Standard & Poor's Report Lays Out Challenge for Coming Years

A new report from Standard & Poor’s offers a mixed picture for colleges’ prospects in the coming years, but one takeaway is clear: Colleges should expect to feel pain through 2012.

“We believe that the cuts that many institutions have made in fiscal 2009 may offset lower revenues this year, but that managing additional cuts in fiscals 2010, 2011, and 2012 could be more difficult,” says the plainly titled report, “The Recession Is Testing U.S. Higher Education’s Resilience and Credit Quality.”

The report says that 2009 enrollment may remain steady, but that trouble in credit markets, investments, retirement plans, and home equity may spell trouble for some colleges, particularly private ones. Although applications are reportedly up, the report says, “many institutions are also citing a lower amount of deposits, compared with last year.”

The report issued other warnings for bread-and-butter issues in college management: endowment, fund raising, and state money. Colleges’ heavy dependence on endowments — which provide up to 45 percent of operating revenues at some institutions — may mean that they will have to make significant cuts in their operating budgets.

S&P expects fund-raising revenue to be lower in the next two years than it was in the past two, with colleges in the silent phase of fund raising waiting out the recession. And even as states cut their budgets, many public colleges may see increased demand, as they are perceived as a cheaper alternative to private colleges. —Scott Carlson