The Cost Of Luxury On College Campuses

Many schools build out their campuses. The efficacy of such capital improvements, however, depends largely on robust student enrollment, and for many institutions, therein lies the problem. According to the National Center for Education Statistics, postsecondary enrollment grew rapidly from 1992 to 2012. But according to the National Student Clearinghouse, toward the end of that period, it started to slow and ultimately changed directions. Postsecondary enrollment since 2011 has thus been declining by nearly one to two percent per year in most parts of the country. This is a consequence of lower birth rates as well as lower numbers of traditional high school graduates.

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Over the last 20 years, many campuses have expanded their footprints in unexpected ways — adding water parks with lazy rivers, recreation centers with state-of-the-art fitness equipment and rock-climbing walls, bowling alleys, and movie theaters.

These are no longer the features of resorts alone; as it turns out, colleges are being outfitted with them as well. In a Forbes article about the campus amenities “arms race,” author Cara Newlon cited sources suggesting that lower-performing (and higher-income) students were more likely to be wooed by luxurious facilities — and that colleges competing for better yield numbers were increasingly investing in such perks.

Long-Term Campus Trends

This is a compelling story, and I wanted to see what the data showed. To what extent have these amenities gotten more extravagant? Do they really make a difference in attracting and retaining students? And do they come at the cost of higher tuition rates or cuts to academic programs?

To find some answers, I looked at the largest campus facilities database in the United States, created by Sightlines. It tracks data for more than 350 campuses nationwide. (Full disclosure: I serve as a senior advisor for Sightlines.) The data do indeed bear out the claim that non-academic spaces have figured increasingly importantly in campus expansions. And this has been happening for longer than you may have thought. The growth of non-academic spaces is part of a century-long trend. In 1915, 70 percent of all new space was academic — classrooms, labs, and the like. By 2015, that proportion had shrunk to 50 percent. Why the steady trend toward less classroom space?

New Kinds of Campuses, New Kinds of Learning

Part of the answer has to do with shifting ideas about the on-campus experience itself. Campuses in the U.S. want to get more residential as a way to enhance the overall college experience. The numbers reflect these priorities: With more students living on campus, there is a greater need for good places to live, eat, and decompress. Of the 50 percent of non-academic spaces built in the last few years, about 35 percent consists of new dorms, and 15 percent all other types of facilities, including student centers, recreation and athletic facilities, and dining halls. Campus amenities are, after all, meant to provide a high quality of life, both inside and outside the classroom.

Coupled with the rising demand for residential spaces is a falling demand for academic ones. In recent years, the growth of online learning, even for students living on campus, has brought with it less demand for classroom space — and opened the door for other types of campus facilities.

Capital Needs

Then, of course, there is the issue of regular building upgrades and maintenance, which all institutions need. On many campuses, new dorms and student life facilities are replacing ones constructed in the 1960s and 1970s. These buildings are old, have high levels of deferred maintenance, and were not constructed to address the needs of a 21st-century student body.

In addition, larger institutions run dorms and student life facilities as separate cost centers, called auxiliaries, that are self-sufficient. If students want more amenities, then they pay for these in dorm “rent,” user fees, or meal prices. To cite one such example: In 2011, students at LSU voted to quadruple fees to pay for upgraded recreational facilities.

The same can be said of many of the classrooms, labs, and research buildings on many campuses. At a number of schools, more than 50 percent of the current square footage was built 40 to 60 years ago. In some cases, it makes more economic sense to demolish the old buildings and replace them with facilities that meet higher standards of sustainability — and accommodate the expectations of current students and faculty members — than to try to upgrade what is already there.

There is also the issue of fundraising: Getting donors to support an appealing campus expansion project is easier than convincing them that their money best spent on a AC repairs, new windows, and other periodic maintenance.

The Problem With Student Enrollment

So many schools build out their campuses. The efficacy of such capital improvements, however, depends largely on robust student enrollment, and for many institutions, therein lies the problem. According to the National Center for Education Statistics, postsecondary enrollment grew rapidly from 1992 to 2012. But according to the National Student Clearinghouse, toward the end of that period, it started to slow and ultimately changed directions. Postsecondary enrollment since 2011 has thus been declining by nearly one to two percent per year in most parts of the country. This is a consequence of lower birth rates as well as lower numbers of traditional high school graduates.

For renovation-seeking colleges, this trend presents a problem. Some campuses that had begun construction projects in anticipation of continued enrollment growth now face the reality that they may have overbuilt. This is not true everywhere, however. In states like Texas, Arizona, and Utah, where the number of college-age students is growing, campuses are adding residence halls and student life facilities just to keep up with demand.

But in many places, supply has outpaced demand. The Sightlines data show that small, private institutions are experiencing the greatest challenge in keeping facilities and enrollment in proper sync. Private institutions with fewer than 3,000 students, many in the Northeast and Midwest, have faced the biggest threat: lots of these schools have seen rapidly shrinking high school populations, along with heavy competition from lower-cost public universities. The gamble for these private colleges, particularly those that are less selective, is whether building more amenities will draw additional students (or at least stabilize enrollments) until high school population numbers begin trending upward again.

In some cases, the gamble is paying off. One small liberal arts campus in the Midwest has upgraded dorms with full wireless capabilities, added a state-of-the-art fitness center, and expanded the library and student dining facilities. As a result, its falling enrollment has stabilized, and its retention and graduation rates have improved. Students cite the improved campus environment as a prime reason for the turnaround.

In other cases, however, small campuses have taken on significant debt and not been able to sustain it with corresponding enrollment increases. In fact, a group of more than 100 small institutions continued to build new space over the last seven years at a growth rate of five to six percent while not increasing enrollment at all.

A 2012 Bain and Company study warned that a significant number of these small higher-education institutions were facing a liquidity crisis, with expenses rising much faster than revenue. A prime reason was increased debt from new facilities construction, coupled with less tuition revenue to pay off that debt. For smaller schools, capital improvements and expansions typically come out of the general operating budget, as the campuses (and budgets) are not large enough to sustain standalone, self-sufficient enterprises. (More on this in a moment.)

What about larger campuses? Larger institutions certainly have built their fair share of new buildings. Most of the amenities “arms race” examples cited in the Forbes article, in fact, pertain to very large campuses, such as Texas Tech, Ohio State, and the University of Iowa. These campuses have the advantage of large student populations (all numbering above 30,000), across whom the per-capita cost of building out non-academic spaces is relatively low.

In addition, larger institutions run dorms and student life facilities as separate cost centers, called auxiliaries, that are self-sufficient. If students want more amenities, then they pay for these in dorm “rent,” user fees, or meal prices. To cite one such example: In 2011, students at LSU voted to quadruple fees to pay for upgraded recreational facilities.

At many small, private institutions, by contrast, the residential and student life programs do not generate enough revenue to become self-sufficient. As a result, these upgrades figure in the general operating budget, thus creating a financial dependency that can drain an institution’s resources.

The ROI of Campus Amenities

If a campus — of any size — has steady enrollment growth, or the campus has large numbers of students, then the costs of the building amenities can be offset pretty effectively. The debt of capital costs does not affect the campus balance sheet; and at any rate, it can be spread out so that it minimally affects individual students. In addition, amenities make campuses more attractive to prospective students, and may help boost retention and graduation rates.

But building out amenities is by no means a risk-free proposition. If a campus bets on constructing new dorms, student centers, and recreation centers to attract more students, and the strategy does not work, then it accrues more debt than its revenue sources can cover. In such cases, the two mitigating options are both problematic — raising tuition and fees (an unlikely solution, since this would make schools even less competitive), or addressing long-term debt by cutting back on other expenses until enrollment improves. In the latter case, enrollment numbers aren’t expected to rise until the mid-2020s; that’s a long time for a campus to go without increasing faculty salaries, augmenting support services, and upgrading older core academic buildings. And having debt on the campus balance sheet makes borrowing in the future all the more costly.

The Bottom Line

So, how important are campus amenities for students and parents? I would advise students and parents not to be wowed by luxurious dorms or fancy rec centers. Even without giving amenities special consideration, you are probably going to find that most campuses are paying attention to the quality of residential and student life facilities, since today’s students expect comfortable living environments.

If what you see is extravagant or does not fit with the other facilities and overall culture of the campus, it probably means that the campus is overextended financially, and you will end up paying the bill through increased tuition and extra fees — even if you never dip your toe in the Olympic-sized swimming pool or spend a moment on the state-of-the-art pilates reformer. Worse yet, you may see cuts in academic programs, fewer (and larger) classes, and a need for upgraded classrooms and labs. These deficits, in turn, could adversely affect your preparation for further education and the workforce. And that would be the biggest price to pay in the long run.

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