Fiscal resiliency: examining credit rating impact on colleges and universities

This blog summarizes the key takeaways from our fiscal resiliency podcast, episode eight.

In a higher education environment permeated with challenges further exacerbated by the COVID-19 pandemic, many colleges and universities are concerned with improving their credit ratings. Our recent fiscal resiliency podcast features a candid discussion with Barry Fick, executive director of the Minnesota Higher Education Facilities Authority and Elizabeth Bergman, one of our firm’s credit ratings specialists and a director with Baker Tilly Municipal Advisors, on the impact of credit ratings in the higher education industry.

The two guests along with Higher Ed Advisor podcast host Dave Capitano acknowledges that enrollment decline continues to be a major issue for many institutions due to a variety of factors, including geographic and demographic population shifts, a decrease in international enrollment and the continued discussion around the value of a college degree. Many current students wonder what return on investment they are receiving for their tuition dollars, while prospective students question if they even need a college degree after watching others succeed economically and professionally without one. However, economic analysis and research studies maintain that access to higher education is still the most critical facet of driving upward mobility and regional economic success.

Tuition trending in the wrong direction

The days when institutions would receive approval for annual tuition increases of 4% or 5% are gone. Since the pandemic and for the foreseeable future, these annual increases are much more likely to be small – or even non-existent. Stable tuition, featuring no increase at all, is becoming more common across the country.

Even a college’s tuition discount rate – the average percentage of full tuition that students don’t have to pay – has increased to 50% or 60% in some cases, resulting in less tuition revenue. This too is problematic for higher education institutions trying to balance increased costs with shrinking revenues and having the necessary cash available to pay the bills.