New revenue pressure for some U.S. colleges

The results of a survey of U.S. colleges and universities in the wake of the economic crisis by Moody's Investors Service finds stresses on revenues that could depress future operating performance stemming from declines in income from tuition and fees.
While some media reports have focused on how college tuitions continue to outpace inflation even during a recession, nearly 30% of private college respondents to the Moody's survey said they are preparing for a decline in net tuition and fee revenue in fiscal year (FY) 2010 over only 9% in the prior year.
"The decline in net tuition income may stem largely from colleges needing to discount tuition by a larger amount than in prior years," said Moody's Vice President Laura Sander, author of a report on the survey's findings.
"The colleges and universities increased tuition but also increased by even more their discounts to students in the form of financial aid and scholarships."
She said the trend will also affect institutions across a larger spectrum of rating categories in FY 2010 than in FY 2009, placing stress on more of Moody's lower-rated borrowers. In contrast, public universities, as a whole, will likely experience little pressure on net tuition and fee revenue with 92% anticipating increased net tuition and fee revenue in FY 2010.
"In order to determine the market strength of individual colleges, our analysis will focus on the extent to which this is a temporary trend in tuition pricing or is a symbol of weak, long-term competitive positioning," said Sander.
Highlighting the strong fundamental demand for higher education, student demand data from the survey participants show increased undergraduate enrolment for both private and public institutions, with 73% of private and 82% of public institutions reporting greater numbers of undergraduates.
"For private colleges and universities, the growth is driven by increased applications overall and less selectivity," said Sander. "Public institutions also experienced growth in applications but increased selectivity as a whole." The matriculation rate — the percent of admitted students who actually enroll — declined for both sectors, but the decline was more pronounced for private institutions.
In terms of geography, Moody's survey indicates more stress among private institutions in the Mid-Atlantic and Midwest region, the least among those in the South and West, and a mixed result for colleges and universities in New York and New England.