Public college operating revenue grew 3.1% in 2021 despite lower net tuition

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Diving Brief:

  • U.S. public colleges improved operational performance in fiscal year 2021 as states increased funding, the federal government provided pandemic relief, and institutions cut spending, according to a report by Moody’s Investors. Service.
  • But student earnings have plummeted due to pandemic-related changes, according to the report released last week. Lower enrollment, lower ancillary revenue and higher financial aid contributed to the decline.
  • Moody’s predicts that the operating performance of public colleges will fall back to levels seen in recent history – or weaken due to inflation.

Overview of the dive:

Moody’s new report, released June 30, is something of a look back at the health of the higher education sector. The agency reviewed 180 public universities it rates, drawing data from audited financial statements for fiscal year 2021 — not fiscal year 2022, which ended in late June for most institutions.

Although verified data may be slow to release, it is more accurate than preliminary figures. Moody’s analyzed how the data fits into several ongoing trends.

Operating revenue grew by a median of 3.1% in public institutions surveyed by Moody’s. The indicator recovered from a median growth rate of 0.6% in fiscal 2020, a drop of 3.2 percentage points from the previous year.

But analysts see headwinds for the future.

“This strong performance is unlikely to continue as universities continue to grapple with student affordability issues and declining enrollment, as well as inflation affecting labor and ‘other running costs,’ the report says.

About a third of establishments, or 35%, experienced a drop in revenue.

Median annual net tuition revenue per student fell 2.8% in fiscal year 2021. That’s a much steeper drop than in 2020, when the metric slipped 0.7%. It came amid declining enrollment, price constraints and growing competition for students, Moody’s said.

A whopping 71% of public universities said net tuition per student fell in fiscal year 2021. Only 56% reported declines in 2020.

Tuition discount rates across the group reached a median of 36.4% in fiscal year 2021, compared to 33.9% in 2020.

Full-time equivalent enrollment fell a median 1.9% at public universities in fiscal year 2021. It was the third straight year that Moody’s has tracked a loss in public-sector enrollment.

Moody’s calculates a metric for median net fees per student that combines tuition fees and ancillary revenue. In fiscal year 2021, it was around $12,240. That’s down from around $12,990 the year before.

Offsetting all the red ink was public funding and returns on investment.

State funding per student increased by a median of 6% between 2019 and 2021. It rose to about $7,460 in 2021, from about $7,100 the previous year and $7,010 two years prior.

The median return on cash and investments, which includes changes in college investment returns and operational performance, was 8% in fiscal year 2021. This is a strong increase from compared to 2.6% the previous year.

Median cash in hand increased to 191 days in 2021 from 162 days in 2020.

But unfunded pension liabilities drive up median adjusted debt relative to operating revenue. Moody’s expects unfunded pension liabilities to continue to drive up costs for public universities in the future.

“Exposure to public university pension liabilities may vary by state, but growth in liabilities may present credit issues, such as rising fixed costs,” the report said. He also warned that states could pass more retirement costs onto public universities.

Long-term debt increased only slightly excluding pension commitments and other post-employment benefits. According to Moody’s, colleges have been restraining capital spending as leaders watch for weak enrollment, supply chain issues, labor shortages and other business disruptions.

Meanwhile, college facilities have aged. The median age of plants in fiscal year 2021 reached 15.6 years, up from 15.2 the previous year. In 2017, he was just under 14 years old.

The new data from Moody’s echoes several other recent reports showing a higher education sector that has lost students, struggled with pricing pressures and drawn heavily on government funding during the pandemic – all while facing inflation.

Undergraduate enrollment fell 4.7% in spring 2022 from a year earlier, the National Student Clearinghouse Research Center said in May. The declines occurred at both public and private institutions, but community colleges were the hardest hit.

In June, S&P Global Ratings reviewed the institutions it rates and found emergency government funding accounted for more than 4% of adjusted operating revenue for nearly a third of colleges in fiscal year 2021. The median college received $13.2 million in government relief funding.

Concerns about net tuition revenue are not limited to the public sector. Private, nonprofit colleges reported a drop in net undergraduate tuition revenue in the just-ended fiscal year, according to an annual study released in May by the National Association of College and University. Business Officers.

Moody’s has previously raised concerns about inflation hitting college budgets. In April, he said colleges were facing their strongest spending growth in more than a decade, even as investment markets turned volatile. Tuition-dependent colleges and those without big brands face increased risks, he said at the time.

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