WHAT DOES IT PROFIT A COLLEGE TO ADD MORE STUDENTS? THE RELATIONSHIP BETWEEN ENROLLMENT GROWTH AND FINANCIAL STRENGTH

Abstract

The relationship between growth and financial strength in a group of colleges and universities generally interested in enrollment growth was studied. Contrary to the conventional wisdom among administrators, it was found that institutions characterized by greater enrollment growth in a given year were not characterized by more positive subsequent changes in overall financial strength.

Notes

1. One of us first became fully aware of the pressure to increase enrollments when he was leading a North Central Association workshop on “The Small College” at the University of Minnesota in the 1960s. Administrators of colleges ranging in size from 350 to 2,000 were among the 25 participants. Each participant said his or her institution was “small.” Each institution, except for the largest, which had limited its enrollment, planned to increase its enrollment. Representatives of all of the other institutions, with the exception of the last in the circle, said their institutions were capping their enrollment increases at about 15–30% because “if we expanded beyond that, we'd no longer be small.” Observing a certain irrationality in what was happening, the last participant said his institution was planning to stay at its present size, because, he said, “We are small, and, if we grow, we will no longer be small.” When everyone objected—as though the last participant were “un-American” or worse—he confessed that he was only pretending, and that actually his institution was hoping to grow like all the rest.

2. We may or may not agree with all of his conclusions about international students, but George Borjas does recognize that costs exceed tuition income. He writes in a recent article, “The tuition that colleges charge is not typically enough to cover the cost of an education. … The 275,000 foreign students enrolled in public institutions are subsidized to the tune of $2.5 billion a year.” National Review, June 17, 2002.

3. Grove City College V. Bell, 465 U.S. 555 (1984). Note, however, that the June 2002 Supreme Court ruling in Zelman v. Simmons-Harris relates to elementary and secondary schools, but the majority opinion emphasizes the facts (1) that the grants in question were to parents of pupils, not directly to schools, and (2) that the tuition grants do not cover the cost of education.

4. See also Ratios 1 and 22 in Minter et al. (1982).

5. Our Ratio 2 falls between the “Ratio 3” liquidity ratios of Prinvale and Morriss-Olson, on the one hand, and the “Ratio No. 3” of Minter, on the other.

6. The p value was 0.51. In the nine years the Ratio 1 Pearson correlation coefficients were −0.037 (p = 0.58), −0.048 (p = 0.48), −0.069 (p = 0.31), −0.057 (p = 0.40), −0.059 (p = 0.38), −0.037 (p = 0.59), −0.050 (p = 0.46), −0.055 (p = 0.42), and −0.044 (p = 0.51).

7. The Ratio 2 Pearson correlation coefficients were 0.032 (p = 0.53), 0.027 (p = 0.59), 0.031 (p = 0.54), 0.066 (p = 0.19), 0.108 (p = 0.034), 0.022 (p = 0.66), 0.013 (p = 0.79), 0.024 (p = 0.64), 0.029 (p = 0.57).

8. The Pearson coefficient for the sum of the data for all years for Ratio 3 was 0.028 (p = 0.56). This sum included the data for the years immediately after the enrollment increases, when we would have expected temporary increases in liquidity and operating surpluses. In the nine years the Ratio 3 Pearson correlation coefficients were 0.072 (p = 0.13), 0.048 (p = 0.31), 0.045 (p = 0.34), 0.045 (p = 0.34), −0.024 (p = 0.61), 0.009 (p = 0.84), 0.001 (p = 0.98), 0.003 (p = 0.94), and 0.024 (p = 0.62), respectively. As previously noted, Ratio 3 works with only year-by-year current fund revenues and expenditures—it does not reflect amounts in endowments or quasi-endowments, on the asset side, or plant indebtedness.