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2020’s Free College Promises May Be Deadly to Private Schools

2020’s Free College Promises May be Deadly to Private Schools

(Bloomberg) -- New York touted its free college tuition program as a first-of-its-kind plan that would eliminate the burden of student loans. But the zero-dollar price tag came at a cost: It tore a hole in the finances of Clarkson University, an upstate private college of more than 4,300 students.

In 2017, right as high-school seniors were preparing to declare where they’d enroll in the fall, New York officials said they would eliminate tuition for thousands of students at the state’s public universities. More than 100 prospective students changed their minds to instead enroll in public schools, according to Clarkson estimates.

“The timing was really tough,” said Anthony Collins, president of the university, which is located near the Canadian border. The shift deprived the college of $47,950 in tuition and fees those students each would have paid in the 2017-18 school year. “For four years, it creates a financial strain.”

Collins isn’t alone in his concern as the rising cost of college becomes a 2020 campaign issue. U.S. Senators Bernie Sanders and Elizabeth Warren, two leading Democratic presidential candidates, have said they want to make public college free -- a major threat to the survival of some of the country’s 1,700 private, nonprofit institutions if $0-public tuition becomes the national solution to the $1.6 trillion student-debt crisis.

Competing With Free

In New York, private college administrators warned that the Excelsior Scholarship could put them at a competitive disadvantage in an already-tough environment. In the Northeast, the number of high-school graduates is projected to drop by 72,000 students between 2013 and 2030, according to a report by the Western Interstate Commission for Higher Education. There’s also a large number of private institutions -- more than 100 -- competing with each other for students, according to figures from a state lobbying group for them.

The Excelsior program allowed residents making as much as $125,000 per year to attend City University of New York and the State University of New York system schools for free. The state estimated there were about 940,000 families with college-aged children that met the income requirements, according to the New York State Higher Education Services Corporation.

When it launched in 2017, private colleges that primarily serve students living in New York saw an estimated 5% drop in enrollment, an “unusually sharp decline,” said Mary Beth Labate, president of the Commission on Independent Colleges and Universities in Albany.

“When you put that in terms of the impact on a college’s bottom line, that’s probably $120 million over four years,” Labate said. “It’s a difficult thing for colleges to accommodate.”

2020’s Free College Promises May Be Deadly to Private Schools

The impact of the New York program has since been muted, with enrollments recovering the following year, she said. College administrators say the restrictions to the program, such as the requirement to work in the state after graduation, has minimized the number of students they’ve lost. Clarkson has since met its enrollment targets, according to Collins.

But some administrators see concerning parallels with New York’s program and those proposed by Democratic presidential candidates.

“If they would tether aid to the student, and allow the student and the student’s family to choose where to go, they would come a long way to accessibility,” said Gary Olson, president of Daemen College, a liberal arts college with more than 2,500 students in Amherst, New York. “They wouldn’t have half of their higher education system in the U.S. collapse.”

Private Schools Struggle

To help rein in the country’s $1.6 trillion in student loan debt, Warren said she wants to create “universal free public college” by taxing households with a net worth of $50 million or more. “We must ensure that we never have another student debt crisis again,” she said in her proposal. “We can do that by recognizing that a public college education is like a public K-12 education — a basic public good that should be available to everyone with free tuition and zero debt at graduation.”

Sanders says if elected he’ll seek to enact a law providing at least $48 billion per year to eliminate tuition and fees at public four-year colleges and community colleges by taxing stock, bonds and derivative trades. He’s proposed similar legislation in Congress, the College for All Act.

Such programs are unlikely to cause much harm to elite universities like Yale University, which is armed with a $29.4 billion endowment. But the finances of small, private colleges are more precarious as they tend to have few revenue sources besides tuition. The median enrollment at public universities rose 9% in the last five years at such universities rated by S&P Global Ratings, while enrollment was flat at private schools, according to the company. Some private schools have shuttered completely or struggled to stay open.

States Step Up

In an analysis of 15 states’ free college programs, the Education Trust found that most of them don’t provide support for four years of college, according to a 2018 report by the group that advocates for low-income and minority students. More states will likely enact such policies, regardless of who wins in 2020, as a way to encourage students to attend college, said Tiffany Jones, the organization’s director of higher education policy.

Campuses have stepped up affordability efforts too. The University of Texas at Austin, which has more than 51,000 students, on July 9 said it would cover tuition and fees for students whose families make as much as $65,000 per year. That’s an estimated 8,600 students per year. The University of Illinois at Urbana-Champaign this fall will cover tuition and fees for state residents whose families have an income of $61,000 or less.

That could pressure Indiana’s DePauw University: the liberal arts college recruits students from the neighboring state. The proposals for nationwide free public college also remain a threat, said Robert Andrews, vice president for enrollment management.

“Obviously, it puts institutions like DePauw and thousands of other private schools in a dangerous situation for our long-term viability,” he said.

Return on Investment

Private college leaders argue that lower- and middle-income students rarely pay the listed price of attendance. Tuition discounting, or the amount of tuition revenue offset by institutions’ grants and forms of aid, reached a record level in the 2018-19 year, according to a study of more than 400 private colleges by the National Association of College and University Business Officers. And private, not-for-profit institutions offer other advantages, such as smaller class sizes. They have a higher six-year graduation rate than public universities, according to the National Center for Education Statistics.

The debate over free college nationwide may be a wake-up call for private colleges, leading to affordability efforts or new programs. That’s what happened in New York: Siena College, a liberal arts college in Loudonville, started a program this year that guarantees $52,000 in scholarship money to both in-state and out-of-state students. If students don’t graduate in four years, Siena will pay the rest.

Even when private schools offer aid, it’s hard to compete with free. Noah McMullin, a student at the State University of New York at Fredonia, said the free tuition program helps him focus more on his classes. McMullin, who is working on his bachelor of fine arts in acting, turned down a private college offer that included some aid.

“I don’t see any reality in which it’s fair to charge $60,000 a year to go to school,” he said. “It’s crazy to me.”

To contact the reporter on this story: Amanda Albright in New York at aalbright4@bloomberg.net

To contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, Michael B. Marois

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