Fitch Predicts Stimulus Won't Match Coronavirus Costs for Colleges

April 6, 2020
 

Another bond ratings agency is predicting that the recently signed federal stimulus package will not provide enough relief to colleges and universities to offset the combination of revenue being lost and expenses that are increasing because of the COVID-19 pandemic.

The higher education sector is experiencing prorated declines in some student fees along with an increase in operating expenses driven in part by the shift to online learning, Fitch Ratings said in a note released today. That puts the most pressure on institutions with relatively less liquidity, low margins and difficulty balancing their budgets, as well as residential colleges that rely heavily on revenue from student fees.

“Many institutions are evaluating expense reduction actions, including support-staff layoffs or furloughs,” Fitch said in its note. “Higher-rated institutions with strong financial cushions should have sufficient resources to cover budget gaps at least through the end of the 2020 fiscal year.”

Fitch also provides estimates on how $14.3 billion that the stimulus package dedicated to colleges and universities could translate on the ground. A tenth of the funding is to be divided between historically black colleges and universities, as well as grants for small institutions that have unmet needs related to the coronavirus. Three-quarters of the remaining 90 percent is to be distributed based on enrollment of full-time students receiving Pell Grants, with leftover money to be distributed based on share of enrollment not receiving Pell Grants.

If the formula is applied uniformly across eligible students using 2018-19 enrollment data, Fitch estimates that institutions would receive about $1,400 per Pell student and $200 per non-Pell student.

Larger institutions, which are likely to have more resources on hand, are likely to receive the most aid, according to the ratings agency. Small private colleges, which have less financial wiggle room, may need more federal assistance.

“Even with funds earmarked specifically for small institutions with unmet coronavirus-related financial needs, the demand for, and method of, disbursement for these funds is yet unknown and may leave some smaller institutions to face heightened financial strain and rating pressure,” Fitch’s note said.

Generally, Fitch anticipates financial margins tightening across the sector.

The findings on coronavirus costs exceeding new revenue in the stimulus are similar to conclusions reached by Moody’s Investors service last week.

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