S&P Global: US higher education under operational pressure

[Winehole23]

Not every university is a ginormous trust fund with an attached college, they rely on tuition to cover operational expenses. Colleges and universities will fail because COVID-19 wrecked their business model.

Sidebar: the prophesy of the end of NCAA sports as we have known them isn't that far fetched imho.

More concerning to me is the plausibility of soon being a large country with a broken higher education system.


However, colleges and universities will face increased downward pressure on their current ratings depending on the extent to which economic disruptions associated with COVID-19 persist. If global travel restrictions are prolonged, or the imminent recession diminishes foreign students’ financial means, then some could opt to study or work in their home countries instead. In our opinion, a fall 2020 with significantly fewer international students, as well as lower domestic enrollments overall, will cause serious operational pressures. At the same time, most U.S. colleges and universities depend on endowments and fundraising for a significant portion of revenues, and declining investment performance and endowment market values along with weaker fundraising results could negatively affect credit metrics during the outlook period.

Table 2



Public Universities With Outlooks Revised To Negative


Institution
State
Rating
Revised outlook
Previous outlook


Cleveland State University
Ohio
A+
Negative
Stable


College of New Jersey
New Jersey
A
Negative
Stable


Delaware State University
Delaware
BBB
Negative
Stable


Eastern Kentucky University
Kentucky
A-
Negative
Stable


Emporia State University
Kansas
A-
Negative
Stable


Fayetteville State University
North Carolina
BBB+
Negative
Stable


Indiana University of Pennsylvania
Pennsylvania
A-
Negative
Stable


Jacksonville State University
Alabama
A-
Negative
Stable


Kansas State University
Kansas
A+
Negative
Stable


Kean University
New Jersey
A-
Negative
Stable


Lake Superior State University
Michigan
BBB+
Negative
Stable


Mayville State University
North Dakota
BBB+
Negative
Stable


Missouri State University
Missouri
A+
Negative
Stable


Missouri Western State University
Missouri
BBB+
Negative
Stable


Nebraska State College
Nebraska
A
Negative
Stable


New Jersey Institute of Technology
New Jersey
A
Negative
Stable


Northern Arizona University
Arizona
A+
Negative
Stable


Northern Kentucky University
Kentucky
A
Negative
Stable


Ramapo College
New Jersey
A
Negative
Stable


Rowan University
New Jersey
A
Negative
Stable


Rutgers University
New Jersey
A+
Negative
Stable


University of Kansas
Kansas
AA-
Negative
Stable


University of Massachusetts System
Massachusetts
AA-
Negative
Stable


University of Montevallo
Alabama
A-
Negative
Stable


University of North Carolina At Pembroke
North Carolina
A-
Negative
Stable


University of North Florida
Florida
A
Negative
Stable


University of Northern Colorado
Colorado
A-
Negative
Stable


University of Oregon
Oregon
AA-
Negative
Stable


University of South Alabama
Alabama
A+
Negative
Stable


University of Toledo
Ohio
A
Negative
Stable


Vermont State College
Vermont
A-
Negative
Stable


Western Kentucky University
Kentucky
A-
Negative
Stable


Winston-Salem State University
North Carolina
BBB+
Negative
Stable





https://www.spglobal.com/ratings/en/research/articles/200430-outlooks-revised-on-certain-u-s-not-for-profit-higher-education-institutions-due-to-covid-19-impact-11469520

[Winehole23]

“Decimate” might be too charitable a forecast for American higher educational institutions, since the word originated with the Roman army practice of killing one man in ten. Coronavirus is hitting pretty much all of the bad aspects of their business models at once.

Let’s list them:

Dependence on/preference for foreign students, often not for their accomplishments but for their ability to pay full and even premium fees. Chinese students accounted for one-third of the total. Their enrollment was already falling as of 2019.
https://www.nakedcapitalism.com/wp-content/uploads/2020/05/Screen-Shot-2020-05-12-at-4.24.21-AM.png.
But Chinese students’ contribution to revenues is out of proportion to their numbers. From the New York Times in March (https://www.nytimes.com/2020/03/21/world/europe/coronavirus-chinese-students-uk.html):


Universities in English-speaking countries, especially Britain, Australia and the United States, have grown increasingly dependent on tuition from Chinese students, a business model that the virus could dismantle.

With qualifying exams postponed, travel bans spreading and anger rising among Chinese students and parents at the West’s permissive attitude toward public health, enrollment could plummet in the coming years, experts said, potentially leaving countries with multibillion- dollar holes in their universities’ budgets.


Foreign students were dismayed by the way US schools shut down abruptly and gave little to no help in helping get them back home.

Skyrocketing prices leading more students to question college or emphasize “practical” degrees. As with mortgages, access to debt has led to higher prices. And with student debt terms so draconian, more and more students are trading down: going to cheaper schools or focusing on programs that teach harder skills that hopefully translate into market value.

Bloated adminispheres and gold plated facilities. MBA parasites have colonized universities, with the justification often that they increase fundraising. For what purpose? To pay themselves better, and to create naming opportunities for donors with new buildings, and to justify high charges via plush dormitories. Apparently swanky gyms are common.

All those expensive buildings have become an albatross.

Now consider the impact of coronavirus.

Litigation over terminating on-campus instruction. This is probably the least of their worries. Plaintiffs are seeking refunds for the degradation of the educational product. The schools argue quite explicitly that they are not in the business of educating but of conferring credentials, and it is they alone that determine what is adequate for them to hand out a degree. There is precedent supporting the universities’ arguments, albeit with less bad facts than these.

Low likelihood of resuming classes on campus this fall. My colleagues with contacts among university administrators say no one has any idea how to make dorms safe if coronavirus is still on the loose. This has many negative implications.

Why should students and/or their parents be willing to pay full prices for a degraded product? They won’t get interaction with instructors. For science and engineering classes, they won’t get lab work. They won’t get to make connections and meet potential mates. They won’t get tips from other students on career and summer job strategies. They won’t get to participate in extracurricular activities, which is a low-stakes way to learn to work with other people. They won’t learn how to grow up in a somewhat protected environment.

There is the very real possibility that employers will downgrade the value of degrees conferred during the plague years.

It’s hard to see how colleges and universities escape cutting tuition, save perhaps the most elite. I can’t see any schools besides the most elite can maintain their charges without seeing a big falloff in enrollment. And with them administering classes remotely, the cost of delivery has fallen. And that’s before seeing students postponing or abandoning degrees due to the horrible state of the economy.

And what happens to university budgets due to the loss of room and board income?
https://www.nakedcapitalism.com/2020/05/coronavirus-to-decimate-colleges-and-universities.html

[baseline bum]

More concerning to me is the plausibility of soon being a large country with a broken higher education system.


Soon?

[boutons_deux]

Soon?

:lol

[Winehole23]

Soon?However that may be, the theoretical possibility of higher education is a comfort, having that possibility removed, somewhat less so. Implications for long term productivity and international influence.

[diego]

Yeah, the system was already broken but this is going to really reduce their options ... The silver lining is that the system will be forced to make overdue changes

[baseline bum]

Yeah, the system was already broken but this is going to really reduce their options ... The silver lining is that the system will be forced to make overdue changes

When does the system ever make overdue changes?