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Moody's: Coronavirus Drives New Business Models, Disruption for Higher Ed

August 27, 2020
 
 

The coronavirus pandemic will accelerate a transformation in higher education’s business model, with many universities building out online capabilities and expanding nondegree and certificate programs -- changes that are highly disruptive in the next year or two but bolster credit prospects for the sector as a whole.

That’s the takeaway from a new report released Wednesday by Moody’s Investors Service. The changes are expected to drive innovation and growth throughout higher education, allowing some universities to emerge stronger with growing enrollment and revenue, even as others struggle and possibly fail, the ratings agency found.

“Some universities previously resistant to change will have to take more expansive steps to adapt to this transformation,” said Pranav Sharma, assistant vice president at Moody’s, in a statement. “Not all universities, however, have the resources or culture to move quickly and the coronavirus will expedite existential threats for some. Universities that have made extensive investments in digital capabilities and which have more entrepreneurial and flexible decision-making will be better positioned to adjust.”

Moody’s singled out public universities as being particularly likely to expand their digital learning offerings. It cited the University of Arizona’s acquisition, announced this month, of the online for-profit Ashford University and a partnership announced in June between the University of Massachusetts and nonprofit online provider Brandman University.

After the coronavirus threat passes, universities that lack strong brand names and consistent student demand will need to adapt their models more quickly than universities that enjoy top market position, Moody’s found. The on-campus experience is expected to continue attracting many traditional-age students, however, as are programs requiring hands-on work.

Aside from online learning, many universities will likely add nondegree and certificate programs to boost enrollment, including among adult learners. Moody’s identified opportunities for programs to build career skills for students who can in turn stack those skills into a degree.

This landscape includes many risks.

“The move to online learning is also costly because universities need to invest in building out their infrastructure while maintaining and investing in traditional on-campus education,” the Moody’s report said. “Further, growth in online education will introduce potentially greater enrollment volatility as universities increasingly compete across geographic boundaries on price, customer service, and the most user-friendly digital interface.”

Differentiated programs, scale and financial flexibility will be important going forward. So too will instructional design, meaning the question of whether to outsource online course design or invest in it internally are key questions.

Consider Purdue University, which acquired the for-profit Kaplan University in 2018 to create Purdue University Global in a deal that has the public university contracting with Kaplan’s former parent company for key services. Purdue Global’s operating revenue was almost $400 million in the 2019 fiscal year, about 15 percent of Purdue’s total revenue. But Purdue Global still lost about $40 million in its first full year, including $28.5 million attributed to first-time brand advertising.

“Over time, Purdue Global offers the prospect of boosting Purdue's already-strong credit profile if executed successfully,” the Moody’s report said. “However, the risk is higher over the next one to two years as the university integrates and manages the disparate brands, programs and reputations of its online and traditional programs.”

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