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Fitch: Fall 2005 U.S. Higher Education Enrollment Trends Survey Signals Overall Credit Stability

Posted on: Friday, 9 December 2005, 12:00 CST

Enrollment and other student data for Fitch Ratings-rated U.S. colleges and universities reflect an overall stable credit trend for higher education the sector based on fall 2005 information collected from 86% of the institutions in the Fitch portfolio. For the second consecutive year, the majority of colleges and universities rated by Fitch exhibited either positive or stable enrollment trends. Schools reporting the highest growth in both headcount and full-time enrollment, located in Arkansas, California, Florida, and Maryland and including certain niche schools and a Michigan-based community college, reported the strongest growth in headcount between fall 2004 and fall 2005. Multidivisional state higher education systems experienced overall positive or stable enrollment levels despite lags in certain component units. Moreover, most of the institutions that reported enrollment declines for the fall 2005 semester reported either growing or stable enrollment levels for the fall 2004 semester. Only two Texas-based public colleges reported two consecutive years of headcount declines, Midwestern State University and Grayson County Community Junior College District.

Fitch considers student demand to be a critical factor in higher education credit analysis and a key determinant of a school's long-term financial viability, particularly for colleges and universities without significant research or health care operations, or public schools devoid of significant state-funding or tax-supported debt. Consequently, data showing positive or stable enrollment trends for the majority of Fitch-rated institutions bodes well for the overall credit stability of the higher education sector.

Survey results were collected over the past two months for four-year public and private colleges and universities and community colleges rated by Fitch. For the second consecutive year, the majority of schools reported positive or stable enrollment trends. Of survey respondents, 60% of schools reported increases in both total headcount and full-time enrollment. Another 19% of schools reported stable headcount and 26% reported stable full-time equivalent enrollment levels. The difference in headcount and enrollment is attributed to changes in the mix of full-time and part-time students and by certain schools reporting declines in either headcount or full-time enrollment considered relatively insignificant by Fitch (positive or negative changes of less than 1% were deemed stable). Higher tuition did not appear to be a deterrent to growth to-date for the majority of respondents.

The average annual percentage change in headcount and full-time equivalent enrollment at all Fitch-rated colleges and universities from fall 2004 to fall 2005 was 1.8% and 2.4%, respectively. The growth in full-time enrollment is consistent with the fall 2004 data. For respondents reporting positive growth trends, the average increase in full-time equivalent enrollment for smaller private schools, excluding certain niche specialty schools, was 3.5%. Larger four-year public schools and multi-institutional state systems experienced full-time enrollment growth of 2.3%.

Of the total Fitch-rated survey respondents, 21% reported headcount declines and 14% reported declines in full-time enrollment in excess of 1%. Schools reporting enrollment declines included private and four-year public universities and community colleges. Most of these schools experienced positive or stable enrollment trends between the fall 2003 and fall 2004 semesters. Reasons for the decline vary but generally relate to a school's location in states with a declining number of high school graduates, competition, higher tuition fees, the war in Iraq and other military initiatives, and declines in foreign students.

Within the higher education sector, four-year public universities were more likely to show demand stability. This is evidenced by the lower percentage of four-year public schools experiencing negative headcount trends, even fewer schools reporting declines in full-time enrollment and by their lower rate of decline between fall 2004 and fall 2005. Also, four-year public schools such as the University of Maine and the University of Hawaii maintained stable overall enrollment levels despite their location in states with negative high school graduate trends. The one negative trend Fitch will monitor is the larger percentage of four-year public colleges and universities experiencing declines in freshmen applications. In certain situations, this relates to recently instituted application fees and may not have a direct bearing on student selectivity and enrollment.

Four-year public schools and state systems reporting full-time enrollment declines of just over 1% include the University of Oklahoma (a state projected to experience declines in the number of high school graduates) and Midwestern University in Texas. Both of these schools reported slightly higher headcount declines. New Mexico State University's flagship campus, reported full-time equivalent declines, which were offset by increases in two of four community college campuses. The University of Hawaii's four-year colleges reported growth that offset declines in the community college segments. Two of the four-year public schools experiencing enrollment declines also reported double-digit tuition increases for the fall 2005 semester, well above the majority of public schools that instituted mandatory tuition and fee increases in the range of 2.4% to 8.5%. Declining full-time enrollment levels reflect fewer students and students taking fewer class hours. A decline in full-time enrollment is more problematic for four-year public colleges that charge tuition based on semester hours.

Among the Fitch-rated private schools reporting declines in full-time enrollment in fall 2005, all reported either positive or stable enrollment for the fall 2004 semester. The majority are rated 'BBB+' or below and have religious missions. About half of the schools also reported a decline in their freshmen application pipeline. Private schools reporting enrollment declines are located in Nebraska (Midland Lutheran College) and Missouri (Webster University), two states expected to experience declines in high school graduates. Other private schools are located in New York (Mount Saint Mary College) and Pennsylvania (LaSalle University and Widener University), two states projected by the U.S. Department of Education to experience low or moderate growth in the number high school graduates. Tuition increases for the private schools reporting declines in enrollment were within the range of 3.7% to 7.9% reported by most private schools.

For the second year, about 70% of four-year colleges and universities reported increases in freshmen applications. The average growth rate for respondents declined to 4.0% in the fall 2005 from 7.8% in the fall 2004. The average change in the application rate rises to 6.4% for schools reporting positive or stable enrollment trends. Private colleges and universities had a higher average percentage increase in freshman applications than public institutions: 8.2% compared with 5.0% for public institutions. Average percentages are somewhat skewed upward by several schools reporting double-digit increases in applications and by a few schools reporting negative application trends. Over 25% of the schools reported increases in excess of 10%. Only three schools reported double-digit declines in freshmen applications - Midwestern State University, New Mexico State University, and the University of Central Florida.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria, and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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