System leadership backs away from needed price discounting
With the approval of the Pennsylvania State System of Higher Education (PASSHE) merger proposal on Wednesday, six of the system’s universities will consolidate into two (Bloomsburg, Lock Haven and Mansfield in the northeastern part of the state will emphasize stackable credentials; California, Clarion and Edinboro in the west will focus on online learning). Press reports have emphasized internal issues, including stakeholder resistance to the reorganization. In our view, the fundamental problem PASSHE faces is declining student interest and the system’s inability to maintain price and cost discipline. The system executives have faced a daunting and complex task in pushing through the reorganization, so it appears they put off the needed price cutting as impossible, at least for now. An informative Higher Ed Dive piece states:
“The mergers attempt to reduce the cost of attendance [COA] by 25%. The system has said this wouldn’t necessarily be achieved by lowering tuition, but rather as a product of consolidation, such as expanding programming that would shorten how long it takes to earn a degree.”
This is very significant and may in the end further harming PASSHE’s precarious market position. Let’s unpack what it means and provide context, starting with the dictum that management statements are most important because of the problems they reveal, not because of the solutions they propose. The statement reveals that:
- PASSHE is overpriced and the administration knows it. Charts later in this post display this fact. In fact, the administration had targeted a 25% reduction in the COA earlier in the restructuring process, per press reports, and have now apparently backed away from it.
- PASSHE students can’t finish their degrees on time because the classes don’t have enough capacity.
Given the cost cutting, how will classes be added to allow more students to take the courses they need to graduate? In a budgetary environment like PASSHE’s, instructional capacity often declines and students find themselves forced to pay for extra semesters and delay graduating simply due to the fact that classes fill up. (If any readers know first-hand anecdotes about such issues at PASSHE, comments are open.)
- At this point, any prospective undergrads need to think long and hard as to why they should choose a PASSHE school rather than a competing institution, such as one of the Penn State and University of Pittsburgh campuses.
- The system faces declining enrollment and student interest and is responding by budget cuts which will decrease the quality of their academics and campus life, including athletic programs.
This looks like just another step in a continuing decline rather than the beginning of a resurgence. Inside Higher Ed quotes Dana Morrison, a professor at West Chester University, who makes a similar point: “These consolidation plans are really a temporary Band-Aid for a boat that is drowning in financial instability.”
Putting the situation in context
Five charts provide context for PASSHE’s difficulties.
Enrollment is declining every year.
PASSHE Undergraduate enrollement (FTEs)
PASSHE has increased prices far more rapidly than US colleges overall and more than Pennsylvania public colleges as a whole.
Index set at 100 at 2009 levels; 2019/20 data excluded because it is incomplete
This chart and others rely on the Average Net Cost metric.
Although public discussion has centered on COA, the formal mechanism for pricing, financial aid awards show the PASSHE schools in fact began price cutting during the 2019 cycle, with almost all campuses increasing their financial aid budgets. That helps — but the net cost is still too high.
PASSHE system admissions and yield rates continue to deteriorate.
The reorganization messaging has stressed the emphasis on online education among the newly-merged western schools and stackable credentials in the northeastern cluster. It will be worth tracking these efforts over time, but obviously these are already crowded markets where schools compete nationally for students, with for-profit schools wielding far larger marketing budgets than even stable public systems.
We sympathize with PASSHE stakeholders. Students, faculty and administrators face a system with too high costs, an undifferentiated product, stagnant state high school classes and stiff in- and out-of-state competition. Like a Gordian knot, it remains unclear if there’s a workable escape route.
Read this post and others at our CTAS Higher Ed Business blog on Substack.