Enrollments Declined At Two-Thirds Of Our Rated Schools

The pandemic has tested colleges and universities in unparalleled ways, and there is no doubt we will see the impacts for a long time to come. Back in March 2020, concerns around health and safety caused schools across the country to close campuses, which was the beginning of a year of academics taught predominantly online. As the school year comes to a close, we reflect on an unprecedented year. Leading up to the fall 2020 semester, schools were very concerned about enrollment figures and news reports predicted huge enrollment declines across the sector. While there were indeed some material declines, on average, enrollments were not as bad as expected. Now that we have assessed the final fall 2020 enrollment data for our rated universe, we wanted to share those figures to provide some additional clarity around what actually did happen to schools' enrollment and demand at the height of the pandemic.

Chart 1

The charts and tables in this report represent enrollment and demand data from the 439 four-year colleges and universities that S&P Global Ratings rates. As the chart above and tables in this report depict, enrollment impacts varied widely across the sector, with differences by type of school, geographic location and overall credit quality. Over two-thirds of our rated universe experienced a decline in enrollment last fall--68% of our rated private institutions and 64% of public universities. However, only 32 schools (27 private universities and five public universities) experienced very material enrollment declines (defined as 10% or greater). At the same time, about the same number of schools grew enrollment by more than 5% (24 private universities and 7 public universities). The vast majority (178) of schools that we rate experienced a decrease in enrollment of up to 5%, and 76 more declined between 5% and 10%. On the positive side of enrollment changes, 111 institutions grew FTE enrollment up to 5%. There was much disparity across the sector.

Table 1

Bifurcation between higher and lower rated schools

While many schools were having difficulty meeting enrollment and revenue targets pre-COVID, the pandemic exacerbated those pressures, by forcing a fundamental shift in business models for all. As the table above indicates, higher rated institutions fared better, on average, than their lower rated counterparts from an enrollment standpoint. On average, non-investment grade institutions experienced about a 3% enrollment decline. Public universities enjoyed stronger enrollment stability, on average, than private universities, and higher rated public schools, including many flagship universities, experienced minimal declines. Generally, lower rated institutions experienced greater enrollment declines--many of which had been facing enrollment pressure already. Our rated universe represents a diverse community of schools and many with strong demand profiles are doing fine, relatively speaking.

Table 2

The Private University 'Phenomenon'

While, on average, total private university FTE enrollment declined 2.7% in fall 2020, we note several nuances across the space, from type of student/program to type and size of institution. As table 1 depicts, the majority of enrollment declines were at the undergraduate level, which is not surprising, given that the majority of the undergrad experience is typically on campus and in person. The swift move to remote learning was not palatable for many students, especially those freshmen embarking on their first year of college. For the most part, graduate enrollment grew during the pandemic (5.8% on average). In our opinion, this was largely driven by a weaker economy (i.e., a stop-and-start recession) and the fact that most graduate programs were already offered online to some extent and the transition was more natural. We rate 69 private institutions which we define as "smaller," meaning they enroll fewer than 1,400 undergraduate FTE students, and annual fluctuations in enrollment can be more impactful given their size. On average, while undergraduates declined, graduate FTE enrollment grew 16.3% for these schools in fall 2020.

Chart 2

We also saw a material, and perhaps surprising, decrease in applications, matriculants, and total enrollment at most Ivy League institutions. These schools are some of the most selective institutions in higher education, with acceptance rates hovering around 5% or lower. Most of them maintain premier undergraduate and graduate offerings and substantial endowments, and many of them opted not to take any emergency federal funding during the pandemic. While these specific declines in demand were unexpected, we view them as attributable to pandemic-related anomalies and not a long-term shift in demand. Many of these institutions were among the first to announce largely online fall semesters, which led to a higher number of deferrals and leave of absences. Other schools announced their plans much later in the enrollment cycle. For example, we understand that a significant number of admitted freshmen deferred their enrollment due to COVID, as deferral policies were generous at many of these schools. In addition, many students took a leave of absence if their class was not on-campus for fall 2020, affecting retention rates. Finally, many of these schools have a significant number of international students, which population declined this past year, especially at the undergraduate level, given limitations on international travel. We believe, however, that these institutions' exceptional market position and balance sheet strength will help them offset the enrollment and demand oscillations that have arisen due to the pandemic. We expect they will rebound back to their impressive demand and enrollment profiles in the fall.

Public Universities Remained Fairly Steady

The enrollment changes we saw for public universities was not as dramatic, on average, as what we noted in the private university figures. The average change in total enrollment was a 1.7% decline, and flagships experienced a better 1.2% decline. As we look across the figures, we see a notable mix in the demand metrics; while flagship universities had stronger enrollment and matriculation than regional public institutions last year, the second category of schools had stronger retention and graduation rates. Anecdotally, we heard from many schools with highly regional student draws that parents and students wanted to stay closer to home last year, which explains the solid average retention rates at public regional colleges in fall 2020. The same stark differential between undergraduate and graduate enrollment numbers exists for public schools; the higher undergraduate declines in some part due to international student declines.

Table 3

From a financial standpoint, federal stimulus helped colleges and universities offset some of the revenue loss and resulting operating pressure brought on by the pandemic. The American Rescue Plan Act (ARP) represented the third round of federal money that was provided for colleges through emergency aid legislation, which combined totaled more than $80 billion. For public universities and colleges, ARP's $204 billion for states was significant as it alleviated potential cuts to higher education funding, which has been a key risk for this group.

Enrollment Impacts Across The Country

S&P Global Ratings began 2021 with 40% of our higher education ratings on negative outlook. As of May 26, this has declined to 31% negative, 68% stable, and 1% positive. S&P Global Ratings lowered 34 ratings and raised four ratings on U.S. colleges and universities in 2020, and year to date, there have been 12 downgrades, four upgrades, and three new ratings. Health-related measures--such as social distancing, COVID infection rates, and now vaccine distribution--have varied geographically and have had much influence on student demand across the country. With vaccine eligibility expanded to all individuals age 16 and older in April 2021, many schools have put vaccination requirements in place for students returning to campus in fall 2021 or have strongly encouraged vaccines. The increased vaccination rate in the U.S. and the current declining COVID infection rate could positively affect enrollment. We took a look at the enrollment figures by region to determine if some areas of the country experienced better enrollments last fall.

Table 4

Notably, Puerto Rico's average enrollment declines are material (but this represents a relatively much smaller sample size of five schools). Enrollments in Puerto Rico have been pressured, on average, in the last few years by the weak economy and challenging demographics. A series of hurricanes, severe earthquakes, and the pandemic have exacerbated these challenges.

The majority of our ratings are located in the Northeast (151), home to the most colleges and universities in the country. We note that the average decline in enrollment of 3.2% in the Northeast is almost double the 1.7% average for the entire rated sector. The Midwest and West regions also experienced larger declines.

Regional factors will likely continue to influence student demand, as demographic pressures resulting from declining numbers of high school graduates are expected to continue, with institutions across the country preparing to face more enrollment stress post-pandemic.

Table 5

On Average, Gross Tuition Increased--But So Did Financial Aid

In a "normal" year, many colleges and universities raise tuition at the rate of inflation, or in the past few years, 3% to 4%. As table 5 indicates, most public schools either froze tuition rates or increased rates very minimally in fiscal 2021. The average tuition rate increases for private universities were higher--1.8%, or double the 0.9% rate increase for public universities. With most schools experiencing weakened enrollments, net tuition revenues will likely be materially lower in fiscal 2021.

While tuition discount rates (institutional financial aid) have been rising for years, the average tuition discount rate for first-time undergraduate students at private universities reached an all-time high of 53.9% in fiscal 2021, according to the National Association of College and University Business Officers (NACUBO) 2020 Tuition Discounting Study. NACUBO also reported that most students received grant aid in fiscal 2021 and were awarded larger grants and scholarships than in prior years. Average net tuition and fee revenue reported in the NACUBO study declined again and year-over-year, falling the most it has in a decade.

Is Fall 2021 Going To Be The 'New Normal'?

High school seniors applying for fall 2021 have faced many challenges from the pandemic, from canceled college entrance exams to limited ability to visit and explore new campuses in person. Colleges ranging from the Ivy League institutions to state college systems postponed the requirement for SAT or ACT scores during the pandemic, which in turn encouraged more students to apply to more schools, and perhaps more "reach" schools. As a result, numerous schools have reported a surge in applications for fall 2021. This increase in applications is a positive indicator, but many schools are not increasing their acceptance numbers due to high deferrals from last fall, which has resulted in some record low admissions rates for fall 2021. We expect that application data, selectivity rates, and matriculation rates will be skewed this fall, but that perhaps by fall 2022, demand metrics will start to "normalize."

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