Moody’s: One-third of US colleges face stagnating enrollment and tuition revenue

January 12, 2013


Moody’s: One-third of US colleges face stagnating enrollment and tuition revenue
Weakened pricing power and enrollment pressure are impeding top line revenue growth for an increasing number of US colleges and universities, according to Moody’s fourth annual tuition survey.

US Universities


NEW YORK — Weakened pricing power and difficulty in growing enrollment are impeding revenue growth at an increasing number of US colleges and universities, according to Moody’s Investors Service’s fourth annual tuition survey. Moody’s found that a third of universities expect net tuition revenue to either decline or grow at a rate below inflation in fiscal year 2013.

In all, 17% of both private and public universities are expecting declines in net tuition revenue, while another 16% are expecting percent increases that are less than the rate of inflation.

“The cumulative effects of years of depressed family income and net worth, as well as uncertain job prospects for many recent graduates, are combining to soften student market demand at current tuition prices,” says Moody’s Analyst Emily Schwarz, lead author of the report on the survey called “More U.S. Universities Expect Tuition Revenue Declines; Larger, Diversified Universities Favored in Tough Higher Education Market.”

“In addition to these economic pressures, tougher governmental scrutiny of higher education costs and disclosure practices is adding regulatory and political pressure to prevent tuition and revenue from rising at past rates,” says Moody’s Schwarz.

There may be further fiscal pressure on colleges should federal budget negotiations lead to student aid and loan programs being curtailed, because the share of students that depend on these funding sources continues to rise.

Rated universities are moderately reliant on federal student loans, which funded an estimated median 40% of student charges for public universities and 21% for private universities in FY 2012. Some public and lower-rated private universities, as well as for-profit universities, reported higher rates of dependence.

As for tuition, 33% of private universities and 32% of public ones projected net tuition revenue to decline or grow below a 2% rate, approximately the rate of inflation. By comparison, before the recession in fiscal year 2008, 11% of private universities and 9% of public ones projected less than 2% growth.

Smaller, tuition-dependent universities with lower credit ratings are most vulnerable to revenue and pricing pressures, says Moody’s. Private universities project a 2.6% increase in net tuition per student from FY 2012 to FY 2013 and public universities project a similar 2.7% increase.

This year’s increase for public universities is much lower than net tuition per student increases over the past five years, which averaged 6.7%, likely in response to families’ sensitivity to rising higher education costs.

Falling graduate school enrollments weigh on the total enrollments of many universities, says Moody’s. Approximately 46% of all universities are projecting enrollment declines for fall 2012, however the vast majority are modest changes and total enrollment is expected to be stable compared to the prior year. Undergraduate enrollment increased a median 0.5% from fall 2011 to fall 2012 and graduate enrollment declined a median 0.4% across all universities.

The survey results show there continues to be a flight to quality, with large, higher-rated universities generally experiencing enrollment growth, says Moody’s.

For the last four years, Moody’s has surveyed its rated US universities on their expectations for tuition and enrollment. It received responses from over half of the 515 universities that it rates.–PR_263437


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