The residue of 2020”™s economic tumult will continue to strain the financial state of the nation”™s colleges and universities into this year and beyond, according to a new report issued by Moody”™s Investors Service.
The report, titled “Higher Education U.S. ”” 2021 Outlook Negative as Pandemic Weakens Key Revenue Streams,” predicts that the continued uncertainty over the length of the Covid-19 pandemic and the sluggish economic recovery will define the first half of this new year.
The report noted that while the second half of 2021 holds the potential for some degree of recovery, this year will see a 5% to 10% decline in operative revenues at colleges and education while “weakness in key revenue streams is likely to materially constrain the sector years after the pandemic recedes.”
Moody”™s is forecasting an approximately 2.5% enrollment decline during the first half of the year at approximately 60% of the nation”™s public universities and 75% of private universities.
The report stated the situation is being complicated by lower numbers of international students in the U.S. and increases in requests for financial aid.
“Median net tuition revenue will decline 3.3% and 0.9% in fiscal 2021 for private and public universities, respectively, based on our annual tuition survey results,” the report added.
Declining student enrollment will spark continued reductions in auxiliary revenue that began during the 2020 pandemic, with the greatest impacts involving student housing and athletics, the report found.
“Auxiliary revenue is declining sharply for some colleges as student housing is either shut down entirely or operating at substantially lower density, and spring 2021 campus plans do not appear to be significantly different from fall 2020 plans,” the report stated.
“Auxiliaries will remain the most severely affected business line sector-wide in fiscal 2021, accounting for a median 13% of operating revenue for the sector but ranging from less than 5% to more than 30%.
“The cancellation or reconfiguring of athletic activities will reduce income from conference distributions (including media rights), ticket sales, corporate sponsorships, advertising and licensing, which colleges and universities with large athletic programs count on,” the report stated.
“In some cases, expense management will not be able to fully offset the revenue losses as athletic departments tend to have large fixed-cost operations.”
Public colleges and universities, which receive a median 24% of their total operating revenue from state funding, will be especially vulnerable in the coming months as the states face budgetary problems and are forced to slash their allocations to higher education.
The report glumly pointed out that colleges and universities ended 2020 with “low-single-digit investment returns for university endowments” that could shrink further into 2021 if economic problems persist.
Moody”™s acknowledged the proliferation of online education during the 2020 pandemic and predicted the quantity of online education courses could influence future enrollments while forcing colleges and universities to reconsider issues of “capital priorities, space utilization and campus design that suits the next generation of learners.”
Still, the report insisted there was a potential return to pre-pandemic normalcy later in the year, albeit it one with significantly frayed edges.
“Some sector recovery is possible in the second half of 2021 if the public health crisis is largely mitigated and universities are able to resume full operations on campus,” the report said. “Students returning to campus would provide a significant boost to auxiliary revenue, which tends to be a profitable business line for universities.
“However,” the report warned, “even with a resumption of normal operations in the second half of the year, the recovery is likely to be uneven and depend largely on the extent any lingering economic impact and consumer caution. Net tuition revenue and state funding are likely to remain suppressed in fiscal 2022, holding back a sharp sector rebound. High fixed costs and weaker ability to adjust expenses will lead to deteriorating operating performance.”
