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What's Behind the Cost Pressures in Higher Ed

Declining state aid, poor endowment returns and high levels of institutional debt are among the factors putting the cost squeeze on college administrators.

It's no secret that college tuition prices have been rising faster than inflation (and faster than even Healthcare costs) in recent years. Campus dining directors are more than just aware of such trends—they are often called upon to increase their contributions back to universities in order to help pay the bills.

Declining state aid to higher education, especially since the economic downturn, is a major factor. So has been the dismal returns most schools have had on their endowments recently, (even Harvard posted an endowment  decline last year).

Yet another is the fairly heft spending binge many not-for-profit schools have been on in recent years, often financed with large amounts of long-term debt. Critics argue the cost of this debt and associated debt service  ends up in higher tuition, room and board costs. Some have even called for an end to higher education’s tax-free status

Also, even though college enrollments continue to increase, much of that demand is ocurring at the two year college level, with some warning that demand for four-year college degrees is weakening. Such issues were among the reasons bond-rating agency Moody's in January revised its outlook for the college sector, downgrading its ratings because of concerns about dimished revenue prospects. 

Meanwhile, the General Accountabillity Office (GAO) says colleges have significantly increased their reliance on tuition revenues over the last decade as state appropriations and other sources of revenue have declined (read the report here.) Between 1999-2009, the portion of revenues attributed to net tuition and fees increased from 16 to 22 percent of total revenue at public colleges and from 29 to 40 percent at private nonprofit schools. 

Stagnant family income has also made it harder for parents to afford the cost of education. Studies like a recent one from the Pew Research Center (read the report here), which shows a record one in five households now owes student loan debt, suggest this will have significant long-term economic implications, especially for the least affluent households. Others point to the implications such student loan debt will have on graduates' lives after college.

The upshot? This perfect storm of forces has come at a time when government, parents and students themselves are demanding that colleges rein in cost increases and provide more value for the money that is being spent. Internally, the trickle-down effect of this affects every department, academic, auxiliary and otherwise. 

Foodservice directors will do well to stay in tune with the inevitable efforts that will come as college administrators seek to swing the pendulum back. Look for some of the same cost-cutting, efficiency improvement and multi-department management initiatives that have been implemented in healthcare over the last two decades

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