Moody's reports find higher ed finances 'stabilizing'

Regional, less-selective schools still struggling

The financial condition of nonprofit private and public colleges has steadied overall, according to two Moody's Investors Service reports, but not all schools fared well.

The reports examined the financial medians of each sector for fiscal year 2014 compared with those of 2013.

"The broad swath is stabilizing," says Susan Fitzgerald, Moody's associate managing director. "But there is a material portion of each sector that really continues to feel very significant stress, with declining revenues and enrollment and declining viability." 

However, about 20% of institutions still struggle to generate enough revenue, and the gap between well-performing and at-risk schools is growing. Colleges and universities lacking a national enrollment pull have been the hardest hit, according to Moody's.

At public institutions, the analysts found:

  • Total state funding increased;
  • The average portion of colleges' operating budgets made up of state funds grew slightly from 23.9% to 24.3%; and
  • The growth rate of debt incurred by colleges has slowed.

States increase higher ed funding, but barely

But not all findings were positive. Nearly 25% of schools saw tuition revenue drop, and for almost half of those schools the growth was smaller than the 3% inflation rate. Public pressure to increase college affordability and limit prices will likely continue to create problems, according to Moody's.

Additionally, the net tuition revenue is related to student demand. While "global/national" institutions—such as land-grant and flagship campuses—have seen enrollments grow by 5.4% since 2010, regional schools saw enrollment drop 1.7%.

Institutions in the Midwest have been hit the hardest. Since 2009, enrollments have grown just 4.3%, compared with the South's 11.6%, West's 10.6%, and Northeast's 8.4%.

Findings in the private sector were also mixed:

  • Median revenue growth was 3.4%, outpacing median expense growth at 2.9% for the first time since 2011; and
  • Median net tuition revenue was 3.2% and overtook inflation—although it remained below the pre-recession level of 7%.

However, 19% of schools saw revenues decline and 18% had a drop in aggregate net tuition revenues. Most of these struggling schools are less selective and lower-ranked. These institutions also saw lesser returns on asset growth than their elite peers (Moody's Investors Service release, 7/6; Thomason, "The Ticker," The Chronicle of Higher Education, 7/7; Lederman, Inside Higher Ed, 7/8).

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