With value of a college education being questioned, lesser-known schools could face peril: report

The best-known colleges and universities should be able to sail through 2023, but challenges abound for smaller, lesser-known schools amid an ongoing debate about the value of a college education.

S&P Global Ratings gave the U.S. higher education sector a "stable, but bifurcated" outlook in a new report. It comes as public universities across the country look at future budgets. For example, the Illinois Board of Higher Education approved a $2.5 billion fiscal year 2024 budget, which amounts to a 7.7% increase for general funds, excluding the State University Retirement System. The board is seeking more money from the state despite a decrease in enrollment. Undergraduate enrollment at Illinois public universities was down by slightly less at 1.3%, which is 1,705 fewer undergraduates year-over-year. Nationwide, public university undergraduate enrollment decreased 1.6%. Overall, fall enrollment at Illinois public universities decreased by 0.5% from last fall.

"While institutions with strong demand, sound resources, and excellent reputations will likely maintain or strengthen their positions, we expect that less selective, regional institutions will struggle amid growing competition," according to the S&P report. "... Institutions at the lower end of the rating scale and those with limited enrollment or financial flexibility will face credit stress in 2023."

Federal emergency relief money given to colleges and universities during the COVID-19 pandemic have largely been spent and student enrollment has yet to rebound uniformly to pre-pandemic levels, a combination that could prove dire for some institutions.

"One-time emergency federal funds, which buoyed fiscal 2022 results, have mostly been spent, fundraising has slowed, and net tuition revenue growth has been weak, so revenues are not likely to keep pace with inflation," according to the report.

After years of declines, private university enrollment declined by 0.9% for fall 2022 and public university enrollment fell by 1.6%, according to preliminary National Student Clearinghouse data. With tuition rising and an ongoing debate over the value of a college degree, there's "uncertainty around demand and enrollment levels," according to the report.

"Smaller and lesser-known colleges and universities are finding it more and more difficult to compete for students, who are placing more weight on tuition price and return on investment in their decision-making process," the authors wrote.