Revenue Dip for Private Colleges
Private colleges bolstered financial aid and decreased selectivity to help sustain enrollment in a downward economy, but a significant number still expect tuition and fee revenues to decline this year, according to a survey released today by Moody’s Investors Service.
Nearly 30 percent of the 100 private colleges that responded to Moody’s survey project their net tuition and fee revenues to fall in the 2010 fiscal year, which began in July at most institutions. The percentage of colleges reporting anticipated revenue declines is higher than in recent years, when an average of fewer than 10 percent of those surveyed recorded decreases.
The results of the survey suggest that private colleges, which tended to increase tuition more modestly this year, have taken a financial hit even though undergraduate enrollment actually increased on most campuses. Indeed, 73 percent of those surveyed showed enrollment growth, and at one unnamed institution enrollment increased by 15.4 percent, the report notes.
Roger Goodman, vice president and senior analyst at Moody’s, said the data may suggest some colleges “overreacted” to the financial crisis and increased aid beyond what was necessary to maintain enrollment levels.
“It’s not a science, and if you give additional financial aid to a certain set of applicants you’re admitting you can’t possibly know whether that last dollar you gave is the one that is convincing the student to come there,” he said.
A number of private colleges are largely dependent on tuition for operational expenses, so any such revenue decline for those institutions would potentially represent significant financial pressures. On the other hand, institutions with large endowments are likely to be less impacted by a dip in tuition and fee revenues.
“For colleges that are heavily tuition dependent and less selective I think this raises a lot more questions than colleges that are not that tuition dependent and already highly selective,” Goodman said. “We’re going to be careful about not overreacting to the results of this survey. We’re looking for longer term trends, not just short term blips. We view it as sort of a cautionary sign. [For] colleges that thought the never ending increases in tuition and net tuition over time [were] always going to be there, this is a little bit of a yellow flag that maybe that’s not the case.”
Moody's, a bond rating agency, only surveyed rated institutions. Consequently, the survey does not include responses from unrated colleges that are likely to be in a less stable financial position.
In addition to slowing the rate of tuition increases – the median increase was 4.1 percent, compared to the 5.5 percent 10-year average reported by the College Board – private colleges were less selective. Of those surveyed, 68 percent said selectivity had decreased. The median selectivity rate – the percentage of applicants admitted – rose to nearly 61 percent, up from 57 percent a year earlier, according to the report.
In contrast to private colleges, public universities are not likely to see drops in tuition and fee revenues, according to the report. Of 61 public institutions responding, 92 percent anticipate increased net tuition and fee revenue this fiscal year.
Unlike private colleges, public institutions were able to increase revenues while being more selective. Of those that responded, 51 percent reduced the percentage of first-year students they accepted. The median acceptance rate for freshmen was 72.5 percent, two percentage points lower than the previous year.
The median tuition and fee hike for public colleges was 4.7 percent, slightly higher than that of private institutions.
For a copy of Moody's report, "New Tuition Challenges at Many U.S. Private Universities," e-mail firstname.lastname@example.org.
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