|[August 27, 2013]
Fitch: Obama Higher Ed Plan Joins Performance Based Funding Push
NEW YORK --(Business Wire)--
Discussions at many U.S. colleges appear to dovetail with President
Obama's recently outlined plan to institute a rating system to measure
metrics such as graduation rates and affordability, Fitch Ratings says,
although the president's plan appears far more comprehensive.
Managing the type of data in the president's plan is a significant
undertaking and may meet with political challenges. However, many public
and non-profit private U.S. colleges and universities have already
started discussing various methodologies to improve student outcomes.
This is especially true for public universities as some states may begin
to tie the level of support to stated metrics.
In an attempt to manage the overall cost of education, some institutions
are planning or have implemented accelerated programs in which students
can achieve a bachelor's degree in three years. In addition, according
to the Chronicle of Higher Education, many public university systems
improved their graduation rates recently. Colleges in California,
Washington, Iowa, Virginia, Delaware, New Jersey and New Hampshire
increased their six year graduation rates by 8-16% in 2010 alone.
Other steps are also being taken to manage costs. While Fitch does not
expect tuition costs to decline, the level of increase appears to be
moderating at both public and private institutions. In the academic year
starting Fall 2012, average annual tuition increased 4.8% for in-state
students at public four-year colleges and universities and 4.2% at
private, non-profit four-year institutions, according to "Trends in
College Pricing 2012" by The College Board.
Fitch monitors tuition discounting as institutions attempt to attract
studentsby decreasing their tuition costs while managing the bottom
line. This review of the discount rate is critical in our analysis of
private institutions as tuition and fee revenue is typically the largest
component of operating revenues and may account for more than 75% of the
total. Increased discounting may impact small, private, liberal arts
institutions with less diverse revenue bases and higher dependence on
student-generated revenues to a greater degree than larger,
comprehensive universities with broader operating platforms.
It is too early to determine how the president's plan will be
implemented. However, it is expected that under the plan, the percentage
of students using Pell grants to pay their tuition would be analyzed,
along with the average tuition, scholarships and loan debt per pupil,
graduation rates and future earnings of students after graduation.
According to the plan, the goal in 2018 is to allocate federal financial
aid based on assigned ratings. Fitch will continue to monitor the plan
as it unfolds.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include
hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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