The immediate financial future of US higher education isn’t a bright one according to Moody’s Investors Service due to stagnant or falling enrollment numbers and declining revenue.
It is now a “buyers’ market” when it comes to college in the US, and with affordability being among one of the top qualities prospective students consider, schools are being restrained in their ability to raise tuition, reports Kelly Blessing for Bloomberg.
In fiscal 2013, net tuition revenue dropped for 25% of regional public universities, compared with 4% for flagship public schools and public systems as a whole, Moody’s said. More than half of all public institutions reported no growth in enrollment or a decline in the fall of 2013, the ratings company said. Revenue fell for 20% of private universities and colleges.
Moody’s has downgraded credit ratings for three dozen four-year universities and colleges since July 2013. Only nine of about 500 schools that Moody’s analyzes were given credit rating upgrades this past year, reports Nick Anderson for The Washington Post.
The upgraded school included: Liberty University, American University, University of San Diego, Creighton University, Embry-Riddle Aeronautical University, Nova Southeastern University, University of La Verne, Iona College, and Birmingham-Southern College.
Around 40% percent of private and public universities will see less than 2% in student generated growth revenue, and Moody’s found that approximately 10% of universities, both public and private are experiencing serious financial distress because of weak operating performances and decreases in revenue, reports Lynn O’Shaughnessy for CBS News.
The report also found the state governments have increased funding slightly at public universities by an average of 3-4%. However, 1 out of 4 states will be stopping or decreasing support to their public universities.
There is some good news, though; employment numbers are improving in the US, which can lead to better job opportunities for educated workers and could encourage more people to apply and invest in higher education.
Moody’s predicts there will be long-term demand for higher education especially at associate and master’s degree levels.
The U.S. Department of Education projects a 9% growth in associate’s degrees through 2021-2022 and a 20% growth in master’s degrees. Online courses and new certificate programs will also allow universities to expand into new markets both in the US and abroad.
The Moody’s analysts — who are seeking to size up the risk of failure to meet contractual financial obligations and of estimated financial loss in the event of default — look at bottom-line metrics that matter to college leaders.
Among them: full-time equivalent enrollment, net tuition revenue per student, total cash and investments, total debt, average donations per student and the ratio of debt to operating revenue.
Moody’s Investors Service is a credit bond rating business that ranks the credit worthiness of borrowers. Although it has existed for more than a century, it gained widespread familiarity in 2011 when it changed its outlook on the US federal government as a borrower from positive to negative.