While Americans are already burdened with enormous student loans that may take many years to pay back and the fee of education continues to rise, schools have raised tuition fees.
But a report from Fitch Ratings on Tuesday said recent increases at private colleges and universities were still not enough to maintain pace with rising costs.
In the last fiscal yr, the median adjusted operating margin fell to its lowest level in over a decade, based on the rating agency. And that was despite schools’ investments and support from their foundations remaining relatively stable. And the outlook will not be looking any higher.
“Looking ahead, additional operational pressures are expected as many institutions grapple with increased costs and a fragmented enrollment environment,” said Emily Wadhwani, senior director at Fitch. said in a press release.
Cash flow will likely come under greater pressure, particularly because concerns about fall enrollment are compounded by problems with the FAFSA student aid process earlier this yr, she said.
After two years of declines, there was an improvement in net revenue from tuition and costs in fiscal yr 2023, the report said. But the median increase was still well below pre-pandemic levels and never enough to offset inflation.
As a result, Fitch-adjusted operating margins declined across all rating categories to a median of minus 1.7% across all the school portfolio, reflecting the primary full yr since fiscal 2019 with little to no government institutional support.
There are also large differences amongst private schools, the report says. At the private schools with the very best debt rankings – AAA and AA – tuition increased as a percentage of total revenue, while at lower-rated schools this was not the case.
Although margins declined at AAA and AA colleges, they remained healthy and were even higher than in any of the three years before the pandemic, Fitch found. But the alternative was true at lower-rated schools.
“Sector fragmentation will further widen the credit gap between larger, more selective institutions and their smaller, less selective and more tuition-dependent counterparts,” the report said.
In other words, elite schools which have large endowments and wealthy donors are less vulnerable than other schools which can be more depending on tuition revenue and suffer from more fluctuating enrollment numbers.
The report comes just weeks after the abrupt closure of the University of the Arts in Philadelphia resulting from declining enrollment and “significant, unexpected costs.”
In fact, based on the State Higher Education Executive Officers Association, about two private colleges close every month.
The total variety of U.S. college students had been declining for years, even before the pandemic triggered a pointy decline in enrollment.
Public colleges and universities are under similar pressure, with enrollment falling to 10.2 million students in 2023, a 12 percent decline from the 2011 peak.
As a result, revenue from tuition and costs less financial aid fell 3.3% to a median of $7,353 per full-time student in 2023, based on a report This is the sharpest decline since 1980, based on the State Higher Education Executive Officers’ Association.
