Free tuition program in New York raises flags for some private colleges

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Strong demand for New York State’s new free public college tuition program aimed at lower-income and middle class families could threaten to disrupt the private higher education landscape, according to analysts.

An August report from Municipal Market Analytics said that roughly 75,000 applications were received for the Empire State’s Excelsior Scholarship Program, more than three times the 23,000 anticipated and budgeted.

The Excelsior Scholarship program, approved as part of New York’s fiscal 2018 budget, provides free tuition to in-state public colleges for families with annual incomes below $100,000 in the first year, rising in phases up to a $125,000 cap for the 2019-20 school year. Participants are required to maintain a certain grade point average and remain in New York State post-graduation for a period of time that matches the time they received funding.

MMA managing director Lisa Washburn noted that competing with a “free” education may be too much to overcome for some less selective private colleges, resulting in potential closures and mergers.

The Commission on Independent Colleges & Universities in New York estimates a net transfer of around 50,000 students from private colleges to public institutions within the state as a result of Excelsior, according to the MMA report. Some private colleges already experiencing enrollment challenges have loosened admission standards and targeted more full-tuition international students, leaving little flexibility left to tackle headwinds from free public college tuition absent greater endowment spending, according to Washburn.

“Some colleges just can’t offer more discounting or loosen standards because they have done that already,” said Washburn. “There is not a lot of juice left.”

Former New York State Assemblyman Jerry Kremer said he hopes lawmakers will work on expanding the free tuition incentive to private colleges since many offer programs and services not available at state schools.

Kremer chairs New York's Council of Governing Boards, which represents trustees of the more than 100 private colleges in the state. He said the full impact from Excelsior will take some time to digest, but some smaller schools could face short-term risks from the enrollment dips. He noted that many students may at first be drawn to the program before changing course after learning about requirements such as staying in New York for four years after graduation.

“It’s a program that is appealing, but it is its early stages and it’s hard to know how it’s going to play out,” said Kremer, who has served on the board of trustees at Long Island’s Hofstra University for 26 years. “The devil will be in the details.”

Washburn emphasized that some New York private colleges are better positioned than others to replace would-be students lost to the Excelsior Program depending on demand from applications and student-yield.

An MMA analysis said Hamilton College in Clinton, for example, had a replacement pool of over 300% based on 4,086 excess applicants and a 35% yield, meaning it could fill its incoming class three times from a leftover pool of those lost to Excelsior. On the negative end, Iona University in New Rochelle would only have coverage to replace 10% of its enrolled class due to just 843 excess applicants and a 10% yield, according to MMA.

“The highly competitive schools that have very strong brand recognition will be best positioned,” said Washburn. ”Some universities have more flexibility.”

While fall enrollment numbers won’t be finalized until October, Fitch Ratings higher education analyst Emily Wadhwani said early indications show no credit impact from Excelsior since the majority of private colleges in the state have reported enrollment gains for the new semester.

Wadhwani emphasized that while Excelsior attracted big interest in year one, the amount of students eligible for the program as well as participants who may have otherwise attended private colleges will be integral aspects of determining the effect on some New York schools and private institutions in nearby states that draw heavily from the Empire State. She also noted that any dip in future ratings will be due to other factors that go way beyond any enrollment drop-off that may occur next year.

“My guess is that what [Excelsior] really did is deepen the pool of college-bound seniors rather than take away from students going to private colleges,” said Wadhwani. “We haven’t seen a dip in enrollment at private institutions yet.”

S&P Global Ratings posted a Sept. 7 report about Excelsior noting that the program is unlikely to significantly expand the number of college-goers in the state because it doesn’t address non-tuition expenses that often prevent the neediest students from attending school full-time. S&P credit analyst Jessica Matsumori said projections on any material credit impact to certain colleges are premature until it is determined whether enrollment shifts that occur in the first year are a one-time effect or prove to be a sustained long-term trend. She added that while Excelsior applications exceeded expectations, program restrictions may ultimately hold some students back from following through.

“There are so many stipulations with the program that is unclear how many will be eligible and how many will take part,” said Matsumori. “The jury is still out.”

Washburn said that if other states choose to adopt New York’s model the impact on private higher education institutions could be felt nationally and limit the pool of applicants interested in attending non-public colleges. Other states have offered free college tuition programs for public community colleges such as Rhode Island, Tennessee and Oregon.

“If the New York program becomes the model, smaller private schools in some states that serve a more regional population could see pressures as well,” said Washburn. “If a free college program comes into a state that has a large number of private colleges it could be very difficult for some of the smaller lower-tier schools.”

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