While student borrowing for college has expanded to record levels and 12 percent of student loans are delinquent, enrollment in U.S. public and private universities declined in 2012. The number of full-time students stood at 11.5 million last year, a 0.7 percent decline from 2011. Meanwhile, state and federal governments have been reducing funding to public universities. Schools themselves have increased their borrowing for capital improvements to compete for the best students. There are rough seas ahead for education; lower the sail and batten the hatches.
Moody’s Managing Director, John Nelson, explained in a recent report why Moody’s has switched to a negative view of the entire higher education sector. It is mainly a lack of preparation for the economic and institutional changes:
The new sector-wide negative outlook reflects mounting pressure on all key university revenue sources, requiring bolder actions by university leaders to reduce costs and increase operating efficiency. As the economic growth languishes below previous benchmarks and the federal government seeks to reduce spending in key areas, even market leading universities with diversified revenues are facing diminished prospects for revenue growth. Universities have been restraining costs in response to the weak economic conditions since the 2008-09 financial crisis, but they have only recently begun examining the cost structure of their traditional business model.
Here is more from Moody’s report:
In addition to recent tax code changes, the resolution of the federal fiscal deficit will likely involve flat to diminished research funding, cuts to Medicare and Medicaid as well as possible changes to federal student aid programs such as Pell Grants – all of which would impact important revenue streams for higher education.
And it gets worse:
Continued federal budget negotiations may result in further pressure on colleges because a rising share of students are dependent on federal grant and loan programs, both of which may be curtailed to some degree. According to The College Board, the number of Stafford loan recipients has grown by 95 percent over the last 10 years to 10.4 million students in 2011-2012.