POSTSECONDARY EDUCATION: Financial Trends in Public and Private Nonprofit Institutions 29 th Annual SFARN Conference June 15, 2012 Page 1

Overview Introduction Research questions Scope and methodology Background Findings Page 2

Introduction Over the last decade, the number of students seeking postsecondary education at public or private nonprofit institutions increased by 31 percent. Close to 90 percent of student population is enrolled at these schools. Demand for a postsecondary education has grown as has the cost and families find college difficult to afford. In school year, $133 billion in federal student aid awarded. Despite continued investment in postsecondary education, graduation rates have not increased. Page 3

Research Questions To help ensure transparency and accountability in the public and private nonprofit postsecondary education sectors, GAO was asked to review schools in these sectors with respect to their: 1.Revenue trends; 2.Expenditure trends; 3.Student graduation rates; and 4.Disclosure of information to students on cost of attendance, graduation rates, and future employment. Focus on the first 3 questions. Page 4

Scope and Methodology To answer our objectives, we: Reviewed NCES and Education OIG reports and studies; Interviewed officials at NCES, FSA, OPE, the OIG and postsecondary education associations; Conducted site visits to a nonrepresentative sample of nine schools; Analyzed data from IPEDS from FY , NPSAS from school year, NSLDS for award years through 2009/2010, and BPS. We determined the data to be sufficiently reliable for the purposes of this report. We conducted our work from December 2010 to January 2012 in accordance with generally accepted government auditing standards. Page 5

Background Over 3,000 public and private nonprofit postsecondary schools in the U.S. Vary in mission, type and length of programs offered, highest degree awarded, governance, and funding. Page 6

Background In the school year, public and private nonprofit schools served a total of 18.4 million students. Public associates – 41 percent Public specialty – 1 percent Characteristics of students attending public and private nonprofit schools have changed over the past decade. Hispanic enrollment rose by 77 percent Page 7

Revenues From , Revenues from Tuition and Fees Increased Significantly Net tuition and fee revenues increased from 16 to 22 percent of total revenue at public schools and from 29 to 40 percent at private nonprofit schools. By the end of the period, growth in tuition and fee revenue outpaced that of all other types of revenues for both public and private nonprofit schools. Page 8 Sources of Revenue as Percentage of Total for Public SchoolsSources of Revenue as Percentage of Total for Private Nonprofit Schools

Generally, Revenues from Federal Student Financial Aid Has Steadily Increased Taking into account student enrollments, revenues from Pell Grant aid increased at both public and private nonprofit schools, by 42 and 24 percent respectively. Revenues from other federal grants to students, such as SEOG, increased by 25 percent at public schools but decreased by 20 percent for private nonprofit schools. Revenues from all federal loans increased at both public and private nonprofit schools by 134 and 138 percent, respectively. At the schools visited, the need for student aid has risen, especially in light of increases in tuition and the impacts of the continued weak economy on student and family financial resources. Page 9

Most Types of Schools Saw Decreases in State and Local Appropriations and Other Revenues State and local appropriations per student at public schools decreased from 34 to 28 percent between 1999 and Although private nonprofit schools received less than 1 percent of total revenues from this source, most of these schools saw per student decreases. Both public and private nonprofit schools saw per student decreases in other sources of revenue, such as private gifts and income from endowments. Page 10

Schools we Visited Increasingly Relied on Tuition Revenue Four schools visited shifted reliance toward a greater proportion of revenues coming from tuition and fees, in part, because of declines in state appropriations and other revenues. One public associate’s degree school -- two tuition hikes over the past 10 years as a result of less state and federal revenue. Two private nonprofit research schools -- endowment values since 2008 drop, by 22 and 32 percent. One of the schools raised tuition by 3.6 percent due to increases in maintenance, utility, and food service costs and expressed concerns about the sustainability of further tuition increases and its impact on students and families. Page 11

Some Schools Pursue Additional Revenue by Admitting Students who Pay More and Increasing Research and Fund- Raising Two public schools, including a community college, actively pursue out-of-state and, in a few cases, international students to keep enrollment high and boost tuition revenues. Three schools seek to increase research productivity by securing federal, state and local grants and contracts. In the face of declining state funds, one public research school hoped to double its revenue from $80 to $160 million in federal research grants over the next 10 years. A similar type of school hoped to double its research revenues, in part, through federal contracts for STEM funding. Many public schools visited placing greater emphasis on bolstering endowments, private gifts, and fundraising. One public school -- declines in state resources over the past 20 years led to increasing fundraising to raise $90 to $100 million from alumni and other supporters over the next 5-6 years. Page 12

From , Spending on Instructional Activities Varied by Public School Type and Declined at Most Private Nonprofit Schools Page 13 Instructional Spending per Student at Public Schools From , about 30 percent of total expenditures in both sectors was devoted to instruction. Taking enrollment into account, instructional spending per student at public schools increased the most at research schools (12 percent), while those institutions saw the largest decline in the private nonprofit sector (14 percent). Instructional Spending per Student at Private Nonprofit Schools Note: Due to differences in accounting standards, expenditures at public and private nonprofit institutions cannot be directly compared. See GAO for more information.

Page 14 Faculty salaries, which make up 70 percent of instructional costs, increased at all school types. Schools cited contractually obligated raises and competition. Faculty benefits were a significant cost driver at schools we visited. Nationally, average fringe benefits increased between 8-11 percent and average medical/dental benefits increased between percent. Schools increasingly hired non-tenured track and part-time faculty. Schools we visited addressed budget constraints by reducing tenure system faculty; however, some schools cited negative consequences on academic environment. Faculty Costs Increased for both Public and Private Nonprofit Schools, and Schools Shifted to Hiring more Part-Time Staff

Page 15 Noninstructional Spending Increased, Particularly for Research and Student Services Activities RESEARCH At public schools: per student research spending increased the most, by 24 percent, at master’s and baccalaureate schools. Among private nonprofit schools: per student research spending increased by more than 40 percent at master’s, baccalaureate, and associate’s schools. Officials cited administrative and facilities investments associated with seeking additional federal research grants and contracts. STUDENT SERVICES Increased at most school types, with public research schools experiencing the largest increase – 24 percent. Officials at one private nonprofit research school we visited increased spending in response to feedback from students for more academic advising and arts activities. Another private nonprofit research school attributed spending increases to competition among schools to meet student and parent expectations for high-quality amenities and housing.

Page 16 Schools We Visited Curbed Spending in Specific Areas in Light of Revenue Constraints and to Improve Efficiency Administrative Efficiencies One public school re-aligned staff and support services for a projected annual savings of $75 million. Personnel Savings Five of the six public schools eliminated or left some noninstructional positions vacant. Five schools did not fill faculty vacancies or add positions, despite enrollment increases. Construction delays and targeted upgrades Schools delayed new capital projects and deferred maintenance backlogs totaled $92 million to $1.8 billion per school. Cutting Classes and Services One public associates school did not offer summer classes and planned to cut 800 class sections in 2011.

PRELIMINARY Page 17 By , about 50 percent of Students Graduated within 6 years, but Rates Varied by Type of School

Page 18 Rates varied by Gender and Race Women graduated at rates 4 to 8 percentage points higher than men. Black and Hispanic student graduation rates lagged behind those for white and Asian/Pacific Islander students. Public and Private Nonprofit Graduation Rates (Percentage) After 6 Years by Race/Ethnicity

Page 19 Rates varied by Income and Transfer Status Financially independent students graduated at lower rates than dependent students. For example, at 4-year schools: 31 percent of independent students graduated compared to 70 percent of dependent students. Pell Grant recipients at 4-year schools graduated at lower rates than nonrecipients—59 percent compared with 71 percent, respectively. 1 Transfer students at 2-year schools graduated a higher rates while the inverse was true at 4-year schools. 1 Graduation rates among Pell Grant recipients and non-recipients at 2 year schools was not statistically significant.

Education’s Annual Graduation Measure Omits Many Nontraditional Students, and Alternatives Are Under Consideration IPEDS does not account for many non-traditional students such as part-time, some transfers, and students who do not enter in the fall term. Rates vary considerably depending on the school’s mission. Many experts and school officials said the measure was more appropriate for 4-year schools. In response, several efforts are underway: Committee on Measures of Student Success Voluntary Framework of Accountability (VFA) Voluntary System of Accountability (VSA) Institutional Measures Page 20

GAO Report and Contacts Postsecondary Education: Financial Trends in Public and Private Nonprofit Institutions, GAO , January Contacts: Claudine Pauselli, , Rachel Beers, , Page 21