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S&P Global Ratings is projecting a “bifurcated” outlook for higher education next year, with strong institutions faring well and less selective colleges expected to face challenges.
The report released by S&P Global, which only considers not-for-profit institutions, projects that “operating pressures will increase in 2024” due to a mix of enrollment challenges and wage and expense growth. Operating margins are expected to “be weaker” than in fiscal year 2023. Enrollment and financial pressures are expected to continue for less selective institutions.
Well-off institutions—those with high credit ratings and enrollment—however, will be fine, according to S&P Global, which noted that such colleges have financial flexibility and revenue diversity to help them even as demographics issues are expected to slow enrollment nationally.
“Although we expect greater economic stresses in 2024, we also expect higher-rated institutions with solid demand will maintain their creditworthiness as they continue to generate positive cash flow and operating margins, thus sustaining their healthy balance sheets,” the ratings agency reported.
S&P Global was one of three major financial organizations—along with Fitch Ratings and Moody’s Investors Service—to release a report in recent days looking at the state of higher education in the coming year. All three organizations differed somewhat in their projections for the sector next year.
Fitch indicated that pressures on higher education will “intensify” in 2024 due to enrollment and financial challenges, as well as the resumption of student loan payments amid public scrutiny of college costs. Those challenges are expected to hit small, less selective, tuition-dependent colleges the hardest. State flagships and selective private colleges are expected to see growth.
Of the three reports, Moody’s was the most positive for the sector, projecting a “stable” 2024 with inflation expected to cool, thus easing some operational strain and expense growth.
