Indiana University is staring at an enrollment cliff, and this drop in students will have a big impact on IU’s bottom line.
“This is probably a dramatic decade ahead,” said Robert Kravchuk, chairman of the Bloomington Faculty Council’s budgetary affairs committee.
In a presentation last month, Kravchuk discussed the impact of demographic trends that will affect higher education institutions across the nation. He predicted a steady state of near zero enrollment growth in the years ahead. This will lead to intensified competition among colleges and universities for students. Recruiting will become more expensive. High-profile universities will probably shrink, merge with others or perhaps fail.
“We don’t know which ones are going to survive,” he said.
While a decline in birth rates has played a role, this situation is also fueled by a shift in funding sources, pressure to keep tuition low and a robust economy.
For years, state appropriations were the largest source of revenue for IU and most public universities. But with state support failing to keep up with the higher education inflation index, and even declining in some years, institutions including IU began to rely more heavily on student fees.
In 2003, state appropriations provided slightly more revenue for IU than tuition. The next year, tuition became the university’s largest source of revenue, and it has remained every year since.
At the same time, state legislatures have put pressure on public universities to limit tuition increases. IU has obliged, keeping increases on its flagship Bloomington campus below 2 percent. For two years during that period, tuition didn’t increase at all.
This has stressed the university’s budget. Employee compensation is IU’s largest expense. Today, a 1 percent increase in total compensation would cost the university $15.8 million. A 1 percent increase in total net tuition revenues would only generate $12.4 million.
Increasing enrollment helped alleviate some budget pressures, but that doesn’t seem to be a viable option in the near future.
IU’s total enrollment peaked at about 94,000 in 2011. The Great Recession helped drive this increase, with more people choosing school over work. As the economy recovered, total enrollment began to decline. IU’s regional campuses were hit hardest because they serve smaller areas. The Bloomington campus recruits students from all over the world and was able to continue growing, until recently.
Fall enrollment on the Bloomington campus peaked in 2016 and has decreased slightly each year since. That trend is likely to continue. The number of high school students graduating in Indiana is expected to peak at about 75,000 this year, according to Western Interstate Commission for Higher Education figures. It’s estimated to fall by about 5,000 in two years, recover slightly and then fall to about 68,000 by the end of the next decade.
While the majority of IU students are Indiana residents, a growing number have come from outside the state. Out-of-state students might be able to help offset the decline in Indiana high school graduates for a while, but there will be more competition for them in a few years. From 2025 to 2031, the number of high school graduates in the U.S. is expected to decrease by more than 308,000.
International students make up about 12 percent of all IU students, but international enrollment has decreased in recent years, both at IU and nationally. Administrators point to increased competition from universities abroad and the current political climate in the U.S. as reasons for the decline.
Of course, none of this is new. The decline in international enrollment has been anticipated since the election of President Donald Trump more than two years ago. The shift in revenue sources has been happening for decades. Higher education enrollment typically runs counter-cyclical to the economy. And the number of 18-year-olds in existence today has been predictable for 18 years.
“This demographic issue has been apparent to anyone who has been watching for some time,” said Lauren Robel, provost of IU’s Bloomington campus, during the faculty council meeting. “And so we’ve been trying very hard to think through a number of things well in advance of this.”
Robel said she has talked with university leaders about keeping students on campus longer by providing financial incentives for them to go into master’s degree study. For instance, IU’s School of Public and Environmental Affairs offers an accelerated master’s program that allows students to earn two degrees in five years.
Robel also mentioned multi-disciplinary degrees, such as the master’s in cybersecurity risk management that brings together courses from three different schools. But sometimes deans are reluctant to create partnerships like this because of IU’s funding model.
The responsibility-centered management or RCM model IU adopted in 1990 ties a school’s funding to its market share of undergraduate student credit hours. With fewer undergraduate students, schools could try to hoard undergraduate credit hours.
Kravchuk, the budgetary affairs committee chairman, described this as the circle-the-wagons scenario. Schools would re-enforce silos and eschew inter-unit collaboration. It would disadvantage students by discouraging them from taking courses and minors from other units.
Kravchuk likened this possible outcome to economist John Maynard Keyne’s paradox of thrift, in which everyone tries to keep what they already have and money doesn’t circulate.
“The likely outcome would be that everybody’s going to lose,” he said.
Instead, Kravchuk advocated for schools to seek the common good. Collaboration could lead to innovative programs that attract new students to IU. Schools should play to their strengths. They should recognize when they cannot replicate the advantage of another unit and send their students there.
This would privilege students by providing the kinds of training they all need to succeed in their future careers, he said. All that’s required is for deans to decide to work together.
“So we’ve got some challenges ahead. As I said, it’s not a cataclysmic collapse; it is utterly manageable,” Kravchuk said. “But the worst thing we can do is sit on our hands and do nothing.”