Starbucks tuition reimbursement expected to boost revenue for ASU

Moody's Financial Ratio Analysis

Starbucks recently announced that it will make it possible for thousands of its part- and full-time U.S. employees to complete a college degree online at Arizona State University. Starbucks says that this is a unique collaboration that allows employees to finish their bachelor’s degrees with full tuition reimbursement. ASU has a successful online education program.

Starbucks wrote glowingly about ASU:

It is ranked the second most innovative school in the country by U.S. News & World Report and ranks 5th in the nation in producing the best-qualified graduates, according to a Wall Street Journal survey of campus recruiters. Today, almost half of college students in the U.S. drop out before finishing a bachelor’s degree while nearly half of all ASU Online students graduate in under three years.

Moody’s writes about the tuition deal with ASU, which is rates Aa3 (8.5):

Starbucks Corporation is rated A3 [7] stable with brand strength as a key credit factor and has approximately 135,000 employees across the United States.

With potential students located across the 50 states, the Starbucks program will significantly improve brand awareness in markets that ASU has not previously penetrated with its core programs. Ultimately, this should lead to strengthened student demand for ASU’s core and online programs.

ASU is now generating about 10 percent of its tuition revenues from online enrollment. Moody’s says that the additional revenue generated by Starbucks enrollees is expected to outweigh the costs of financial aid that ASU will offer to the Starbucks students. Moody’s wrote:

Cash flow problems in higher education

There have been endless stories about the massive student loan problem. One in six borrowers are now late in their payments. It’s a crushing burden for college graduates who can’t find a job or don’t have one that pays enough. We also hear about colleges and universities that are struggling with debt loads that they took on to finance new construction. The New York Times reported in December 2012:

But some colleges and universities have also borrowed heavily, spending money on vast expansions and amenities aimed at luring better students: student unions with movie theaters and wine bars; workout facilities with climbing walls and ‘lazy rivers’; and dormitories with single rooms and private baths.

Instead of funding better instruction, the borrowing mainly addressed campuses and housing. More from the Times:

The cost-benefit of college sports

A Moody’s report published on Thursday looks at the risk that expensive athletics programs pose to American universities. The majority of these programs lose money, but it has been arguable that athletic success typically enhances a university’s image. It’s a spending gamble, then, for schools to employ to attract students. Moody’s writes:

Universities pursue high-profile sports programs for the opportunity to increase brand recognition, student demand, and donor support. However, that upside comes with financial and reputational risks that require careful oversight. As the commercial success of big-time college sports has grown, so too have the potential benefits and risks to universities.

Here are the risks:

» Budgetary Strain: 90 percent of athletic programs are not self-sustaining, requiring growing subsidies, which divert funding away from other university operations.

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