• April 16, 2014

More Public Colleges Are Pessimistic About Tuition Revenue, Survey Finds

Net tuition revenue increased last year for 96 percent of public colleges and 85 percent of private institutions, according to survey results released Thursday by Moody's Investors Service, and a majority of both groups expected to see gains in the current fiscal year as well.

But when looking forward, a growing share of public-college officials were pessimistic about net tuition.

About one in five public institutions projected a decline in tuition and fee revenue for the current fiscal year, which Moody's attributes to political pressure on some to slow tuition increases while also increasing financial aid. Among private-college leaders, 15 percent projected a dip in net revenue.

Moody's, which provides bond ratings for 506 colleges, has been conducting the survey to gauge the recession's "considerable" impact on the complex alchemy of pricing in higher education. The findings have shown that colleges are earning more revenue per student, as tuition increases have outpaced how much colleges are discounting their sticker price with institutional financial aid.

That means colleges are relying more on tuition to cover operating budgets as state contributions, private giving, and endowment returns have tapered.

The survey found, however, that net tuition declined at 15 percent of private colleges, matching last year's percentage, but far outpacing rates before the recession, when only 3 to 5 percent saw declines.

Still, more private colleges are positive this year about the future, the survey found. The proportion that projected a dip in revenue this year, 15 percent, is about half the 29 percent that predicted one last year—a shift that is among the most significant changes identified by the survey, said John C. Nelson, a managing director at Moody's who heads its higher-education practice.

Negative projections last year were stoked by a "higher level of uncertainty" around financial planning, said Mr. Nelson.

But private colleges are hardly out of the woods, he said. Small institutions are more likely to struggle with heavy tuition-discount rates, enrollment pressures, and prolonged periods of declining tuition revenue. The most vulnerable, Mr. Nelson said, are the 45 percent of colleges that have fewer than 1,000 students, and Moody's does not analyze many of those institutions.

In coming years, more financially weak small private colleges will cope by merging, forming partnerships with for-profit companies, or closing, said Mr. Nelson.

Looming Trouble for Public Colleges?

Tuition revenue has increased rapidly at public institutions, which isn't a surprise, given the budget pain caused by hard-hit state economies.

The survey found an 11-percent median increase in net tuition and fee revenue among 96 percent of public colleges. But that trend will change, said the survey's respondents.

The median increase projected by the 81 percent that expect revenue gains is just 4.4 percent, while the median projected decline among the 19 percent predicting a drop in revenue is 5.2 percent.

Erin V. Ortiz, an analyst at Moody's and primary author of the report, said some public institutions are unsure how much more revenue they can raise through tuition. Politicians and students are resisting tuition increases, while 90 percent of the survey's respondents expect growing financial-aid expenditures.

Furthermore, she said, some public universities, particularly in the Northeast, have already increased their tuition levels to the point that they may feel competitive pressure from private colleges on cost.

Declines in net tuition become problematic when they occur for two to three years, said Mr. Nelson. And over all, the colleges that are the most threatened are those with unmanageable debt. For example, Mr. Nelson said, some public colleges in New Jersey have more debt than revenue. Relying on tuition increases to cover debt service is problematic, he said.

Other key findings from the report include the following:

  • Tuition-revenue pressure for private colleges varies by region, with those in the South and West continuing to enjoy an advantage, thanks to growing populations and student demand. Colleges in those regions also generally follow a lower-tuition, lower-aid model.
  • Tuition-discount rates are expected to remain relatively flat, with private colleges projecting a rate of 41 percent and public ones 23 percent.
  • Private colleges continue to experience a decline in student yields, the proportion of admitted students who actually enroll.
  • Application volume and enrollment growth remain strong for both private and public colleges.

Copies of the report are available at Moody's Web site.

Comments

1. impossible_exchange - December 22, 2010 at 07:17 pm

Education is a philanthropy. The university education began as such. Public universities were created by the state to raise the long term education level of citizens. For decades this "investment" served the people, through greater educational opportunity, and the state by increasing long term tax revenues (college students got better, higher paying jobs and paid the taxpayers back their investment, that is, the college education subside that allowed working class folk to go to college in the mid to late twentieth century).
However, the last two generations have revoked that tax payer subside to higher education precisely at a time when that education has become most valued. The consequence is student loan debt at greater levels than ever. Thus, while the Boomers and X-ers who went before this current generation of undergrads (Y-ers?) were able to have a cheap education. Their refusal to support, through tax payer subsides of higher education, the university education of this current generation mean that while they themselves had an easy ride, relatively speaking, the current generation is getting the short end of the stick.

Boomers and X-ers received a government subsidized university education, paid for by their parents, and now they are refusing to do the same for their kids.

That is messed up!

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