Falling tuition revenues could pinch US universities

Report predicts that public institutions could face recruitment and retention struggles.
University classroom

International graduate-student enrolment in US institutions is falling as tuition revenues fail to keep pace with operating expenses.Credit: Getty

Sluggish growth in tuition revenue — the major source of income for most US institutions — will pose continuing challenges for US colleges and universities in 2019, predicts a December 2018 report from Moody’s Investors Service, a financial services company based in New York City. The report assigns a “negative outlook” to the US higher-education sector and predicts that tuition revenue for most institutions will rise by only a “weak” 1–3.5% over the year. That increase is unlikely to keep pace with operating expenses, which Moody’s analysts expect to grow by about 4% at most US institutions.

A negative outlook means that Moody’s might lower an institution’s credit rating, which in turn would probably result in the institution paying a higher interest rate on borrowed funds, including bonds. Universities often issue bonds for building and other infrastructure work.

The report projects that tuition revenues will be especially meagre for public colleges and universities. Overall, Moody’s analysts said, they expect tuition revenue at these institutions to increase by just 1.5%, which the report notes is the “lowest median net tuition growth in a decade”.

Reports from the US Council of Graduate Schools in Washington DC and the Institute of International Education in New York City found that international graduate-student enrolment in US institutions is falling.

Moody’s suggests that public institutions might face financial challenges recruiting and retaining faculty and staff members because of the pinch. The report notes that some universities have been containing costs by reallocating faculty members to different academic areas, deploying voluntary retirement programmes and collectively reducing the number of tenured faculty members. Almost three-quarters of all US faculty positions are off the tenure track, according to a 2018 analysis by the American Association of University Professors in Washington DC.

The Moody’s report also notes that universities in areas with growing populations are seeking opportunities for expansion, but those with slowing enrolments might mothball or close down facilities that are too costly to update or maintain. Those could include research centres or core laboratories.

Demand for higher education is still robust, but universities and colleges shouldn’t expect any surges in tuition income in the near term, says Gabriel Serna, a higher-education researcher at Michigan State University in East Lansing. “There’s a tipping point,” he says. “We’re approaching the maximum amount that students are willing to pay.”

Low US unemployment rates are also contributing to reduced enrolment numbers and slowing revenues, Serna adds.

Despite difficulties with tuition revenues, most institutions are still in sound financial shape. The Moody’s report notes that colleges and universities as a whole have received substantial returns on investments in recent years, leaving them with a cushion against relatively lean times.

“Institutions have been good at diversifying their revenue-generating processes,” Serna says. He notes that most universities and colleges have high credit ratings, which means that they can easily borrow money at a low cost if needed for new facilities or recruitment.

Nature 565, 527 (2019)

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