Report: ‘Hypercompetitive’ higher ed market will limit revenue growth
Dive Brief:
- A “hypercompetitive” market for higher education along with a continued focus on affordability will constrain tuition revenue in the coming year even as state funding stabilizes, Moody’s analysts wrote in a report released this week.
- Low-to-negative net tuition revenue growth is likely for many regional public and private colleges, which will spur continued cost containment that pushes them to streamline programs and even merge, collaborate or close.
- While potential federal and state policy changes around student aid are the “greatest uncertainty” for higher ed, programs such as free college or loan forgiveness would “take several years to devise and implement,” the analysts wrote.
Dive Insight:
Colleges are addressing growing concerns of a slowdown in the supply of high school graduates, which could shrink their applicant pools and heighten competition for top students. While the number of high school graduates rose 15% from 2002-03 to 2012-13, only 5% growth is expected between 2012-13 to 2027-28, according to data from the National Center for Education Statistics.
The potential for an economic slowdown could boost enrollment, the Moody’s report authors write, but it stands to hurt institutions’ balance sheet reserves, endowment returns and fundraising efforts. Large public and private institutions will fare better than small regional colleges when it comes to maintaining enrollment.
Moody’s analysts expect investment returns in the range of 5% to 6% in the 2019 fiscal year, which they say is sufficient to support endowment spending but not enough to match increases in higher ed inflation. They expect more than 30% of universities will see cash and investment levels decrease by more than 3% in the 2019 fiscal year and that 15% to 20% will see a comparable increase.
A report earlier this year from the National Association of College and University Business Officers put 10-year endowment returns at 5.8% in 2017, short of the group’s 7.2% average long-term target for… (continue reading)