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Colleges Will Face Economic Challenges This Fall: Moody’s

April 14, 2022
 
 

Two new reports from Moody’s Investors Service warn that colleges and universities face ongoing economic uncertainty for the next academic year.

One report, “Converging forces will squeeze budgets for many colleges and universities,” projects that wage inflation, labor shortages and a nationwide hiring push will send institutional expenses skyrocketing, stressing budgets in the 2022–23 academic year. Increasing costs for goods and services, including mental health services, will exacerbate the budgetary strain. So will a likely loss of revenue. “While state funding is stronger, it remains below current inflation,” the report reads. “Further, waning federal pandemic aid will remove a key revenue source.”

On the plus side, booming endowments will help many institutions overcome some of those challenges, the report notes.

The second report, titled “Macroeconomic factors will influence fall enrollment levels and revenue growth,” discusses the negative impact that a strong labor market and rising inflation will have on college enrollments and revenues.

Many institutions were already struggling with enrollment because of demographic declines in the number of high school students, increased tuition discounting practices and the lingering effects of the COVID-19 pandemic, the report says.

Now that jobs are plentiful and inflation is high, students who might otherwise attend college will be more inclined to enter or remain in the workforce instead. Higher prices for food, housing, gas and transportation leave them with less income for education.

The trend disproportionately hurts community colleges, where enrollment dropped by 30 percent between 2012 and 2021 and 13 percent between 2019 and 2021, the report notes.

The loss of tuition dollars will significantly cloud the financial picture for many institutions; private colleges rely on student-derived revenue for a median 75 percent of total operating revenue, and public ones for a median of about 50 percent.

But the report also notes some positive factors that could mitigate the negative macroeconomic ones—including that applications through the Common App increased by more than 20 percent this year, indicating heightened interest in college, and that some states have boosted financial aid programs.

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