the number of freshmen applications; the number of accepted freshmen; the number of enrolled freshmen; and all restricted and unrestricted and need and non-need based aid.

Survey results help institutions compare apples to apples to inform decisions in a fast-changing environment, says Lynette Robinson, the association's executive director. Instead of focusing on discounting, institutions are looking for strategies to build headcount. That's because headcount drives revenue more than discounting. The recession will push up discounting rates after years of relative stability, as families feel the pain of financial pressures, but the survey results provide participants with trends to inform long-term decision making.

Institution participants met in March to review survey analysis for fall 2008 statistics and ratio analysis based on the 2007-08 fiscal year. The survey allows participants to gauge how they compare with peers and to assess enrollment trends, sticker pricing, and per-student net revenue. The study also provides broader insight into the complexity of tuition pricing decisions, even for nonparticipants.

Managing financial health from a tuition revenue perspective requires a great deal of collaboration among the finance and admissions offices, says Hall. The data may provide a table setting, but people bring the meaty morsels to hash out what it means. "There's a lot of good insight that you can gain. More importantly, there are a lot of really dynamite discussions that you can have," he says.

Hall's company also provides net revenue consulting, providing institution-specific information before the fall enrollment census. Survey results for the association members are available in March, which is still earlier than using audited financial statements for ratio analysis. Even a few months makes a difference. The earlier participants have information, the sooner they can make informed decisions for the following year.

"Our members can't wait for results of longitudinal surveys that are published in the professional literature," says Robinson. "This is a study that is designed to guide contemporaneous decisions."

Even so, the combination of somewhat dire circumstances some families face in struggling to pay for college has resulted in some common challenges for the higher education community. Lower contributions toward college costs from parents and students will result in greater need for financial aid. Supplemental financial aid will be needed at a time when college and university budgets are being slashed and endowment values have fallen. Institutional budget cuts will result in fewer services for potential and returning students, while tightened family budgets will make lower-price institutions more attractive.

As families figure out how much they can afford to spend on tuition, colleges and universities will be left in limbo because unpredictable yield and the increasing popularity of double depositing will make it difficult for institutions to forecast enrollment until students are actually on campus. Add in the hundreds of variables unique to institutions—location, tuition rates, and demographics, to name a few—and what becomes apparent is that each institution is facing its own funnel cloud. "It's a tremendously varied story—family by family, school by school," says Zucker.

It didn't take long for the economic reality to hit Buena Vista. Retention fell between the fall 2008 and spring 2009 semesters, and in the final six months of 2008, the university's endowment lost 30 percent of its value. To make up for the loss in endowment income, the university had to trim its operating budget. According to Moore, these problems exacerbate existing challenges. For instance, the number of high school seniors is declining in Iowa, creating a hypercompetitive marketplace for students. More trouble could be on the way. That's because many farmers sold their crops on forward-contract rates. If prices do not rebound, Iowa farmers—many of whom are parents of Buena Vista students—could lose a lot of money in 2011. "That's certainly a concern as we look to the future," admits Moore.

Similarly, Nunez Community College, Chalmette, Louisiana, is still grappling with Hurricane Katrina. Nearly four years after the storm, many classes are being held in portable classrooms, and the first floor of the college's main building is still in need of repairs. In spite of these delays, enrollment is strong, having jumped 26.7 percent—from 1,347 students to 1,706—between spring 2008 and spring 2009. Statewide, the Louisiana Community and Technical College System (LCTCS) serves 10,000 more students than it did pre-Katrina.

Yet, Nunez is at risk of losing funding for a core segment of its population. After Katrina, the state began funding a dual-enrollment program for high school juniors and seniors. The program has become so popular that all of the funds for the 2008-09 academic year were exhausted in the fall, says Donna Clark, vice chancellor for student affairs. Like everywhere else, the state is cutting back. LCTCS was spared from midyear budget cuts, but funding for these institutions has not kept pace with the enrollment spike, particularly compared with the funding appropriated to the state's four-year institutions.

Although the system dodged a bullet in the midyear budget cuts, the state-funded dual-enrollment program did not. Funding for the program was cut in the spring and will likely be cut further this fall. Clark says Nunez can't afford to lose the program because it accounts for one third of the college's enrollment. "It's part of the workforce solution in Louisiana to get more people into college so we'll have a trained workforce. Cutting out what is probably one of the most successful initiatives in decades is just not an option."

The system is eyeing alternatives, including sharing expenses with high school districts, offering tuition discounts or waivers to students, or securing sponsorships from businesses. And, Nunez is beefing up its marketing efforts to students who completed the dual-enrollment program and may be considering other institutions. "We're going to be a bit more assertive in trying to make Nunez their first choice," says Clark.

Meanwhile, state budget cuts are taking a big toll at California State University, Fullerton (CSUF). Running a university amid California's budget crisis is like riding a roller coaster, says Willie Hagan, vice president for administration and finance and chief financial officer. This year's budget cuts to the system forced CSUF to cut enrollment and increase tuition by 10 percent. "At a time of increased demand, the state's economy is forcing us to cut back," Hagan says. "Cutting back goes against our mission of access."

As a result, the incoming freshman class is likely to look different, with a higher percentage of students hailing from the university's immediate service area, higher academic parameters, and fewer transfer students. A serious concern, Hagan says, is how the state's budget cuts will affect the university's mix of students in the long term.

Stepping Up Aid

The mandatory 10 percent tuition increase at CSUF will be partially offset by additional financial aid. Other institutions are also stepping in with additional aid to ensure that students arrive on campus this fall. The financial instability facing American families and their potential for downshifting to lower-cost alternatives is particularly worrisome to administrators at Claremont McKenna College in Claremont, California. If parents experience a loss in their overall wealth, the college's financial aid budget will take a big hit. According to Adam Sapp, associate dean of admission, the question may no longer be whether a family can afford college, but rather, whether a family can afford this college. "We have done our absolute best to ensure we don't have families saying this about CMC," says Sapp.

In the past year the college has added a "no loan" component to financial aid, whereby students who previously had packaged loans will now receive a grant from the college. In addition, Claremont increased merit aid programs in the past two years, thanks to a few multimillion-dollar grants from foundations.

These types of strategies are necessary for maintaining constant enrollment, particularly among students whose parents are in the middle and upper-middle income brackets, says Noel-Levitz's Crockett. The 2008-09 academic year was financed mostly under the old paradigm. Now, institutions have the opportunity to devise innovative financing alternatives. According to Crockett, these strategies could include level tuition programs, four-year graduation guarantees, loan elimination or loan cap programs, institutional loan programs, subsidized PLUS loans, 12-month payment plans, and online tuition and scholarship calculators.

"Institutions may want to consider moving away from need-blind admissions to maximize tuition revenue," says Hawkins. Though perhaps not a one-size-fits-all solution, identifying financial aid needs during the admissions process will help institutions diversify their revenue streams. And, offering differential packaging of aid will help institutions maximize their yield, notes Hawkins.

Meanwhile, there may be enough time over the summer to tackle outstanding financial aid issues. Institutions can arrange special, need-based fundraising campaigns or identify students most at risk of not showing up for the fall term. Institutions must also be more flexible when dealing with students and parents. Rigid financial aid policies could cause self-inflicted wounds, Nassirian cautions, since students who are short on cash could decide to sever their relationships with an institution. Even if more aid is not available, institutions should keep open communication lines with students and parents over the summer to prevent withdrawals. They also should not forget about returning students. "Wouldn't it be a shame if you made your freshman class and you hit a new low in retention?" asks Zucker.

No Summer Break

Getting the freshman class on campus is priority No. 1 at Green Mountain College. Staff at the liberal arts college, located in Poultney, Vermont, will spend the summer making a last-ditch effort to prevent a so-called "summer melt." Summer is always an exciting time for the college, says Sandra Bartholomew, dean of enrollment management. This summer will be no exception. Last year, administrators anticipated an economic squeeze on the horizon, so they tried to beef up the inquiry pool for fall 2009 applicants to maintain enrollment. The logic was straightforward: A larger funnel would allow the college to make up for anticipated decreases in yield.

The strategy worked. Inquiries increased 25 percent, from 12,000 for fall 2008 to more than 16,000 for 2009. Disappointingly, applications for the fall term remained flat through the spring. At least one quarter of Green Mountain applicants pay deposits at multiple institutions. As a result, it's tough to make reliable predictions about this fall until students are actually on campus. In response to these concerns, the college has stepped up its efforts to contain costs, retain admitted students by offering more aggressive financial aid packages, provide assistance for students to visit the campus, contact parents with a message about affordability and value, and offer graduation and institutional aid guarantees.

Despite its best efforts, the college could still miss its enrollment target. "We'll be keeping our fingers crossed right up until the opening of school," says Bartholomew.

Double depositing could actually benefit some higher-priced institutions. As families sort through what they can and can't afford, a $300 or $500 deposit is a relatively inexpensive insurance policy, according to Zucker. As a result, there may be a rebound effect over the summer. "It seems like a good idea to take the first year or two at a community college at the lowest possible cost, but when you find out courses are not available and classrooms are full, some families may opt to make additional sacrifices late in the game," says Crockett.

DePaul University in Chicago will also have a busy summer, according to David Kalsbeek, senior vice president for enrollment management and marketing. "We will likely be spending more time this summer working with families whose financial circumstances have unexpectedly changed and who need to explore alternatives to financing their education," he says. Summers at DePaul tend to be more focused on transfer students and graduate students, providing ongoing admission, advising, and registration. Kalsbeek expects that the economy will force nontraditional, transfer, and graduate students to make enrollment choices even later than in the past.

Diversifying Revenue Streams

DePaul is intentionally and aggressively cultivating new academic programs to help it buffer the ebbs and flows in market demand. The university has broadened its marketing and enrollment management beyond traditional full time and now boasts the largest enrollment in master's programs of any university in Illinois.

"Our responses to date have not focused on cost-cutting strategies as much as they have focused on revenue enhancement strategies. As a highly tuition-dependent institution with very little of our operating budget drawn from endowment, ensuring our enrollment health has been our highest priority," Kalsbeek says.

Identifying financial aid needs during the admissions process will help institutions diversify their revenue streams.

The university has prepared some umbrellas to help protect it from the economic downturn, including a wider range of 2+2 curricula and dual-admission programs and partnerships with area community colleges; competency-based curricula for adult students that provide more accelerated paths to undergraduate degree completion; enhanced advising services and online resources to assist students in integrating their academic, financial, and career plans toward timely degree completion; remedial-level instruction in English and math courses at no additional tuition cost; and a financial fitness program to assist students in integrating their academic, financial planning.

Nunez and Buena Vista are also bracing for higher numbers of adult learners returning to school for training this fall. Given the issues facing traditional students, Moore says Buena Vista is fortunate that it already has professional and online programs in place. He doesn't relish knowing the reasons why those programs will be popular this year because he empathizes with the anxiety that adult learners are experiencing. "If you have a large adult program, it's a bit countercyclical, and that helps," he says.

While programs that cater to nontraditional students—whether online or in-person—are especially useful to institutions grappling with demographic shifts, Nassirian cautions that implementing these programs requires significant infrastructure commitments that need to be incorporated into a long-term strategy. In the short term, institutions can supplement decreased regional enrollment by drawing in students from other parts of the country or world.

At Claremont McKenna, the admissions office is reaching out to sunny Papua New Guinea in spite of travel budget cuts and the gloomy economic forecast. How? In addition to the regular admissions Web site, the office launched a new site geared toward prospective students: CMCNation.com. The site has been a big success since it launched in November, averaging more than 30,000 hits per month compared with 19,000 hits on the admissions site in its busiest month last year. "We have had several students mention CMCNation in their applications this year, so we do know that it has had a tangential impact on our application numbers and on our geographic diversity for this crop of freshman applicants," Sapp says.

More importantly, the site represents one of the college's long-term goals: connecting high school students with stories about what Claremont is really like. "I think the future of college admissions is about creating ways to individualize the experience students have when they interact with colleges," says Sapp.

A targeted marketing strategy is a prudent long-term goal for any institution, but there are ways to increase yield in the short term. Personalizing the admission and financial aid process is a great way for institutions to maximize enrollment, Hawkins adds. Budget realities mean that many institutions will have to pull back temporarily on face-to-face recruiting as Claremont did. Yet, with a little ingenuity, institutions can still find ways to put real students in touch with real people.

That innovation doesn't have to come at a price, says Zucker. "There are all kinds of opportunities to diversify the revenue stream. The only limit is your imagination and willingness to take it up."

Silver Linings

As painful as the economic crisis has been, it does provide opportunities for institutions to rethink strategic investments. They also have the opportunity to take a fresh, hard look at what they're doing well and what they can stop doing, says Hawkins.

This fall, a postmortem will be revealing. "Colleges will really have to focus on two to three strategies that work and pursue those," says Hawkins.

Higher academic standards could alter an institution's position in the marketplace for the 2010-11 academic year, leading to higher rankings.

Brian Zucker, Human Capital Research Corp.

The reality is that some institutions will simply not survive, and the pressure of the economy will likely be the tipping point. While it's unfortunate that the higher education community will lose some colleges and universities, Crockett and Nassirian agree it will be telling to see which institutions emerge as leaders.

For Hagan, it's difficult to see past the harm created by California's budget crisis. CSUF still has to go about the everyday business of educating students, supporting faculty, maintaining facilities, and keeping up morale. Even so, he knows that the collegial relationship on campus will help the university persevere. "We'll get through this together, but it's difficult," he says.

Zucker warns that the 2010-11 academic year could be even worse than 2009-10, particularly if families have less capital on hand to pay for college. However, he sees a potential silver lining for institutions like CSUF. Higher academic standards could set off a series of events that could alter an institution's position in the marketplace for the 2010-11 academic year, leading to higher rankings, for example. "I think 2009 sets in motion a string of shifts that could be profound in terms of reshaping the market dynamic," he says. "This is a good time. I'm not saying it's easy, though."

ANNA-LOUISE JACKSON, Chicago, covers higher education business issues for Business Officer.