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The Out-of-State Solution to College Budgets

(Corrects ninth paragraph to clarify that the University of Washington is not part of a state university system.)

Colorado Mesa University was typical of most public institutions in the fall of 2007, with out-of-state students making up a small number, about 5 percent, of the overall student body. But when the economic downturn hit in the fall of 2008, and state support for higher education began dwindling, Colorado Mesa President Tim Foster knew it was time to shake up the status quo. He decided to aggressively recruit out-of-state students, who pay 50 percent to 60 percent more than do Colorado residents. “Obviously the purchasing power of in-state students from a budgetary perspective was not very good,” Foster says.

The school embedded a recruiter in California and sent additional admissions representatives to such key Western feeder states as Wyoming and Utah. The school even targeted Hawaii.

The work has paid off: This fall, out-of-state students make up 12 percent of Colorado Mesa University’s overall student body, bringing in about $3 million to $5 million in additional revenue annually. Foster’s goal is to see nonresident enrollment reach 25 percent in five years. “If we can continue to grow—but grow out-of-state faster—that will work well for us,” he says.

Colorado Mesa University’s tactics are not unusual. To counter state budget cuts, public universities from California to Ohio are courting out-of-state students and the tuition premiums they pay. To attract these students, institutions are using sophisticated recruiting techniques, embedding recruiters in feeder states, ramping up advertising campaigns, and even giving students breaks on out-of-state fees. Recruiting of nonresidents is likely to grow in the next few years as budget slashing increases. At least 25 states have made substantial cuts in funding for state colleges and universities this fall—reductions that will have a direct impact on students, according to the latest report from the Center on Budget & Policy Priorities, a nonpartisan think tank in Washington.

The University of California system is the “poster child” for the out-of-state recruiting movement, says Donald Heller, director of the center for the Study of Higher Education at Pennsylvania State University. Heller notes that schools in the state been fairly explicit about having chosen to use nonresident students as vehicles to raise revenue. Nonresident students in California pay about three times as much in tuition and fees as residents do.

California’s Out-of-State Boom

California has reduced funding for the university system by $650 million this year and funding could be slashed a further $100 million if the state doesn’t meet its revenue projection, says UC spokesman Ricardo Vasquez. Last December, the University of California’s Commission on the Future recommended increasing the percentage of non-California residents to help cope with budget cuts. Many California schools have listened. This fall, nonresidents make up 12.3 percent of the system’s freshman class, up from 8 percent last year. The most dramatic shifts have taken place at some of the UC system’s more popular campuses, such as UC-Berkeley, where out-of-state residents and international students make up 30 percent of this year’s freshman class, up from 23 percent last year.

Despite these increases, the UC system is still far from hitting the 10 percent nonresident systemwide cap set by the system’s Board of Regents, Vasquez says. “It will take a number of years to reach that 10 percent cap, so I would imagine that the campuses would continue to look into enrolling more nonresident students in the coming years,” he says.

Notwithstanding the increased revenue that out-of-state students bring with them, the path the UC system and others are taking comes with pitfalls—the most worrisome of which may be reduced access for in-state students, says William Tierney, director of the Center for Higher Education Policy Analysis at the University of Southern California. “Most of what we’re seeing is that public institutions are not increasing enrollment,” Tierney says. “The out-of-state students are certainly qualified and meet the traditional academic criteria, but are they getting in at the expense of in-state students?”

That is the case now at the University of Washington which has been grappling with a painful budgetary quandary. After the state slashed higher education funding by more than $500 million in 2011, UW was forced to reduce this year’s slots for resident students by 150, while adding 300 slots for nonresidents to help make up some of the lost revenue, says UW Admissions Director Philip Ballinger.

At UW, “Almost Abhorrent” Cuts

The school had no problem finding out-of-state students for those seats: Of 25,000 applications for this year’s freshman class, 14,100 came from out of state. This fall, nonresidents will make up 33 percent of the freshman class, up from 25 percent three years ago, Ballinger says. Making the decision to admit more students from outside Washington’s borders wasn’t easy. “University of Washington, relatively speaking for a public flagship institution, is public to the bone,” he says. “The thought that we would be in a place where, to maintain quality and access, we had to reduce resident enrollment and increase nonresident enrollment was almost abhorrent.”

Until now, the state has set tuition rates for UW. Next fall the school will be able to set its own rates for the first time, and Ballinger hopes this will allow UW to restore the 150 freshman slots for residents that were removed this year.

While it may be easy for such schools as the University of Washington and UC-Berkeley to boost nonresident enrollment, others must work harder to attract the interest and ultimately, the tuition dollars, of out-of-state residents.

Kent State University in Ohio, where state budget cuts will total from $11 million to $15 million this year, has mounted an aggressive campaign to attract out-of-state students to its freshman class.

Scholarships and Legacy Solicitations

In the last three years, Kent State has hired five admissions counselors to target students in states such as Illinois, Maryland, and Virginia, introduced scholarship programs that reduce the out-of-state surcharge for highly qualified students, and launched a program aimed at attracting the children of out-of-state Kent alums. Non-Ohio residents now make up 6 percent of the incoming freshman class, up from about 2 percent three years ago. “Even increasing out-of-state enrollment by two or three percent helps us with the budget cuts,” says T. David Garcia, the school’s associate vice-president for enrollment management.

Garcia says that funding is not the sole motivation behind the school’s interest in nonresidents. The number of Ohio high school graduates expected to go on to college in the next decade is sliding. “As an institution we need to look at other avenues in which we can make up some of that difference,” he says.

Declining high school enrollment is also a concern for Ann Korschgen, vice-president for enrollment management at the University of Missouri. By 2014, there will be 9,000 fewer Missouri high school graduates than in 2010. This is part of the reason why the school has ramped up recruiting outside the state, she says. The school is currently tapping markets such as Chicago and Dallas and will soon send a recruiter to Minneapolis and Denver. This fall, the freshman class has 1,720 out-of-state students, up from 791 in fall 2002, Korschgen says.

Korschgen confirms that nonresident tuition revenue has helped the school address the shortfall in state support. However, she says the school is primarily recruiting out-of-state students to bring greater geographic diversity to the campus, as well as to counter the state’s worrisome demographic trends.

Not all education experts are comfortable with that rationale. Penn State’s Heller says he is skeptical of schools that say they are increasing out-of-state enrollment for mainly demographic purposes. “It may be a convenient excuse to say ‘Gee, there just aren’t enough students,’ but I think the reality is that they are going after out-of-state students for money,” Heller says. “In many—if not all—cases, if they wanted to make the effort to attract students from within the state, they could probably find them.”

Join the discussion on the Bloomberg Businessweek Business School Forum and follow @BWbschools on Twitter.
Damast is a staff writer for Bloomberg Businessweek.

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