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California Association of Private Postsecondary Schools

Declines in Colleges’ Net-Tuition Revenue Deepen, Survey Finds

11/26/2013

The Chronicle of Higher Education.  November 22, 2013.  The nation’s feeble economic recovery is contributing to an increasingly bleak economic forecast for its colleges, according to a new report.

The results of an annual tuition survey released on Friday by Moody’s Investors Service, a bond-rating company, offered grim news. Of the 114 respondents among four-year public universities, 28 percent said they expected declines in net tuition for the 2013 and 2014 fiscal years, and 44 percent reported that their net-tuition revenue increases would not equal the inflation rate, which the report pegs at 2 percent.

“Public universities have not experienced such poor prospects for tuition-revenue growth in more than two decades,” the report says.

Among the 173 private institutions surveyed, 19 percent said they expected net-tuition declines in the 2013 and 2014 fiscal years, and 42 percent reported that their revenue increases would not equal inflation.

In its previous annual survey, Moody’s reported that only 15 percent of public institutions and 18 percent of private institutions projected declines in net-tuition revenue.

High unemployment rates drove increases in enrollment at the beginning of the recession, but the sluggish nature of the economic recovery is compounding colleges’ economic woes, according to the report’s authors.

“Cumulative years of depressed family income and net worth, as well as weakened full-time job prospects for recent graduates, are softening student market demand at current tuition prices,” they wrote. “Conversely, growth in part-time lower-wage jobs weakens enrollment in some programs sensitive to countercyclical demand.”

Further improvement in the job market will only continue to “dampen” enrollment numbers, the report says, and would-be students’ continuing sensitivity to costs will discourage substantial tuition increases.

Flat or falling net-tuition revenues are likely to worsen the problems colleges already face, especially private institutions “that have contained expenses for multiple years, including limited, if any, compensation increases, delayed capital investment, and reductions to programs and services,” the report states. “Many colleges may feel the need to make strategic investments in people and programs in order to remain competitive, but these expense increases will likely outpace the growth of student charges, resulting in a growing number of colleges with operating deficits.”

Those trends will have especially profound effects on “regional public universities and smaller private colleges lacking a well-defined niche,” the report says.

The survey is available to Moody’s subscribers here.