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RPT-Fitch: Obama higher ed plan joins performance based funding push
August 27, 2013 / 5:23 PM / 4 years ago

RPT-Fitch: Obama higher ed plan joins performance based funding push

NEW YORK, August 27 (Fitch) Discussions at many U.S. colleges appear to dovetail
with President Obama's recently outlined plan to institute a rating system to 
measure metrics such as graduation rates and affordability, Fitch Ratings says, 
although the president's plan appears far more comprehensive.

Managing the type of data in the president's plan is a significant undertaking 
and may meet with political challenges. However, many public and non-profit 
private U.S. colleges and universities have already started discussing various 
methodologies to improve student outcomes. This is especially true for public 
universities as some states may begin to tie the level of support to stated 
metrics.

In an attempt to manage the overall cost of education, some institutions are 
planning or have implemented accelerated programs in which students can achieve 
a bachelor's degree in three years. In addition, according to the Chronicle of 
Higher Education, many public university systems improved their graduation rates
recently. Colleges in California, Washington, Iowa, Virginia, Delaware, New 
Jersey and New Hampshire increased their six year graduation rates by 8-16% in 
2010 alone.

Other steps are also being taken to manage costs. While Fitch does not expect 
tuition costs to decline, the level of increase appears to be moderating at both
public and private institutions. In the academic year starting Fall 2012, 
average annual tuition increased 4.8% for in-state students at public four-year 
colleges and universities and 4.2% at private, non-profit four-year 
institutions, according to "Trends in College Pricing 2012" by The College 
Board.

Fitch monitors tuition discounting as institutions attempt to attract students 
by decreasing their tuition costs while managing the bottom line. This review of
the discount rate is critical in our analysis of private institutions as tuition
and fee revenue is typically the largest component of operating revenues and may
account for more than 75% of the total. Increased discounting may impact small, 
private, liberal arts institutions with less diverse revenue bases and higher 
dependence on student-generated revenues to a greater degree than larger, 
comprehensive universities with broader operating platforms.

It is too early to determine how the president's plan will be implemented. 
However, it is expected that under the plan, the percentage of students using 
Pell grants to pay their tuition would be analyzed, along with the average 
tuition, scholarships and loan debt per pupil, graduation rates and future 
earnings of students after graduation. According to the plan, the goal in 2018 
is to allocate federal financial aid based on assigned ratings.  Fitch will 
continue to monitor the plan as it unfolds.

Contact: 

Rob Rowan

Senior Director

Fitch Wire

+1 212 908-9159

1 State Street Plaza

New York, NY

Colin Walsh

Director

U.S. Public Finance

+1 212 908-0767

33 Whitehall Street

New York, NY

Joanne Ferrigan

Director

U.S. Public Finance

+1 212 908-0723

Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: 
elizabeth.fogerty@fitchratings.com.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market 
commentary page. The original article, which may include hyperlinks to companies
and current ratings, can be accessed at www.fitchratings.com. All opinions 
expressed are those of Fitch Ratings.

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