Current and Forecasted Conditions Play Havoc with Higher Ed Revenue Growth

According to the National Center for Education Statistics, the number of high school graduates in the Northeast and Midwest is projected to decrease between 2013 and 2028 by 7% and 2%, respectively. Colleges and universities throughout the region, including many in Pennsylvania, Ohio, West Virginia and Michigan, are already looking at ways to address the potential effects of that shrinking supply of talent, which represents a true limiter to net tuition revenue growth.

In recent years, the higher education sector has been in the hot seat amidst steadily rising tuition rates. Based on analysis by the College Board, matriculation costs at public four-year schools, when adjusted for inflation, have tripled in the last three decades, while those at public two-year and private nonprofit four-year schools have doubled. That’s scared off a number of prospective price-sensitive students and forced many institutions to implement cost containment strategies to prevent future tuition increases. The result has been a negative perfect storm of sorts, combining the aforementioned diminishing pool of candidates with a reluctance on the part of many of those candidates to “invest” in a college degree and the ongoing institutional challenge to maintain educational affordability.

Endowments, then – and the income they garner – have become increasingly essential for institutions looking to fulfilling their missions. The potential for an economic slowdown, which would undoubtedly hurt endowment returns, puts further pressure on bottom lines. According to data from the National Association of College and University Business Officers covering over 800 U.S. colleges and universities, 10-year endowment returns ending in fiscal year 2018 were at 5.8%, well short of the group's 7.2% average long-term target. Despite missing that targeted return and even after considering the effects of inflation, a majority of institutions raised their endowed fund spending last year, as that income has become increasingly pivotal to the institution’s overall financial position.

In addition, the changes to tax law brought about by the 2017 Tax Cuts and Jobs Act have increased the prospects that institutions may pay tax on unrelated business income, which has become key to helping institution’s diversify and grow total revenue.

Revenue growth is, and will undoubtedly continue to be, a comprehensive challenge. If your institution would like assistance navigating the industry sector’s current business conditions, contact Schneider Downs and visit the Schneider Downs Educational Services Industry Group.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Pell Grant Program Facing Shortfall
Administration’s 2025 Revenue Proposals – Potential Changes for Private Foundations
Not-for-Profit, Tax BY Sarah Piot
Not-For-Profit Tax Credit Opportunities Included in the Inflation Reduction Act
2024 Policy Shifts: Essential Updates Every College Should Know
Update on GLBA for Higher Ed
Gainful Employment Disclosures in Higher Education
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Pittsburgh

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×