New York State's new free college tuition plan for lower-income and middle class families creates enrollment uncertainty in the northeast and alters long-term funding requirements for the State University of New York, according to Fitch Ratings.

The Excelsior Scholarship Program approved as part of New York’s fiscal 2018 state budget in early April will provide free tuition to in-state public colleges for families with annual incomes below $100,000 in the first year before gradually rising to a $125,000 threshold in three years. Recipients must 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 the funding.

The University at Albany is among the State University of New York schools that will now offer free tuition for eligible families under the state's new Excelsior Scholarship Program.
The University at Albany is among the State University of New York schools that will now offer free tuition for eligible families under the state's new Excelsior Scholarship Program. Bloomberg News

“This plan has the potential to shift demand from private institutions with higher tuition sticker prices to SUNY and the City University of New York,” said Fitch analyst Joanne Ferrigan in an April 26 report. “As smaller private universities are tuition dependent, their ability to prudently manage enrollment is a key credit factor.”

Ferrigan noted that the full impact of credit risks won’t be known until after three-year phase-in period for the Excelsior Scholarship ends. She said enrollment shifts may begin this fall and small private colleges in the northeast may start to see a negative impact.

“One consequence of this program may be higher enrollment pressures on small private colleges in the region,” said Ferrigan. “Many are already dealing with declining enrollment due to demographic trends.”

The number of New York State high school graduates is forecast to be just over 205,000 from the 2018-19 through 2022-23 academic years, according to the Western Interstate Commission for Higher Education. Ferrigan cautioned that the initial impact on the Excelsior Scholarship Program on small private colleges may not be felt right away since the admissions process for fall 2017 was already well underway. Room and board is also not covered by the program, which Ferrigan said may sway some low-income non-commuting students against choosing a SUNY institution.

“One indication of pressure on smaller private colleges could be a spike in tuition discounting and institutional aid to maintain competitive net pricing with SUNY,” said Ferrigan. “Higher than usual ‘summer melt’ among students registered to enter regional private colleges in fall 2017 could also be a leading indicator.”

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