Moody's: Prepare for your net revenues to decline

Slowing enrollment means more tuition discounts needed to remain competitive

Nonprofit colleges and universities should expect their smallest revenue growth in a decade this year, which could mean even more service cuts despite rising tuition prices, according to Moody's Investors Service.

EAB insight: Understanding the enrollment downturn

The company's annual survey found one-quarter of institutions have predicted a drop in net revenue for fiscal year 2015 and 55% of public schools—compared with 40% last year—predict they will see revenue grow, at most, 2% more than the inflation rate. About 40% of private institutions also predict they will fail to increase revenue past the point of inflation at all, and 24% predict a net revenue decline in fiscal 2015.

Small private and regional public schools in the Northeast and Midwest, where enrollment growth has slowed because of flattening birth rates, will be most affected, say Moody's analysts, but every region will be touched by revenue pressures.

About 45% of private and 37% of public institutions predict their enrollments will decline in the 2014-15 academic year, though Moody's analysts expect overall enrollment to increase 1%.

Facing flattening enrollments? Alternative student pathways might help

"Smaller entering classes in much of the country over the next few years foreshadows continued revenue pressure," says Eva Bogarty, a vice president and senior analyst at Moody's.

With fewer applicants overall, "already struggling schools" are forced to offer even more significant discounts to attract potential students, says Bogarty. This year, private institutions returned 45% of tuition back in the form of discounts, up from 43% last year. 

The institutions' abilities to grow or maintain net tuition per student strongly correlates to its Moody's credit category. Less than 20% of the highest-rated institutions expect lower net tuition per student next year—compared with about 40% of the lower-rated schools (Moody's release, 11/17; Marcus, Hechinger Report, 11/17).

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