Enrollment decline leads to funding changes for underperforming CSUs

OAKLAND, Calif. - The California State University system is putting campuses on notice: Enroll more students or lose money.

It’s a stunning reversal of fortune for the 23 campuses of the country’s largest public university system, which have collectively lost 27,000 students in two years — part of a national wave of declining college enrollment.

In fall 2020, Cal State posted its highest-ever enrollment, a capstone to almost ceaseless growth in its six decades as a unified system. Now, it’s home to 25,000 fewer students than the state says it should educate.

That’s despite a deal with Gov. Gavin Newsom that the system continue to attract more Californians to its campuses — and graduate them at higher rates — in exchange for increased state funding.

"The California State University is facing an unprecedented moment in its 62-year history," said Steve Relyea, executive vice chancellor and chief financial officer for the system, at this week’s Board of Trustees meeting.

Seven campuses in particular — CSU Channel Islands, Chico State, Cal State East Bay, Cal Poly Humboldt, Cal Maritime, Sonoma State and San Francisco State — are missing their state enrollment targets by 10% or more. They’re not paying a financial price for that, even as several other campuses are exceeding their enrollment goals by more than 10%.

So, a new plan: Any campus missing its enrollment target by 10% or more will permanently lose up to 5% of its state enrollment funding, which will then be sent to campuses exceeding their enrollment targets. This won’t go into effect until 2024-25 at the earliest, giving campuses time to plug their enrollment gaps.

In the subsequent two years, any campus missing its targets by 7%, and then 5%, respectively, would lose 5% of its state student enrollment funding each year.

The plan isn’t set in stone like a traditional funding formula. System leaders said its details can change.

"These actions are really intended to incentivize as much upward movement of campuses to and above their enrollment target," said Nathan Evans, an associate vice chancellor and chief of staff who helps to oversee the system’s academic mission for students and faculty.

If this plan went into effect today, the seven campuses missing targets would lose a combined $38 million to other campuses — enough to educate 4,500 full-time students — in the first year of the plan. Campuses with deeper enrollment holes would see steeper cuts.

Despite the shuffling of dollars, those seven under-enrolled campuses will "be funded at a higher level than their enrollment would justify" in the first year of the plan, said Jolene Koester, interim chancellor of the Cal State system. She made those remarks in response to concerns from some trustees that the plan deprives money from campuses already hurting for more students.

But unless those campuses staunch their enrollment losses, campuses stand to lose as much as 15% of their enrollment funding for the duration of this three-year plan, explained system spokesperson Michael Uhlenkamp in an email. These "budget reallocations" would be permanent, he added, but campuses could recover their money if their enrollment rebounds.

The penalized campuses would also miss out on additional enrollment growth dollars that are part of Newsom’s compact with the system. That money — part of the more than $200 million in new state funds Newsom is promising annually — would only go to campuses meeting or exceeding their enrollment targets.

All of this additional money will help campuses meeting their targets hire more educators and add more classes.

The Cal State system has no history of rerouting money like this, Koester said, "but we are in a position where we have to take the risk of acting in order to fund the enrollment where the enrollment can take place."

Multiple factors explain Cal State’s enrollment slide. Among them is the collapse of enrollment at California’s community colleges, whose transfer students typically account for a third of Cal State’s total student body. As a result, Cal State now enrolls the equivalent of 11,000 fewer new full-time transfer students than it did in fall 2020.

The biggest loss, though, is among existing students. Between fall 2020 and fall 2022, the equivalent of roughly 24,000 currently enrolled undergraduates disappeared from the Cal State system.

Part of the reason is that students on average are collectively taking fewer classes. In the last two years, students began taking .4 fewer units a term. That may seem insignificant, but with more than 400,000 students, that fraction of a change means the equivalent of 8,000 fewer full-time students enrolled.

The penalized campuses would also miss out on additional enrollment growth dollars that are part of Newsom’s compact with the system.

Another enrollment headwind is the number of students coming back for another year of study. Only 81.7% of last year’s starting freshmen came back for a second year, the lowest first-year retention rate at Cal State since 2008, and far below the 85.5% of freshmen who started their education in 2019.

There are bright spots for the system: About 2,000 more new freshmen enrolled in fall 2022 than in fall 2020.

But even recent high school graduates may no longer be a source of continued enrollment growth for Cal State given that the state’s K-12 population is expected to crater by more than 500,000 students between 2020 and 2030.

Workers well past their high school years or adults with some education but no college degree will need to increasingly become a greater source of enrollment — and by extension tuition revenue — for the system, some trustees said.

"The demand for access is no longer just in the (typical) college-age population," said Julia Lopez, a trustee. "The demand for access is in the older non-traditional student."

In late 2021, the system began appealing to students who dropped out during the pandemic to come back to the campus. System leaders said those efforts are ongoing.

They also described a new partnership with Los Angeles Unified School District, the state’s largest K-12 public school system, to work with high schools that send few students to college. 

This spring, Cal State will unveil a dual-admission program for high schoolers who want to attend community college first but still maintain guaranteed admission to the Cal State system. 

Cal State leaders are also hiring an enrollment marketing firm, Virginia-based SimpsonScarborough, to help with attracting more students. The Cal State Chancellor’s Office hasn’t finalized the contract, so financial details of that deal aren’t available, Uhlenkamp wrote.

Some campus presidents say expanding student housing will also attract more students. San Francisco State, among the seven campuses with the most severe enrollment problems, is adding 750 new beds that will be rented out to low-income students at a discounted rate. 

The project is part of the state’s planned massive $4 billion infusion to build more affordable homes for college students.

In past years 2,000 students appeared on waitlists for campus housing at the university," said Lynn Mahoney, president of San Francisco State, at Wednesday’s trustees meeting.

"My enrollment will improve dramatically if I can promise first-year and second-year students campus housing," she said.