Moody's: Prepare for more college closures, flat tuition growth

'Families are becoming more sophisticated consumers,' expert says

Colleges and universities are poised for another year of sluggish tuition growth, according to a report from Moody's Investors Service released Thursday, Danielle Douglas-Gabriel reports for the Washington Post.

Based on its annual survey, Moody's expects net tuition revenue—the amount schools receive after awarding financial aid—will grow between 2% and 3% in the fiscal year 2016. Tuition will essentially be flat after adjusting for the historic rate of inflation.

That is a significant shift from a "years-long trend" of tuition growth outpacing inflation, Douglas-Gabriel writes. According to the report, concerns around affordability have put more pressure on schools to keep costs low.

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"Families are becoming more sophisticated consumers of the higher education sector, shopping by price, considering the cost of a full freight of four or five years in college," explains Erin Ortiz, assistant VP at Moody's and co-author of the study. The number of college-going students is also flat or declining, she says.

Multiple challenges

In addition to flat tuition revenue, several complicating factors will also make college administration more challenging, Douglas-Gabriel argues.

Public institutions are dealing with state-mandated caps on tuition increases. "As a result, nearly two-thirds of those schools expect less than 3% growth in tuition revenue," Douglas-Gabriel writes. In contrast, these institutions saw an annual growth rate of around 5% between 2005 and 2013.

Moody's says small regional or rural public colleges are particularly vulnerable because they have a limited ability to recruit out-of-state or international students who pay higher tuition rates.

Overall, private colleges are expected to post a median net increase in tuition of 2% but some of the sector is feeling strained. Nearly a quarter project a fall in net tuition—up to 5%. Moody's warns that these private schools may have a difficult time coping.

Susan Fitzgerald, associate managing director at Moody's and co-author of the report, said, "We expect to see more college closures and consolidations, so that bifurcation of the industry is continuing."

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However, Richard Ekman, president of the Council of Independent Colleges, argues that Moody's and others underestimate the ability of private colleges to adapt and raise money from alumni. "Colleges are doing all that you would expect them to do to economize," he says (Douglas-Gabriel, "Grade Point," Washington Post, 11/19).

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