College enrollment is likely to see a crunch this fall thanks to the coronavirus pandemic, with private colleges expected to suffer disproportionately, according to a recent report from Fitch Ratings.
The credit rating agency and financial analyst anticipates that enrollments will dip from 5% to 20% for many colleges and universities when students return to school. Private schools, with their greater dependence on tuition and student fee revenues, will pay a sharper price.
Half of these schools receive 82% of their revenue from these two categories, compared to public colleges, where the median share of total revenues from tuition and fees is just 38%.
Enrollment pressures are also expected to vary across regions, according to the Fitch report. The Northeast is one trouble spot, thanks to demographic trends and market saturation. U.S. census estimates from 2010 to 2018 show that the youth population dropped more than 10 percent in the New England states of Vermont, New Hampshire, and Connecticut. Meanwhile, New England, with over 250 colleges and universities, has disproportionately more four-year private non-profit colleges compared to the rest of the nation, according to the New England Board of Higher Education.
Schools that draw from a wider geographic region, with high selectivity, strong matriculation and revenue diversity don't face the same vulnerabilities, however.
Factor in tuition constraints and colleges can anticipate even more trouble. The wider economic downturn is likely to hinder families' ability to pay full freight and increase the need for financial aid. As a consequence, college discount rates will rise. While, the median discount rate for Fitch's rated portfolio of private colleges is about 35%, the average discount rate of 40% is already viewed by Fitch as unsustainable, and the figure for incoming freshman is even higher.
With regard to ratings, Fitch said it expects colleges to be able to withstand a 5% enrollment drop without having to take offsetting measures in order to preserve their bond ratings. A 10% enrollment decline would lead to a revenue dip of 8%, and a 20% decline would lead to a drop in revenue of 17%. Both outcomes would require action on the expense side to remain ratings neutral.
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Dan Packel
Dan Packel is an editor on the Business of Law desk at ALM. He writes a weekly briefing for Law.com, "The Law Firm Disrupted," on change and innovation in the legal marketplace. He is based in Philadelphia. Contact him at [email protected]. On Twitter at @packeld
