Higher education finances still in crunch mode

Moodys_logoAmerican colleges and universities continue to suffer from financial stresses, five years after the worst financial crisis in generations. Nearly half are facing trouble over the next year, and things are getting somewhat worse. That’s according to ratings agency Moody’s.*

Let’s take a close look at the press release (because the report itself is behind a very high paywall) and note some key points.

  • About one quarter of schools are seeing tuition go down: “net tuition revenue declines at a projected 28% of public and 19% of private universities”. Worse, that number is bigger than it was last year: “In our prior survey, 15% of public and 18% of private universities projected net tuition revenue declines.”
  • Nearly half of American institutions are seeing tuition growth so small that inflation beats it: “net tuition revenue growth below inflation projected for 44% of public and 42% of private universities”. Recall that inflation is tiny, just about 2%, so these “growth” numbers are in the 0.1-1.9% range. Consider this a decline in real terms, or at best a plateau.
  • Why is this happening? Fewer students, mostly: “total enrollment declines at nearly half of public and private universities.” This is something I’ve been tracking very carefully (peak education, crunch time, inflection pointmore peak education), more inflection point).
  • Note the other reasons Moody’s offers: “The cumulative effects of depressed family incomes and net worth, softened student market demand at current tuition prices, combined with political and regulatory pressure will impede top-line revenue growth”.  The continued weak economy plays a major role.  The specter of high tuition and associated debt might be keeping students away from college, or down-shifting to less prestigious, less expensive campuses.  And Obama’s new rating system is explicitly designed to bring down tuition.
  • This is a problem for public institutions as well as privates: “Anemic tuition revenue growth has spread to a larger share of the higher education industry, infecting public universities for the first time in decades.” This is due in part to reduced state support, which doesn’t seem likely to change in the near future.

What does this grim analysis mean for higher education, technology, and the near future?  Some quick thoughts:

First, we may see the economic difference widen between well-off and not-so-well-off institutions. This is already a feature of the American scene, of course, but the gap could well widen.  This has implications for education access and economic inequality, among other topics.

Second, this picture adds more pressure on administrations to not improve the lot of adjuncts. The nearly one half of institutions suffering this revenue crunch will face enormous local pressures to spend tighter money on other, more politically safe causes, such as faculty lines, staff positions, and new facilities. Adjuncts just don’t have the clout to compete… unless they continue to organize. A burgeoning, national adjunct union movement might be one outcome of this crisis.

Third, this economic challenge will play a part in national politics: “federal budget negotiations, the reauthorization of the Higher Education Act, and performance-based funding may result in further stress on colleges if student aid and loan programs are curtailed to any degree, given that a rising share of students are dependent on these funding sources”.  Will politicians portray public institutions as good targets for continued austerity measures – and, if so, will voters agree?

Fourth, expect to see more drives to reshape – i.e., reduce – campus curricular offerings. Why? Because one response to this financial crunch is to focus on one or several programs,
rather than a broad spectrum: “‘Regional public universities and smaller private colleges without a well-defined niche continue to face the strongest challenges,’ added [Karen L
Kedem Vice President – Senior Analyst Public Finance Group].” To occupy that niche one must devote more resources to those focal offerings, and fewer to others.

*Yes, that Moody’s. It’s one of the big three ratings agencies whose ratings, ah, issues helped play a role in making the 2008 financial crisis happen. Same Moody’s who downgraded United States debt. Readers might ask why I take their opinion seriously, given their track record?

First, because colleges, universities, governments, and private investors listen hard to Moody’s, despite that record. Second, because few other research entities are conducting this level of analysis. I would certainly welcome alternative data and
interpretations.

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One Response to Higher education finances still in crunch mode

  1. Pingback: Hack Education Weekly News: Chicago Public Schools Ditch inBloom | H Tanalepy

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