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The latest outlook from Fitch Ratings indicates “more operating woes” are ahead for U.S. colleges and universities. The agency described the sector outlook for higher education as “deteriorating,” due to rising costs and wages combined with sluggish enrollment.

The report, released Thursday, noted that while first-year and international enrollment is trending up for the 2022–23 academic year, that growth has not negated declines in previous years. Fitch pointed to the likelihood of consistent enrollment challenges over the next decade, particularly in the Northeast and Midwest, where demographic trends show a shrinking college-age population.

The report also found that volatile markets in 2022 drove endowments down, with an average projected loss of 10 percent across the sector, which aligns with prior reporting on endowments.

But Fitch officials noted in the report that despite the “deteriorating” sector outlook, there are some positives, particularly in international enrollments and state budget trends.

“Fitch anticipates increasingly challenging operating conditions for U.S. higher education institutions in 2023 as they grapple with inflationary costs, labor pressures, mixed enrollment trends and a continued need for elevated expenditure controls. Possible countering factors include a relatively favorable state budget environment and early prospects for easing enrollment pressures in incoming and international student groups,” Senior Director Emily Wadwani said in the report.

Last December Fitch Ratings projected a neutral outlook for the higher education sector in 2022.