Expect Another Down Year for Tuition Revenue, Moody’s Says

Report: “Tuition Revenue and Enrollment Pressure Remain Acute for Many U.S. Universities” (available to Moody’s subscribers here)

Author: Moody’s Investors Service

Summary: Colleges and universities—well, many of them, at least—are cash-starved beasts, increasingly reliant on tuition and fees to make ends meet. So this report, the credit-rating agency’s fifth annual analysis of tuition revenue, brings unhappy news. Growth in net-tuition revenue next year, the report says, will be the weakest it’s been in a decade.

Moody’s, which based the report on a survey of colleges, expects public universities’ tuition revenue to grow by just 1.9 percent. Private institutions are projected to fare only slightly better, with forecast revenue growth of 2.7 percent. As a standard of comparison, Moody’s sets the rate of inflation at 2 percent. Half of the 120 public universities that responded to the survey said they wouldn’t even cross that baseline.

What’s behind the paltry growth? The usual suspects, mostly: “lingering price sensitivity,” pressure from lawmakers to keep cost in check, and declining enrollments. That last problem is particularly vexing. Moody’s reports that 37 percent of public universities and 45 percent of private institutions expect to have smaller entering classes in the coming year. The situation is especially bleak in the Midwest and the Northeast, where a drop in high-school graduates has left colleges fighting fiercely for students.

Bottom Line: This year’s takeaway is pretty similar to last year’s: A tough 12 months are in the offing for many institutions. And Moody’s notes that it is seeing “greater stratification by rating category"—which is to say that the gap between big-name universities (the ones with stronger credit ratings) and their less-recognized counterparts is only widening.