Changing demographics may present an opening for higher education institutions to attract more students and strengthen their revenue stream, according to analysts.
The ability to adapt to changing demographics is crucial for higher education institutions because a significant portion of college and university revenue comes from students. Tuition is the driver of revenue for most universities, so it's important for school to keep their enrollment up, Jessica Matsumori, Senior Director, U.S. Public Finance at Standard & Poor's said in an interview.
Colleges' and universities' ability to attract and retain students is becoming increasingly important as the number of high school graduates decline. S&P has a negative outlook for the higher education sector for 2014, Matsumori said.
The struggle between higher education institutions to draw students has become an increasingly "competitive race," Wells Fargo Securities said in a July report. "[High education institutions are] concerned about reduced high school graduates, and similar changes in population, and how to deal with that," Roy Eappen, an associate at Wells Fargo Securities, said in an interview. "They are looking at how to get more students in the door."
He said the changing demographics of students looking to attend higher education institutions "in some ways, presents an opportunity".
Matsumori said that S&P has heard that schools in areas where the population of high school students is flat or declining have been focusing on attracting a particular demographic of students.
Joanne Ferrigan, senior director at Fitch Ratings, also said as institutions are trying to meet enrollment targets, Fitch is seeing a growing population of higher education institutions targeting certain types of students. She named first generation college students as an example.
The first-time freshman fall enrollment in all post-secondary degree-granting institutions has increased 39% from 1997 to 2011 and is projected to increase 11% between 2011 and 2022, the U.S. Department of Education released in its "A Projections of Education Statistics to 2022" report in February .
Edward Morton, managing director at Wasmer, Schroeder & Company who is also on the Board of Governors of the State of Florida University System said the Florida state school look to attract first generation college students.
"The first child in a first generation family, we believe it is important to identify those young men and woman in the secondary school system and work to make [higher] education opportunities as available to them as we can," he said in an interview.
Morton said along with first generation students the Florida state schools are also focusing on nonwhite students.
"We have identified those particular two groups as groups we will do all we can to encourage implication for state university system," he said.
The Department of Education wrote in its February report that it projects enrollment of black students to increase by 26% between 2011 and 2022, and enrollment of Hispanic students by 27% during the same period. It preducts the enrollment of white students will only increase by 7% during that time.
"In the long term, institutions will have to meet the needs of a growing non-white student population," Wells Fargo Securities wrote in its July report.
Matsumori said that S&P considers it's a "credit positive" when a university can expand the pool of potential students it attracts. She also said though that first generation students, minority students, and part time students sometimes produce lower graduation rates than a university's overall graduation rate.
"Per our criteria and industry standards, we consider an institution's overall retention and graduation rates as part of our analysis," Matsumori said.
Eappen also said he has observed more Hispanics and blacks enrolling, but not necessarily completing bachelor degrees. Analysts have noted the higher education institutions also have to retain and provide the students with support to ensure they graduate, both for the school's reputation and to avoid a loss of tuition.
Matsumori said that S&P has observed schools fall in line with the corporate philosophy "its easier to retain a 'client' than attract a new one" though in the case of higher education institutions, it's a student. She listed the University of Utah as an example of an institution that's working to improve its retain rate by doing this.
"They noticed there was a lot of opportunity to improve their lower-than-average graduation rate by focusing on students who had previously attended the university but hadn't completed," she said. "Their strategy is to work to attract them back to the university to complete their degree."
She has also heard of universities improving student support systems and "enhancing the freshman experience" and by adding student advisors, pre-orientation classes or classes to help get students up to speed before they hit the ground. Schools even put students in dorm rooms with students who have similar interests or a mix of upper and lower classmen to bridge the age gap.
"Public universities in particular have a mission of educating students in their state," she said. "As demographics of the overall population changes, we believe these public universities will work to attract those students in their state in line with their mission."
Morton said that for Florida state schools, the board he has on has been sensitive to the challenges of prospective students that arise from different demographics and different socioeconomic backgrounds, and have made Florida state schools accessible to them.
Matt Fabian, managing director at Municipal Market Advisors noted the challenges the higher education sector faces but said "things almost never go wrong with public higher education".
He said that to the extent economic growth stays slow, private universities are dependent on continued federal aid enhancement, and they are exposed to downturns in tuition, and students ability to pay tuition.
"There are more challenging times ahead for small private universities that are not in the top 50," he said.
He said that as long as investors' portfolios are diversified and not overly allocated to just a few small private universities, they should be fine.
