Fewer international students could become a problem for US universities

After a decade of rapid growth, international enrollment has declined over the past few years. This has university administrators worried, as tuition revenues fall, leading some to make budget cuts. Public research universities may be particularly concerned since many have become more reliant on international students since the mid-2000s. This increasing reliance on students from abroad comes in response to falling support from state budgets.

Recent research I conducted with John Bound (University of Michigan), Breno Braga (Urban Institute) and Sarah Turner (University of Virginia) shows fee-paying students from abroad have allowed public universities to weather state budget cuts, and that has kept tuition affordable for local residents and maintained the quality of the institutions. Though competition between domestic and international applicants now may be less fierce, the consequences of a slowdown in international enrollments should be cause for concern. It means that public research universities may have to make difficult decisions to increase in-state tuition or cut expenditures.

{mosads}For our research, my colleagues and I examined the causes and consequences of the growth in international undergraduate enrollment between 1996 and 2012. The lessons we learned can help shed light on current developments and what they may mean for public universities going forward.

The United States long has been an attractive destination for international students, boasting 31 of the top 50 universities, and on a per capita basis has the largest supply of colleges. Yet, between 2005 and 2015, the number of first-year undergraduate students enrolling from abroad almost doubled — from about 61,000 to 119,000  — according to the Institute for International Education Open Doors Data Initiative. Our research shows that students from China account for about 90 percent of the total increase in foreign undergraduates over this decade.

First, it is important to understand what drove this explosive growth. The ability to pay for an undergraduate education is a major determining factor for students from abroad, since students at the bachelor’s and master’s degree level are not likely to receive funding from host institutions. Between 2010 and 2015, only 3.5 percent of total funding for undergraduates from China came from their universities. The rapid growth in incomes in China has made a U.S. education an affordable option for many. Along with this, China in 2005 allowed its currency to begin appreciating, and visa restrictions for students from China were relaxed.

At the same time, the number of college-ready students from China increased significantly: secondary enrollment grew from about 64 million in 1996 to 95 million in 2012. Those students who could afford to looked to the United States for education, since China has less than half the number of higher-education institutions as the United States. Administrative data from F-1 visas clearly show this recent growth in students from China has been concentrated in public research universities.

Students from abroad are attractive to public schools for numerous reasons, including their high test scores and ability to pay full fare. For example, the in-state tuition at the University of Virginia in 2015 was $13,208, whereas out-of-state tuition was $42,394. Such tuition differentials make both international and domestic out-of-state students attractive recruits, though U.S. students may prefer to attend institutions in their home states at discounted prices, or higher-ranked private universities.

The ability of public research universities to attract students from abroad prevented these schools from making painful adjustments along other margins. In previous recessions, when funding was cut, universities responded by raising in-state tuition and cutting expenditures. This time, however, schools that could attract students from abroad did not have to cut expenditures or raise tuition to the same degree as other universities. Out-of-state tuition is determined by market forces and can be difficult to change.

These adjustments were particularly prominent in mid-tier research schools such as Michigan State University (MSU). Neighboring schools such as the University of Michigan rely less on state funding because they have larger endowments and the wherewithal to attract domestic out-of-state students. Yet, at MSU, budgetary contractions almost perfectly coincided with the explosion in students from China, as administrators replaced lost state funding with foreign-student tuition. At the next tier of schools (say, Eastern Michigan University), however, the inability to attract international students may have meant sharper increases in tuition rates and cuts to expenditures.

In the past few years, there has been a slight drop in new international enrollment. What contributes to this slowdown? Some commentators blame the recent socio-political climate in the United States, and possible difficulties with obtaining work visas after graduating. This may well be an important factor: as we found in earlier research, the prospect of joining the U.S. job market makes U.S. universities attractive to many. In the same light, impending future difficulties to get an H-1B visa may discourage many from applying.

Yet, the slowdown in enrollment from abroad started even before the 2012 U.S. election. Saudi Arabia played a major role in this slowdown because its government cut funding (in response to falling oil prices) for the lucrative King Abdullah Scholarship. But growth from China, while still strong, has slowed as well. Recent growth in China-based, high-quality universities at more affordable rates, a slowdown of income growth and currency appreciation, and a plateauing of school-leaving populations implies that this demand from abroad was never meant to last forever.

These recent developments, then, raise questions on how public universities will adjust to such flagging demand from abroad. While state budgets have somewhat stabilized, the secular decline in appropriations may continue, as it has since the 1970s. Unless states step to up to adequately fund public universities, these institutions will have to turn to other innovative methods of raising revenue, or resort to the uncomfortable choices of raising tuition and cutting expenditures.

Gaurav Khanna is an assistant professor of economics at University of California San Diego’s School of Global Policy and Strategy. His research focuses on development economics, labor economics and applied econometrics. Prior to joining UC San Diego, he was a postdoctoral fellow at the Center for Global Development in Washington, D.C., and consultant for the World Bank’s Poverty and Inequality Unit.