Colleges and universities in the U.S. have adapted to the new economic reality of increased competition for students and limited latitude in terms of raising tuition prices, according to a Standard and Poor’s report on the sector’s prospects for 2016. Within this new reality, the report added, high-profile schools will continue to build their brands and credit quality, while smaller, regional schools may increasingly struggle to distinguish themselves from the rest of the pack.
“Higher education is traditionally very stable, but since the recession, things have gotten a little dicier,” said Jessica Matsumori, senior director and analytical manager of S&P Ratings Higher Education Group.
As a result, the higher education credit ratings outlook is “bifurcated” going into 2016, the report found. Schools that enjoy a national or international renown will not lack for students and will in fact be able to turn away far more than they admit. On the other side of that coin, the applicant pool for lesser known schools is expected to diminish, and, as a result, their credit ratings may suffer. There is one exception to that rule:
“We expect smaller, more focused institutions to have higher matriculation rates overall; while they may not collect as many applications as the large universities, a strong niche usually allows them to attract self-selecting students who are particularly interested in the student experience they offer,” the report read.
For some institutions, too narrow of a specialization might actually have a negative impact on their credit ratings, the report found. At particular risk are stand-alone law schools and historically Black colleges and universities. “On the HBCU front, historically they’ve attracted a very particular type of student,” Matsumori said, adding, “The competition is really increasing for those types of institutions.”
The current situation is, in part, the result of how the higher education sector responded to the Recession. “Higher education is interesting in that, when the economy goes south, the sector actually benefits, because more students go back to school,” Matsumori said. Now that more jobs are available and the students who enrolled around 2008 are graduating, the pool of students is much smaller, creating more competition among institutions.
While some schools can rely on strong endowments or generous alumni bases—14 institutions received 16 individual gifts of $100 million or more in 2016—others are more dependent on their tuition revenue for basic operating expenses. That means that, for some, lean times are ahead if students do not enroll in sufficient numbers.
The report noted that “schools generally already made the easy expense cuts several years ago, so these institutions may have a tough time adjusting their expense bases without major disruption to operations or significant changes to their operating models.”
Staff writer Catherine Morris can be reached at [email protected].