While Americans have borne the brunt of the student loan debt It will take decades to pay off as the cost of education continues to rise, schools have raised tuition.
But a report Tuesday from Fitch Ratings said recent increases at private colleges and universities have not been enough to keep up with rising costs.
Last fiscal year, average adjusted operating profit margins fell to their lowest level in more than a decade, according to the credit rating agency. That happened even as institutional investment and endowment support remained relatively stable. And the outlook doesn’t look any better.
“Looking ahead, additional operating pressures are expected to increase as many institutions grapple with rising costs and a fragmented admissions environment,” said Emily Wadhwani, senior director at Fitch, said in a statement.
Cash flow is likely to come under more pressure, especially as problems with FAFSA Student Aid Process earlier this year added to concerns about fall enrollment, she said.
After two years of decline, fiscal year 2023 saw an improvement in net tuition and fee revenue, the report said. But the average increase remained well below pre-pandemic levels and was not enough to offset inflation.
As a result, Fitch’s adjusted operating margins fell across all rating categories to an average negative 1.7% across the entire school portfolio, reflecting the first full year since fiscal 2019 with little or no federal aid.
There was also a big divide among private schools, the report said. Those with the highest debt ratings—in the AAA and AA categories—saw tuition increases as a percentage of total revenue, but lower-rated schools did not.
So while profit margins at AAA and AA colleges have fallen, they remain healthy and are even higher than in any of the three years before the pandemic, Fitch notes. But the opposite is true for lower-rated schools.
“The sectoral divide will continue to widen the credit gap between larger, more selective institutions and smaller, less selective institutions that rely more heavily on tuition,” the report said.
In other words, elite schools with large endowments and wealthy donors are less vulnerable than other schools that rely more on tuition revenue and are affected by volatile enrollments.
The report was released weeks after the sudden incident. Philadelphia University of the Arts closes amid sharp declines in enrollment and “significant, unforeseen costs.”
In fact, according to the Association of State Higher Education Officials, private colleges have been closing at a rate of about two per month.
This comes as the overall number of college students in the United States has been declining for years, even before the pandemic caused enrollment to plummet.
Public colleges and universities are under similar pressures, as Number of students enrolled Enrollment in those schools fell to 10.2 million in 2023, down 12% from its peak in 2011.
As a result, tuition and fee revenue after financial aid is down 3.3% in 2023 to an average of $7,353 per full-time student, according to a report from the Association of State Higher Education Chief Executive Officers, marking the largest decline since 1980.
