New Mexico weighs free tuition as economic tool

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New Mexico's governor wants to use free in-state tuition to halt a decline in higher education enrollment.

“We have the power to make tuition-free higher education a reality, benefiting an astounding 55,000 New Mexico students this fall,” New Mexico Gov. Michelle Lujan Grisham told lawmakers in her State of the State address on Jan. 21. “Students want it; parents want it; let’s give them the opportunity.”

Under Lujan Grisham’s $35 million plan, 100% of tuition would be covered for in-state residents with a high-school diploma or equivalent. The so-called “Opportunity Scholarship” would piggybacks on the existing Lottery Scholarship, which covers about 65% of tuition and fees.

Lujan Grisham pitched the free-tuition plan as ongoing support for an economy that has relied on oil and gas.

“When we move aggressively to increase wages, invest in our public education system and think outside the box about what our state economy and workforce can be, jobs and careers will follow,” she said. “These students will stay and work here. We are transforming New Mexico into a place workers and growing businesses want to be.”

Amid skeptical reactions from some members of Lujan Grisham’s Democratic Party along with Republican lawmakers, the Legislative Finance Committee has a different formula that would also cost $35 million. The legislative proposal would increase funding for the Legislative Lottery Scholarship by $9.7 million.

Those who challenge Lujan Grisham’s plan say it favors the higher-cost, four-year institutions over smaller colleges and community colleges. They also say it would leave federal grant money unused.

The governor’s plan would likely cost $49 million instead of the $35 million she has proposed, according to Mark Valenzuela, an analyst with the Legislative Finance Committee.

The debate over free tuition comes as officials at the state’s universities seek to maintain enrollment during a national downturn.

The head count at the state’s public colleges and universities has fallen by more than 14% over the past five years, according to the New Mexico Higher Education Department.

Enrollment in U.S. colleges and universities fell 1.3% last fall to 17.9 million students, the first time enrollment dropped below 18 million in 10 years.

In a Jan. 16 report, Moody’s Investors Service noted that student loan debt of $1.5 trillion has risen to the second largest outstanding liability for U.S. households after home mortgages and that repayments have slowed.

“Education institutions have faced revenue pressures in recent years as enrollment eased and a focus on affordability limited tuition increases, contributing to downgrades that have surpassed the number of upgrades since the recession,” analysts led by Jody Shenn reported. “Public colleges and universities have been particularly susceptible to the impact of debt affordability initiatives, as many state legislatures have put pressure on colleges to limit tuition increases for in-state undergraduates.”

At a meeting of the New Mexico State University Regents in Carlsbad on Jan. 16, Chancellor Dan Arvizu reported that enrollment rose slightly in 2019 after falling since 2010.

Moody’s analyst Mary Kay Cooney cited NMSU’s efforts to maintain enrollment in affirming its A1 rating on Oct. 10.

“The university has implemented multiple avenues for recruitment enhancement, as well as monitoring and advancing student success, leading to a near stabilization of enrollment for fall 2019,” Cooney wrote. “While, the total fall 2019 fulltime enrollment count was down 7.2% from fall 2015, the fall 2018 to fall 2019 decline was a more modest 0.8% compared to 2.2% each of the prior three years.”

With its main campus in Las Cruces near El Paso, Texas, NMSU also has community colleges in Alamogordo, Carlsbad, Dona Ana, and Grants Pass.

Nearly 80% of NMSU's 18,726 full-time equivalent students in the fall 2019 semester were New Mexico residents, “a challenge given flat high school graduation rates, tuition sensitivity and natural fluctuation of community college enrollments depending on the strength of the local economy,” Cooney said.

With operating revenues of about $464 million, NMSU has $155 million of outstanding debt, according to Moody’s.

The University of New Mexico, based in Albuquerque, has lost more than 20% of its enrollment since 2012, according to UNM’s Office of Institutional Analytics.

On Oct. 25, S&P Global Ratings dropped its rating on UNM’s $406 million of revenue bonds to AA-minus from AA. That rating had been on negative outlook since 2018.

"The downgrade reflects the continued trend of enrollment declines, with fall 2018 seeing the biggest drop in full-time-equivalents of the past five years, and management's expectation of another full-time-equivalent enrollment decrease for fall 2019," said S&P Global Ratings credit analyst Phillip Pena.

Moody’s Investors Service downgraded UNM’s $406 million of revenue bonds to Aa3 from Aa2 on Nov. 14, 2018, nearly five months after the state’s rating took a one-notch downgrade to Aa2.

“UNM faces limited prospects to significantly improve modest operating performance and low reserves across both the academic and health care enterprises,” Cooney reported in a Dec. 6 update. “Growth in state operating support from the State of New Mexico will be muted due to spending pressures from rising Medicaid needs, an economy that lags national averages and high reliance on volatile oil and gas revenue.”

Enrollment growth will continue to be a challenge for UNM because of affordability concerns amid a slow growth economy and declining high school students demographics, Moody’s said.

Full-time equivalent enrollment fell to 18,833 for the fall 2019, down nearly 20% from the most recent high of 23,617 FTE in fall 2013.

“Freshman enrollment targets fell short for fall 2019, at 2,594 compared to a target of 2,850 and decreases in student counts occurred across most of the institution,” Cooney said. “New enrollment leadership is working to improve both outreach and financial aid packaging to prospective students, aiming for an ambitious increase in first time students to 3,200 for fall 2020.”

According to UNM’s 2019 enrollment report, 18,671 of the 22,792 students who attended UNM during the fall 2019 semester came from New Mexico. California provided 561 students while 404 came from Texas, 266 from Colorado and 221 from Arizona.

Moody’s cited Lujan Grisham’s tuition plan as favorable to UNM’s prospects, especially after a bounteous year for oil and gas revenue.

However, demographic pressures stemming from a declining number of high school graduates and below average wealth levels remain, analysts cautioned.

With about $500 million of general obligation bonds outstanding, New Mexico carries ratings of Aa2 from Moody’s Investors Service, and AA from S&P Global Ratings. Outlooks are stable.

With a population of 2.1 million people and an economy of $94.2 billion, New Mexico ranks as the nation’s second-poorest state behind Mississippi with a 19.5% poverty rate, according to U.S. Census Bureau data.

Now in her second year after succeeding term-limited Republican Gov. Susana Martinez, Lujan Grisham criticized her predecessor’s policies and said New Mexico must retain the people it educates rather than lose them to Texas, Colorado or Arizona.

“We are rapidly climbing out of the lost decade of job growth, the stagnation and forced austerity of the last administration,” Lujan Grisham said. “Because we all want an economy that is stronger than one industry — no matter how strong that industry is today. We’ve got to create more opportunity in rural communities, on main streets all through our state.”

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