CHICAGO — Though student demand remains strong, the recession is taking its toll on tuition and fee revenue at some private higher education institutions, and the stress is expected to hurt the operating performance of some schools, especially in the Midwest and mid-Atlantic regions,
Moody’s recently surveyed the 286 private colleges and universities and 212 public schools it rates, asking them for information on tuition, fees, and student demand in an attempt to asses the recession’s impact on their operating performance.
After reviewing the responses of roughly 100 private institutions, Moody’s found that about 29% expect a decline in net tuition and revenue in fiscal 2010.
Across the board, a median 2.4% increase in revenue is expected compared to a 5.4% jump in fiscal 2009, when only 9 % of institutions reported a drop in collections over the previous year.
The results also show a pattern that pressure is growing on lower-rated schools that are less resilient in coping with the fiscal challenges.
In fiscal 2009, 56% of the institutions reporting tuition and fee declines were rated Aa3 or better, while in fiscal 2010 just 25% of those projecting declines are rated in the double-A category.
“These results indicate rising credit pressure and new management challenges for institutions with fewer financial resources and lesser ability to withstand a drop in revenue,” according to the report’s authors from Moody’s higher education team group. They included senior analyst Laura Sander, associate analyst Lori Schomp, senior credit officer Roger Goodman, and group head John Nelson. The analysis marks the first time Moody’s has published such survey data.
The stress on net tuition and fee revenues stems from both reduced tuition and fee hikes and greater demand for financial aid. The amount private colleges spend on financial aid from resources other than endowed funds rose a median 9.3% for fiscal 2010.
The results also show that private schools out West and in the South are faring better while counterparts in the mid-Atlantic and Midwest face greater challenges. The results indicated a mixed bag for New York and New England schools.
About 41% of Midwestern and mid-Atlantic schools expect a decline compared to 15% in the South and West. As many as 44% in New York and New England expect a decline but 38% expect growth of at least 45% compared to just 21% in the Midwest and mid-Atlantic regions.
“Moody’s believes that institutions in the South and West enjoy an advantage in net tuition and fee revenue trends due to the overall vibrant demographics of the regions,” the authors wrote.
“Both the mid-Atlantic and Midwest and New York and New England regions face mixed demographic impacts on enrollment, yet the New York and New England region includes institutions with a strong market position and more national draw that are able maintain their pricing power despite reduced populations of potential students in their immediate region.”
Student demand at both private and public schools remain strong. At least 61% of private and 82% of public higher ed institutions expect higher undergraduate enrollment numbers in fiscal 2010 with growth at private colleges driven by increased applications and decreased selectivity.
In contrast, based on the responses of the 61 public institutions, they too expect growth in applications, but they are increasing their selectivity.
Private schools that responded to the survey report undergraduate enrollment rose 3% from fall 2008, while freshman applications rose 4.3% for fall 2009 and 68% reported that they had increased the percent of freshman applicants they accepted.
Public universities overall are faring better in the area of tuition and fee growth, with 92% of public institutions responding to the survey expect increased fees and revenue in fiscal 2010. Though most expect increased revenues, the increase is projected at 4.8%, down from a 7.8% median increase a year earlier.
