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Budget Pressures Persist for Public and Private Colleges Alike

Reports: “U.S. Public Colleges and Universities’ Fiscal 2013 Median Ratios” and “U.S. Not-for-Profit Private Universities’ Fiscal 2013 Median Ratios” (The reports are available for purchase, at $500 apiece, here and here, respectively.)

Organization: Standard & Poor’s Ratings Services

Summary: The 2013 fiscal year was financially volatile for higher education, with ratings downgrades exceeding upgrades for both public and private nonprofit colleges. Despite the challenges, key financial benchmarks for both sectors stabilized, thanks to improved endowment market values.

Among public colleges:

  • State budget austerity has mostly stabilized or improved, but public financing of higher education remains below prerecessionary levels and appropriations are unlikely to return to historical highs.
  • Demand among students has held up, partly because of competitive tuition rates compared with the private sector. Maintaining that advantage will continue to be important.
  • Tuition revenue has fallen, and enrollments have been flat or declined.

Colleges with revenue diversity and “strong demand profiles” are in the best position to meet those challenges.

Among private colleges:

  • Overall demand for higher education was stable compared with 2012.
  • Balancing affordability with institutional financial health was more difficult than for public-sector colleges, and that problem was
    particularly acute for private colleges that depend heavily on tuition revenue.
  • Operating margins were compressed in 2013, largely because of concerns about affordability.

Bottom Line: Public and private colleges have both benefited from improved endowment performance, but both sectors continue to face financial challenges as the United States climbs out of its recessionary hole.

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