Higher Ed Revenue Growth Better Than Expected

Growth in several higher education revenue streams has been better than expected for 2018, Moody’s Investors Service says in a new report -- but the ratings agency nonetheless maintained a negative outlook for the sector due to flat enrollment and limited expected growth in tuition and fees.

March’s federal spending bill is one key factor boosting revenue, as it increased funding for grant-making agencies like the National Institutes of Health and National Science Foundation by 8.8 percent and 4 percent, respectively. The spending bill also increased the maximum Pell Grant award by $175 to $6,095 for 2018-19 and increased the Supplemental Educational Opportunity Grant and Federal Work-Study programs by 15 percent.

Strong investment returns during the first half of the year boost the sector as well. Estimates from many universities show 2018 investment returns at or above 8 percent, which is the level generally needed for endowments to cover spending and inflation.

Fiscal conditions are improving for states, meaning funding for public universities for the 2019 fiscal year is in line with or better than an anticipated growth rate of 2 percent to 2.5 percent. Plus, states like Pennsylvania and Illinois that have experienced extensive budget delays in recent years have now passed on-time budgets. That alleviates stress from universities that have needed to navigate delayed funding and the possibilities of funding cuts, instead allowing them to focus on long-term goals, according to Moody’s.

Still, some public universities are expected to experience funding cuts and pressure from pensions. Uncertainly also exists over how federal tax reform will affect charitable giving and how trade tensions could affect endowment earnings.

Pricing pressure remains on universities -- an important point in a higher education sector that remains heavily reliant on tuition and fees. Full-time-equivalent enrollment at four-year universities is projected to grow by about 1 percent in 2018 and 2019, while a declining number of high school graduates in future years adds pressure on the Northeast and Midwest in particular. Moody’s expects competition for students to increase.