Fewer out-of-state college students

By Geoff Gloecker

updated 2:33 p.m. ET May 26, 2009

State colleges and universities, battered by declining endowments and state funding cutbacks, are facing a new and potentially far more troubling financial challenge. Out-of-state students, who pay a huge tuition premium to attend, are doing something no one ever thought they would: They're staying home.

Hammered by the recession, they're opting in larger numbers to attend schools in their home states. In a recent study conducted by the College Board and Art & Science Group, a consultant to colleges and universities, 41 percent of high school seniors said they are giving much more consideration to attending a public institutions close to home in the fall because of current economic conditions. And many schools, including the University of Delaware and Ball State, are already reporting declines in out-of-state applications of as much as 40 percent, while in-state applications are up from 5 percent to 10 percent.

"The hopes and dreams of many students and families in terms of what it means to go to college are changing," says Lauren Asher, acting president at the Institute for College Access & Success, a nonprofit research group that advocates for making higher education more available and affordable. "They are now really trying to find a good deal."

With a lucrative revenue stream drying up, state schools have limited options that include slashing budgets or finding new sources of revenue. So far, some have opted to raise tuition, but most are hoping the decline in out-of-state applicants will end when the recession does, so they're doing nothing, at least for now.

For the many students deciding to pursue their education a little closer to home, attending a state university in their home state is a great deal: a quality education at a fraction of the cost of elite private schools. But for the public schools themselves, it's a different story.

Over the past few decades, the financial structure of public universities has changed drastically. No longer does state funding account for the majority of a school's budget. In fact, a school is lucky if state support accounts for 20 percent of the overall budget. At the College of William & Mary, taxpayer money made up 18 percent of the operating budget for the 2008-09 academic year. Thirty years ago, it was 43 percent. "At this point, we're a privately supported university that also gets some meaningful state aid," says W. Taylor Reveley III, president of William & Mary.

To make up the difference, public universities must rely on tuition and fees to pay for the lion's share of budgetary needs. Because of this, many state schools work hard to attract nonresidents, who pay a premium—often more than three times as much as residents—to attend.

"Given the way that states are cutting back on funds, to replace an in-state student with an out-of-state student, particularly if you can capture some of that revenue for your own purposes, is a good thing financially for schools," says John Maguire, chairman and founder of Maguire Associates, a research-based consulting firm specializing in educational institutions.

Just how good? At the University of North Carolina at Chapel Hill, for example, in-state residents pay $5,626 in tuition and fees. Out-of-state students pay $23,514. Similarly, at the University of Virginia, out-of-state students pay about $20,000 more in tuition and fees than Virginia residents.

Considering the vast differences in cost, it would seem that the financial woes schools are experiencing could quickly be solved by simply admitting more students from beyond state lines. But with more qualified in-state applications coming in, that's difficult to rationalize. Also, with fewer out-of-state students applying to public institutions this year, it has become harder for schools to admit as many non-residents without lowering academic standards.

"[Public schools] have an obligation to the states that support them," says Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars & Admissions Officers. "You can't engage in any kind of a financial analysis that ends up valuing out-of-state [students] more than in-state."

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