Yahoo Finance Private Colleges Hurt by Rising Expenses Despite Tuition Gains
(Bloomberg) -- The business of higher education is getting costlier.
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Private US colleges raised their prices, but still saw margins fall to the lowest level in over a decade in the 2023 fiscal year, according to a report published this week by Fitch Ratings. The declines hit schools across the sector, but were sharpest among lower-rated institutions.
The report paints a concerning picture of the competitive landscape for colleges and universities, with more pain on the horizon. Analysts expect pressures to intensify as higher costs and a “fractured” enrollment weigh on schools’ bottom lines. The number of high-school graduates is slated to dwindle in coming years after birth rates declined in the US following the Great Recession in the mid-2000s.
“The pace of college closures is likely to gather steam as we approach the peak of the demographic cliff,” said Emily Wadhwani, senior director at Fitch Ratings. Smaller, tuition-dependent colleges will bear the highest burden, she said.
Fitch maintains a “deteriorating” credit outlook on the sector in 2024, and expects further bifurcation will widen the gap between smaller, tuition-dependent colleges and stronger, more prestigious schools that tend to be more selective. Almost one in five of the private schools Fitch rates has a negative outlook.
The core issue facing the country’s colleges is a lack of students, creating a supply-demand mismatch that has already forced over a dozen schools to close this year, according to Fitch data. A bungled revamp of the Free Application for Federal Student Aid, or FAFSA, prevented some students from applying for aid, and is expected to further dampen enrollment figures in the fall.
The cost of tuition in the US is among the highest in the world. On average, undergraduate students living on-campus at private four-year colleges paid $57,000 in the 2022-2023 school year, according to the National Center for Education Statistics.
Rising prices are forcing more schools to offer tuition discounts - or the difference between the sticker price and what students actually pay. Discount rates at lower-rated schools have been rising faster, according to Fitch’s report.
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