John K. Hudzik, the current president of the Association of International Educators (NAFSA) in America is optimistic about the growth of the global higher education market despite the recession, citing predictions that global higher education demand for seats will double to 200 million by 2020. While both consumer confidence and disposable income have plunged, the middle class has expanded and private funding to support student mobility has grown rapidly in recent years, with 62 percent of international students in the United States now reporting that they are supported primarily by personal or family funds, according to Institute of International Education data.
Brighton College, a British private school, plans to set up a dozen satellites abroad beginning in 2011. It will start with two schools in Abu Dhabi, then expand to Oman, Jordan, Romania, Mauritius, Vietnam and India. The expansion of British schools abroad has been slowed by the recent credit crunch. Most follow the policy adopted by Brighton College of not putting their own capital into the projects and instead make money from lending their name to the school, helping to set it up and supervising its quality. However, it is likely that some schools’ partners have found it harder to raise funds because of the global credit squeeze. The Brighton College satellites will largely serve the children of the local and expatriate middle-class living in new residential developments created by Bloom Properties, the Abu Dhabi company that has chosen Brighton College as its “educational partner”.
Across America and Britain there is little sign of declining enrolments in private schools, although Catholic parochial schools and some in rural areas are feeling the impact of the recession. However, private schools in big cities with rich residents are doing rather well. In fact, an informal poll suggests that many will raise fees this fall by 2-4%. That is because schools are under little pressure to cut fees. In both America and Britain income inequality is high by rich-world standards, especially at the top end, so there are people who can easily pay for the elite schools, while middle class parents with children already at school do all they can to keep them there, even if it hurts financially. In addition, the private education market is difficult to enter, as parents choose schools with an established reputation for gaining entry into leading universities.
Shrinking Endowments Harvard University is suffering from possibly the worst financial crisis in its history. Its endowment shrunk 22 percent from July to October, 2008, donations are down and budgets are overstretched. From 2000 to 2008 Harvard added 6.2 million square feet of new space, with the total cost of new projects reaching $4.3 billion. Forbes magazine has noted that Harvard faced $11 billion in unfunded commitment to various private equity funds, real estate funds and hedge funds. In the fall of 2008, Harvard Management Company sold off a big share of its private equity portfolio at auction, which proved disastrous. It also lost $1 billion on interest-rate-swaps. The university increased its annual operating budget by 67 percent, from an inflation-adjusted $2.1 billion in 1998 to $3.5 billion in 2008, even as the number of students remained constant.
Some of America’s top universities are suffering as their endowment shrink. Yale, the second-richest school in the U.S., projects no endowment growth in the fiscal year that started July 1, 2009, while Harvard estimates its endowment lost 30 percent to $25.8 billion in the past year. Harvard sold $2.5 billion of its bonds in December 2008, in part to improve access to cash. Overall, U.S. endowments fell 24 percent in the last six months of 2008, according to Commonfund Institute in Wilton, Connecticut. The loss for the fiscal year ending June 30 probably will be the biggest in 35 years. Public universities are also suffering. Dartmouth College, which issued $415 million in bonds to finance construction and bolster cash reserves, was downgraded by both Standard & Poor’s and Moody’s Investors Service. CalTech, in Pasadena, was downgraded in June by Moody’s because of endowment losses and increased debt that is likely to total $469 million.
The struggling Memphis-based Evangelical Christian Crichton College has entered into a “strategic alliance” with investor Michael K. Clifford . With the US economy in decline, predictions of major troubles for small, underendowed and tuition-dependent colleges such as Crichton College continue. Crichton became overly dependent on fund raising to make its budget work. It also diverged from its emphasis on adult students by expanding its enrollment of undergraduates, while extensively discounting tuition rates. That decision expanded the college’s revenue gap and required Crichton to rely on funds from a small cadre of donors for up to a quarter of its annual $12 million budget. http://www.insidehighered.com/news/2009/02/05/crichton
Impact on Community Colleges
As the economic downturn hit hard last year, many community colleges in the US reported a significant increase in enrolment. According to a survey by the League for Innovation in the Community College and Campus Computing Project, community colleges are reporting increases in almost every type of program, particularly online courses. At the same time, most colleges are experiencing budget cuts and are reducing spending in every area except student aid. Support staff positions (academic, clerical and facilities) are most vulnerable to reduction. These cuts are taking place while public colleges are facing increased competition from the for-profit sector. For-profit higher education tends to be quite efficient at responding to students' information requests, processing forms, guiding people through programs and responding to inquiries.
Several universities have recently announced that they plan to admit fewer Ph.D. students for the fall of 2009 than were admitted a year ago. Universities including Emory, Columbia, Brown and New York University plan to reduce the number of new students at this level. Emory University plans a 40 percent cut in the number of new Ph.D. students in the fall of 2009 and Columbia University is planning a 10 percent cut. Brown University has called off a planned increase in Ph.D. enrollments. The reason for the cuts at the PhD level is due to the way students are funded. PhD students are usually supported by tuition waivers and stipends, while many students at the undergraduate level pay their own way or bring in federal or other aid, which brings funds to the university. Doctoral students at many universities receive full support from their universities. And universities are making large cuts in budgets.
Greensboro College in North Carolina has renegotiated its line of credit with Bank of America after the bank expressed concern over the colleges’ financial health. In recent years the college has acquired properties and expanded program offerings while relying on a bank-issued credit line for a significant portion of its operations. At the same time, the college overestimated its enrollment numbers, while underestimating its attrition rate and operational expenses. In addition, the value of its endowment declined. Cost cutting measures include the elimination of 10 full time positions and nearly all of its part-time faculty positions will be cut. Salaries will be reduced by 10 percent. The college has also offered to waive tuition for any student admitted into its honors program who agrees to live on campus. “
With a tentative state budget agreement that cuts almost $3 billion from colleges and universities, California State University (CSU) trustees have voted to raise student fees by 20 percent. Tuition will increase by $672, bringing annual tuition for an undergraduate to $4,827. As tuition was already increased by 10 percent in May 2008, the cost of attending CSU will increase by almost $1,000 for the fall of 2009 the previous year. CSU also plans to cut $584 million from its $4.6 billion budget by reducing enrollment, laying off employees and slashing course offerings. CSU employee unions are debating whether to accept unpaid furloughs amounting to a 10 percent pay cut, or allow additional layoffs.
A few public higher education leaders are using the financial downturn as a catalyst to permanently lower costs and increase the graduation rate the current rate of 55 percent. They are reducing waste, streamlining, and modernizing courses. An example an innovative academic is Robert Olin, dean of arts and sciences at the University of Alabama. He has redesigned entry-level math classes, with the new courses costing about two thirds of the traditional lecture class and students are receiving higher scores on standardized test at the end of the course. About 150 other schools, including the University of Massachusetts-Amherst, Arizona State, and the State University of New York system, are experimenting with similar redesigns of courses. However, some analysts say too many universities are reacting in ways that will undermine the institutions, by shutting classroom doors, raising tuition, crowding courses, canceling extracurricular activities, and hobbling research.
J.P. Morgan gives a neutral rating to ITT Educational Services Inc (ESI, ESI US). While the analysis finds education stocks to be showing healthy (albeit slow) growth, third party private loans remain largely unavailable, which meant ESI was forced to make or guarantee a higher percentage of internally funded loans. However, if the current higher education proposals for expanding the Pell Grant program are approved fewer such loans will be required.
Rating agency Moody’sreleased a Special Comment report on higher education called Global Recession and Universities: Funding Strains to Keep Up with Rising Demand . They find that universities, particularly public institutions, are proving to be appealing investments for government stimulus efforts due to the sector’s stabilizing, countercyclical nature in the short term as well as its potential to stimulate long term economic growth. Most universities demonstrate countercyclical ability to increase student enrollments during recessions, receive relatively strong support from sponsoring governments, and offer long term potential for increasing revenue diversity.
Experts have been predicting that for the next few years more for-profit universities will buy financially struggling nonprofit colleges and the nonprofit institution retains some identity and a campus, even as it add programs linked to the larger for-profit interest. Recently, Waldorf College, a liberal arts institution in Iowa was sold to Columbia Southern University, a for-profit, online university. Also, ITT Educational Services Inc. announced that it would buy Daniel Webster College,keep the college's name and program, but make investments to add and improve programs. And a plan to save the College of Santa Fe, a private college, proposes that local officials buy the campus and Laureate Education Inc. would manage the academic programs.
In tough times, for-profit school businesses such as Apollo Group, DeVry, ITT Educational Services and Strayer Education have traditionally fared well, as more workers look to enroll in classes to upgrade their skills. The sector also got a boost earlier in January on reports that Congress' economic stimulus package would increase federal student loan limits - the major source of tuition payments for students at for-profit schools, according to analysts. School stocks jumped on the news, with Apollo Group up almost 8%, and DeVry and Strayer up about 5% each. Apollo Group is the behemoth of the sector. The company is the parent of the University of Phoenix, which is the largest private university in the U.S. Earlier in January, Apollo reported fiscal first-quarter earnings climbed 29% and easily beat analysts' estimates. Revenue jumped 24%. Enrollment climbed 18%, boosted by a 25% surge in new students.
US President Obama’s higher education proposals could transform the financial aid landscape for millions of students while expanding federal authority. He is proposing to expand the Pell Grant program, making it an entitlement akin to Medicare and Social Security. The goal is to improve access to post-secondary education for lower-income students. The current recession has meant rising rates for defaults on loans and increases in student dropouts. Private schools face shrinking endowments, and public universities face state budget cuts. Obama also is seeking to overhaul federal Perkins loans, administered by schools to bridge gaps between other loans, grants and scholarships. The revamped Perkins program would provide $6 billion in loans a year, compared with the current level of $1 billion. Priority would be given to needier students and to reward schools that control costs. The private lending industry contends that private loans provide stronger default protections and better serve smaller schools, and some institutions have suggested that they may be content to play a more limited role. Democratic leaders said they hope to make them law by October.
New figures from the Australia Bureau of Statistics show robust international demand for the country’s education system. In fact education has become Australia’s third largest export industry. Education exports increased from $12.2bn in 2007 to $15.5bn in 2008 and have grown at an average of 15.7 percent over the last decade. The number of international students studying in Australia jumped 21 percent in 2008, the biggest increase since 2002. Moody’s investor Services show the creditworthiness of the Australian universities is strong and is less indebted that international counterparts, although endowments have taken a hit. Dr. Glenn Withers, CEO of Universities Australia (industry body representing the university sector) states that international student demand for places in Australia continues to be strong.
A report from Canada's Educational Policy Institute, On the Brink: How the recession of 2009 will affect post-secondary educationsuggests that Governments could assist universities to survive the recession by helping to pay for salary restructuring, not letting enrolment formulas constrain institutions from meeting shifting demand, allowing tuition to increase while protecting effective student aid programs, and funding brains not buildings. It warns that post-secondary education in Canada is "about to head back towards conditions last seen in the mid-1990s".
Despite the global economic downturn, recent graduates of the private Xi'an Fanyi University in China have a 90 percent employment record. Established 22 years ago as a translator teaching college, the university has expanded its curriculum but retains its well-known foreign languages department. With a student body of 40,000, it has total assets of more than 1 billion yuan and 700,000 sq m of teaching space. During a recent visit to the university, Abdul'ahat Abdurixit, Vice Chairman of the Chinese People's Political Consultative Conference (CPPCC), said other private universities, as well as central and local education authorities, should learn from the experience of Xi'an Fanyi University and work towards the development of China's private higher education resources.
The Minister of Education Zhou Ji, recently forecast that the number of applicants for higher education would fall by 0.5 million to ten million in 2009. An anonymous source from the Beijing Institute of Technology acknowledges that since the financial crisis of 2008, the grim employment situation has broken the 'employment myth' for those with a university degree. Approximately 12 per cent of 2008's graduates have yet to find a job, according to the Chinese Academy of Social Sciences, which is a figure that is set to increase as this year's 6.1 million university-leavers enter the labor market.
The global recession has affected all sectors of the Indian economy, except for the pharmaceutical industry. This leaves a wide choice for the pharmacy students. The Indian pharmaceutical industry is currently worth USD 8.4 billion and will increase to USD 60 billion by 2020. This growth would give fresh opportunity to about 5,000 pharmacy professionals. Career options within the industry include positions in regulatory and enforcement bodies, community pharmacy, teaching, hospital and clinical pharmacy and research and development sector.
According to the Health, Labor and Welfare Ministry, approximately 1,845 college and high school graduates had their job offers retracted because of the slowdown. The number of recruits, as a result, plunged for the first time in five years. Opportunities for young job seekers are rare, especially when Japan's exporters such as electronics and car manufacturers are suffering from record losses and production reductions. In February 2009, the nation's industrial production sank to its lowest level in 26 years, down 9.4 per cent compared with the previous month. While Sony already plans to slash the number of college graduates it recruits by 48 per cent for the next fiscal year, which begins April 1, 2010, Toyota announced it would halve its number.
Despite the recession and declining oil revenues, Saudi Arabia has increased spending on key services and sectors such as education and health care. On July 25, 2009, the Deputy Minister of Education, Faisal bin Moamer, announced that the Saudi Ministry of Education has signed a 2 billion riyal ($533 million) contract with the China Railway Construction Corporation (CRCC) to build 200 schools within 14 months. The schools will have a combined capacity of 150,000 students.
While recession-hit British families struggle to ensure their children can be privately educated, Russian business woman Dina Karpova is helping her rich Russian business contacts enter the British private education market. Increasingly, Russian children are enrolling in private schools such as Harrow, Westminster, Winchester, Shrewsbury and St Mary's Ascot, replacing school's foreign 'quota' usually filled mostly by children from China, South Korea and the Emirates. Karpova works to gain entry for very rich clients who are unfamiliar with the British application procedure and what the different schools offer. To assist her clients, she engaged Charles Bonas, who runs a London-based 'super-tutor' and mentoring agency to assist the many Russian candidates who require extra tutoring, especially in English and critical thinking.
Prof Nigel Thrift, Vice-Chancellor of Warwick University, has suggested new models to help UK universities face financial uncertainty and more overseas competition in future. These include the possibility of mergers among the top 30 research-intensive institutions. While there have been 27 mergers among UK institutions since 1997, the possibility of a foreign merger or takeover is a new idea. Several US institutions, including Huron University and the American International University in London, have set up in the UK and could provide some of the top 30 research-intensive universities with much needed extra funding and might also produce some interesting collaborations, particularly in science.