West Virginia University – that state’s largest public “flagship” university – recently announced that they’re cutting several academic programs due to a multi-million-dollar operating deficit.
This announcement sent shockwaves through the college planning industry. Some applaud their efforts to reduce the budget, which ideally will lower the price tag for families, while others see it as a sad tale of executive mismanagement leaving students in the lurch.
What should you take away from the situation?
As a former Dean, I see this as a cautionary tale of what could happen at your student’s school, and I expect similar announcements in the next few years at other universities.
We industry insiders have known for a long time that colleges have been overspending, by a lot. The last 30 years have seen incredible growth in fancy campus buildings and student amenities, an arms race to attract students and raise prestige.
Sadly for consumers, universities often borrow for this growth and then pay off their loans by raising tuition and fees and recruiting more students (Note the old joke in higher education: B.S. doesn’t mean Bachelor of Science, it means Butts in Seats).
In other words, you, the consumer, are paying for all this fancy stuff. That’s a big reason why college is so expensive now. The costs of those lazy rivers, apartment-style “dorms,” and sushi stations in the cafeteria (which they will most certainly highlight on your campus visits!) are hidden in your fees. College has become a 4-year resort-style stay, and the price reflects that.
My own son is a sophomore at a large public regional university and their “dorms” are nicer than my first 4 apartments, even one I lived in after I was married! And because I teach classes on that campus, I often eat in the cafeteria, and their food options are better than a buffet on an all-inclusive cruise.
Of course, as a college financial planner, I know that while these amenities are nice for my son, they aren’t free. I’m paying for them.
It’s a basic rule of finance that when you take out a loan, you borrow money from the future to pay for something today. As such, you are betting that future income will be sufficient to pay off those past debts AND your future costs.
But, if your future income is not sufficient to cover BOTH future needs AND past debts, then financial problems ensue.
That’s what WVU is experiencing now. They bet the farm that big new fancy buildings would bring in future students, and higher fees. But it didn’t, at least in sufficient numbers, and so now they can’t pay their bills.
Do You Really “Get What You Pay For” With College?
When you send your kids to college, you are investing in their future. So, you should treat it like any other investment.
As loving parents, you’re willing to pay now in hopes that they will get a return on that investment in the future by having a good job.
But, if you overspend and borrow to pay the costly bill, then you are putting yourself and/or your student at risk of having serious financial problems in the future. Again, future income must be sufficient to cover future costs (and inflation is real) AND past debts.
When we run return-on-investment (ROI) calculations on the projected outcomes versus the cost of attendance during a COLLEGE PRE-APPROVAL SESSION, parents are often shocked at how the rule “you get what you pay for” does not always hold for college.
The salaries of graduates of high-priced schools are not always that much better off than those for more affordable schools, so the return on investment isn’t there.
Here’s a thought experiment as an example:
University A costs $200,000 for 4 years (after merit/aid). The Year 1, Year 5, and Year 10 salaries are $60,000, $75,000, and $90,000.
University B costs $100,000 for 4 years (after merit/aid). The Year 1, Year 5, and Year 10 salaries are $55,000, $70,000, and $85,000.
Is paying an extra $100,00 worth it if the salary isn’t much better?
Will They Cut My Major?
Second, though it’s hard to predict, be cautious about sending your kids to schools in financial trouble. It‘s often hard to find data on a university’s financial health, but it is possible to estimate. A good college financial consultant can “read the tea leaves” from specific insider data points like enrollment and retention trends, endowment balance fluctuations, and tuition discounting rates.
While it’s often rare for a university to close altogether, there may be a sizable risk that it will eliminate specific majors if a school struggles financially.
When I served as a Dean, I had to make this calculation every year. Which majors/Departments have too many professors and too few students? If a program has shrinking enrollments, at some point, it can get too lopsided and become unsustainable (especially if the overall university budget is in trouble). Imagine a department with 20 professors but only 20 majors. That’s a costly 1:1 teacher-student ratio, which is an unwise (and unfair) drain on more “productive” areas of the college where the ratio might be 1 teacher to 40 students (as I have seen).
On the other hand, if your student is in a major that is in demand and growing, then university leaders will often flood that program with more resources, which could benefit your student. There is a maxim in higher education management about this: budgets follow students.
As a Dean, I always tried to figure out which majors to support with additional resources, often by re-allocating funds from stagnant, under-performing majors to growing majors.
This is not to say that your student shouldn’t major in something like Literature. I am only saying that if Literature or Philosophy or Art History is their true love and passion, look for schools that are in stable financial condition and therefore unlikely to cut those programs, so your student is not at risk of losing their major. Selecting a major is a pivotal decision in a student’s academic journey, shaping their career path and future opportunities. A crucial aspect of this decision-making process is investigating whether a chosen major is at risk of being eliminated.
Yes, I realize that all of this can make it challenging to find the right schools. You’re forced to thread the needle, looking for “unicorn” schools that are financially healthy and yet affordable so you don’t put your future at risk.
Of the many ways we help parents as a thinking partner in their college planning journey, this is one of my favorite parts. I love helping families strategize and search the 3000+ schools in this country to find 6-8 “unicorns” that are both tremendous academic and financial fits for your family.
If you’re worried about this, I am happy to help!
