Negative Financial Outlook for Higher Education Sector
The two most prominent investment rating firms (Moody’s and Standard & Poor’s) have recently issued negative outlooks for higher education. Moody’s expressed concerns about the ability of colleges and universities to significantly increase tuition revenues the way they have for the past 20 years. Additionally, there is little optimism that state funding for public institutions will grow enough to offset increased expenses. The State Higher Education Executive Officers Association (SHEEOA) reported in 2014 that total educational revenue (net tuition plus state and local funding) per student dropped by 6.2 percent between 2008 and 2013.
The most significant risks are to regional public institutions and tuition-dependent private institutions. According to Moody’s, in fiscal 2013, net tuition revenue dropped for 25 percent of regional public universities compared, with four percent for flagship public schools, and public systems as a whole. “Regional public universities will be most susceptible to local declines in the number of high school graduates and improving job prospects”. It is believed that flagships/systems, those with the strongest brands, more diverse revenues, broader scope of operations, and greater wealth will continue to fare reasonably well, even as they will still need to make careful resource allocation decisions.
According to The New York Times, net tuition has either been flat or falling at 73 percent of colleges. Most colleges do not have the market power to significantly increase their prices, and maintain their enrollment levels. The number of higher education institutions on the Department of Education watch list has grown by one-third since 2007.
SHEEOA concluded its 2014 annual report with a warning that the financial realities for higher education cannot be ignored. “Parents, students, institutions, and states must make tough decisions about priorities – choosing those investments that are essential for a better future and where they can reduce spending on the non-essential in order to secure what is essential for our future as a successful society.”