Declines in the total enrollment of American higher education are "credit negative" for colleges and universities, particularly the majority that depend on tuition revenue for operating support, says a review of credit issues released Monday by Moody's Investors Services. "Enrollment declines in higher education are credit negative because they heighten competitive pressure for all universities. This limits opportunity to grow tuition revenue, now the primary revenue for the majority of public and private universities," said the report. "[A]mong traditional undergraduate colleges and universities, the credit effect is more severe for lower-rated, tuition-dependent colleges and universities that lack a strong brand name or market position. For higher rated universities with established student demand, the effect is minimal."
The report added that demographics of students may have a major impact on which institutions feel these shifts. "With the fall 2012 enrollment declines most pronounced for students over the age of 25, the credit effect is most acute for community colleges and for the 30 percent of universities we rate where more than 25 percent of total enrollment is at the graduate level," the report said. "Declining graduate enrollment can disproportionately affect a university since students in graduate programs typically generate more revenue per student than in undergraduate programs."