Moody’s Investors Service raised its outlook for the U.S. higher education sector from negative to stable Monday, pointing to improved revenue potential for colleges and universities over the next year to year and a half.
The improvement is fueled in part by tuition and auxiliary revenue standing to gain should prospects for a widespread return to on-campus and in-person learning come to pass in the fall of 2021, according to the ratings agency. Federal relief funds are also helping to offset revenue losses and expense increases that colleges and universities faced because of the pandemic. In addition, recovering state economies mean a lower risk of funding cuts for public universities, and the current strength of financial markets bodes well for fundraising and university endowment performance.
Large public flagships and elite private universities can be largely expected to outperform regional institutions and private colleges with less visible brands.
“The greater presence of students in housing and resumption of other auxiliary activities will fuel better revenue prospects from tuition and student fees heading into fall 2021,” Debra Roane, vice president and senior credit officer at Moody’s, said in a statement. “Students’ ability to return to campus will improve as the vaccine rollout succeeds, which will reduce the public health crisis. Most states have also lifted their revenue forecasts for the current fiscal year 2021 and upcoming fiscal 2022, which supports a steadier outlook for higher education.”
The improved outlook is noteworthy in part because the higher education sector has spent much of the past several years with a negative outlook from Moody’s -- even before the pandemic hit. The pandemic was originally expected to have a much larger impact on state budgets and college finances than it has so far.
Still, significant variations in financial health are playing out between states. Nearly half of states, 21, reported lower year-over-year funding for colleges and universities in this year’s Grapevine Higher Education Funding report, Moody’s noted. Another new analysis of the Grapevine data found four-year institutions have fared much better in securing state support amid the pandemic than two-year institutions, which have also been hammered by enrollment declines.
Revenue is unlikely to return to 2019 levels due to pressure to increase financial aid, Moody’s found. The ratings agency could still drop its outlook for the sector back to negative if public health conditions decline or if macroeconomic conditions threaten state funding or higher education’s affordability, according to the ratings agency.