DALLAS – Amid growing competition for higher-paying out-of-state students, public universities in the Southwest face financial pressure from what may be a shrinking pool of international students.

Universities in Texas and Kansas are among those reporting declines in applications from foreign students following President Trump’s “travel ban” on visitors from six predominantly Muslim countries and a proposed policy from the Department of Homeland Security that would require annual renewal of student visas.

A survey by the American Association of Collegiate Registrars and Admissions Officers found that nearly 40% of the more than 250 schools surveyed had seen a drop in international applications for the coming school year.

“Since these students pay what we consider full freight – 5% to 10% of students might be international students – the dropping numbers can be significant in terms of economic impact,” S&P Global Ratings analyst Ken Rodgers told The Bond Buyer.

In June, the U.S. Supreme Court partially reinstated the ban on travel from the six Muslim countries, though it made modifications interpreted as allowing students registered for classes at U.S. universities to enter the country.

“Out of an abundance of caution, however, it is important to remember that the interpretation and application of this ruling is untested,” University of Kansas associate vice provost for international studies Charles Bankhart told students in a letter. “It remains to be seen how U.S. embassies and ports of entry will interpret and apply this rule.”

While international students make up about 5% of post-secondary students nationwide, they contributed $32 billion to the U.S. economy and supported more than 400,000 jobs just in the last academic year alone, according to the Association of American Universities and other higher-education associations, which banded together to oppose the proposed visa policy.

“If an applicant can only be guaranteed duration of status for one year at a time, this will greatly hamper their ability to complete their course of study or transfer programs,” the letter said. “When faced with up to a 400% increase in fees, redundant forms, and restrictive validity periods, an applicant will likely opt to pursue their studies elsewhere.”

The international enrollments topped 1 million for the first time in 2016, according to the most recent reports. According to a June report by the U.S. Department of Immigration and Customs Enforcement, more than 1.18 million international students were studying in the U.S. in May of this year.

California with 200,809 students, New York with 133,926, and Texas with 86,200 host the largest number of international students, according to ICE.

Over the past decade, the number of international students studying in the U.S. has grown 73%, according to Moody’s Investors Service analyst Pranav Sharma.

“Aggregate international enrollment as a proportion of total U.S. higher education enrollment remains low at about 5%, although some universities have a much heavier reliance on international students for their revenue,” Sharma said. “We estimate that 8%-10% of total net tuition revenue in the U.S. is derived from international students.”

“In a climate where domestic students are extremely price sensitive and tuition increases have become a political hot topic, growth in international students provides a financial buffer against constrained tuition revenue growth,” he added. “However, policy shifts can quickly change the landscape for international student demand, making this a potentially volatile revenue stream.”

In Texas, international applications to four-year public universities have fallen 12.5% from last fall, according to a Houston Chronicle review of university data. The drop reverses a 30% increase in applications from 2013 to 2016. That represents more than 10,000 students. At the University of Houston in one of the nation’s most cosmopolitan cities, foreign applications dropped by 27%.

Among reasons cited by some foreign students for avoiding Texas was the new “campus carry” policy that allows students to bring guns to their classrooms.

In Kansas, students 21 and over have been allowed to bring guns to campus starting July 1. The threat of violence after the fatal shooting of an engineer from India and wounding of another in an Olathe, Kan., bar in February was widely reported in India as a hate crime. India and China account for about 47% of foreign students in the U.S.

At Pittsburg State University in Pittsburg, Kan., president Steve Scott announced in a letter on July 14 that declining enrollment, particularly among international students, would force the university to cut its budget by about 5%, eliminating 35 positions.

“Like many universities throughout the nation, we’ve experienced a recent decline in enrollment, particularly with our international students,” said Scott. “This trend, and the corresponding drop in revenue, leaves us facing a budget gap of nearly $4 million.”

With about $62 million of debt PSU is rated A-minus by S&P, which warned in 2016 of a possible downgrade if enrollment fell.

In February, a Kansas State University graduate physics student from Iran was not allowed to return to the U.S. because of Trump’s travel ban. The student Farzaneh Ziaee was in Germany conducting research when her visa was suspended, forcing her to abandon her studies at KSU, according to news reports.

In response to reports of declining enrollment, the Colorado Commission on Higher Education issued a statement in March seeking to reaffirm its commitment to diversity. Colorado had more than 11,300 international students in 2016, accounting for an estimated economic impact to the state of $375 million.

At the University of New Mexico, international graduate school applications are 16% lower than at the same point last year, according to UNM’s Global Education Office.

Acting President Chaouki Abdallah told the board of regents last week that applications from India, Iran and Mexico represented the largest declines.

International students represent 4.7%, of UNM’s fall semester enrollment of 27,060 students, but the graduate programs have seen strong growth in recent years, Abdallah said.

The potential loss of international students comes as public universities in the Southwest increasingly rely on tuition increases to offset loss of state funding.

Since 2008, state spending on higher education nationwide is down an average of $1,598 per student, or 18%, according to the Center on Budget and Public Policy Priorities. In only four states ― Montana, North Dakota, Wisconsin, and Wyoming ― is per-student funding now above its 2008 pre-recession levels. In 26 states funding per student has been cut by more than 20%. Nine states have cut funding per student by more than 30%. Arizona and Illinois have cut funding by more than half.

In 1988, public colleges and universities received 3.2 times as much revenue from state and local governments as they did from students, the CBPP report noted. They now receive about 1.2 times as much from states and localities as from students.

To make up for the lost funding, Arizona has raised tuition by more than 87% since 2008, the greatest increase in the nation, according to the report. Over the same time, Arizona eliminated 320 positions at state universities.

State appropriations for higher education reached a record inflation-adjusted high of $86.6 billion in 2009, according to University of Colorado Law professor Paul Campos. Funding declined as a consequence of the Great Recession, but has since rebounded to $81 billion, he said.

Some states are suffering more than others. While enrollment is growing at most state flagship universities, fall enrollment at the University of New Mexico is down 0.6%.

“If enrollment starts to decline, you get faculty members who start to get worried,” said S&P’s Rodgers. “The chief financial officers are trying to hold the line on expenses. Within the university, it becomes an issue.”

Thus, states compete fiercely for out-of-state students, some of whom pay higher tuition. To draw more, the universities offer in-state tuition or scholarships to high-performing students from other states.

The most often-cited example is the University of Alabama, which has more than 30 academic recruiters scattered across the nation. The flagship university, whose in-state students once made up 73% of enrollment, now has about 38% in-state enrollment, according to U.S. News and World Report.

“While the colleges began competing for affluent out-of-state students to make up for state budget cuts and to climb up the rankings, the competition itself is making it difficult for schools to avoid doing it,” according to Stephen Burd, senior policy analyst at the New America policy think tank. “Public regional schools that have for decades served five or 10 counties are now increasingly being swept up in it.”

Despite the intensifying competition and declining pool of international applicants, S&P sees a fairly stable operating environment for public colleges and universities in the near term, according to a July 20 report.

"The higher education sector continues to face increased competition for students and various operating pressures," said S&P Global Ratings credit analyst Jamie Seman. "In particular, changes in high-school graduation demographics and the need for a renewed focus on affordability have caused some to question the viability of the current operating model for colleges and universities."

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.