Rating agencies release Dour Higher Ed Outlook for next year

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On Tuesday, two bond rating agencies issued a gloomy outlook for the U.S. higher education sector for 2021, as the coronavirus pandemic continues to weigh on enrollment and revenue, increase long-term pressures and hit some types of establishments harder than others.

Operating revenue will fall 5-10% across the sector, predicted Moody’s Investors Service, which issued a negative outlook for higher education in the United States. It is estimated that 60% of public universities and 75% of private universities are expected to see their net tuition revenues decline in an environment of low enrolment, even as ancillary revenues, philanthropy and state funding sources are under pressure.

At the same time, many colleges and universities have high fixed costs that are difficult to reduce, Moody’s noted. Different institutions have made various assumptions about when the pandemic will end. These factors limit the ability of colleges and universities to adjust spending in a timely manner to match declining revenues.

This fall, most institutions have seen low enrollment of first-time students and international students in particular, noted Fitch Ratings, which said the outlook for the higher education sector was deteriorating. Fitch expects flagship institutions and other highly selective colleges and universities to handle the pressures better than their less fortunate peers. They are generally aided by their strong demand profiles, diverse sources of income, and greater financial clout.

Colleges and universities have used a number of different financial tools to deal with budget shortfalls, Moody’s reported. They include debt restructuring, capital investment deferral and taxable borrowing.

Wealthier institutions have more access to these options.

“The top-rated universities have been the most active in capital markets, with good investor receptivity,” said a report by Moody’s on its ratings outlook. “Lower-rated and unrated universities have been less active, relying on banks for their liquidity needs. As the pandemic continues to create a high degree of uncertainty in higher education, there is a growing risk that banks will reduce their exposure to the sector, which would leave many universities with fewer options to mitigate operational stress at short term.

The sector may experience some recovery in the second half of calendar year 2021 if the pandemic is largely abated, allowing colleges and universities to resume full operations on campus, according to Moody’s. But the economic recovery is still expected to be uneven, putting pressure on net tuition revenue and state funding through fiscal year 2022 and preventing a rapid rebound in higher education.

The pandemic may also accelerate long-standing technological shifts to make greater use of e-learning, suggesting that institutions should think about responding to changing consumer preferences over the long term instead of just reacting to short-term disruptions. .

Fitch also noted a more competitive landscape with a renewed focus on access and affordability.

“Rising discount rates in the industry continue to put increasing pressure on net tuition revenue, particularly in a pressured environment and adverse demographics,” said Emily Wadhwani, director of Fitch, in a statement. communicated.

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