According to a report released from Moody’s Investor Service focusing on the nation’s public universities’ health, the revenue growth is being outpaced by the expenses in several public universities and it this has become an unsustainable trend. The agency, which does credit rating, found out that in half of the public universities during the 2012 financial year, the revenue gains did not exceed the inflation. The median revenue growth was found to be at 1.7% whilst the median expenses rose by 3.3%.
The Moody’s report that was released makes it very clear that there are both losers and winners when it comes to these state universities. The flagship public universities are more able to leverage their economies of scale and brand names which helps them to minimize the financial risks. Unlike many state universities, the prestigious universities such as the University of North Carolina, University of Michigan, University of Virginia and the University of California-Berkeley have the ability of attracting residents outside the states with the willingness to pay high prices so that they can attend these institutions. According to the Moody’s report, it was found out that the no-resident students pay more than twice as much as what the in-state students pay.
The Moody’s report also found out that the incoming freshmen who are out-o-state students in the flagship universities now stand at 30%. This figure represents an increase of 3 percent from the previous year. Comparing the figures with those of the regional state universities, the non state resident students currently stand at only 12%. Moody’s predicts that the state universities will continue to enroll non state resident students so as to help in covering the expenses and also to enable them fill the classrooms especially with the number of high school graduates being on the decline.
The Moody’s report also included the nation’s public universities bond ratings. The top 8 universities which had the highest AAA rating were: Indiana University, Purdue University, Texas A&M University, University of Michigan, University of North Carolina, University of Texas Systems, University of Virginia and University of Washington.
The report also predicted that the financial situations of many public universities may not improve anytime soon due to the many challenges that these universities are facing. First, the full time students’ enrollment rate has become almost flat with some of the regional universities currently facing a declining enrollment rate. One of the reasons that have been given for this is the reducing interest in the graduate-school programs. The state universities have also been facing increasing pressure from the increased online educational programs that are seeking to upset the higher-education world the same way traditional media world was disrupted by the internet. Lastly, the endowment returns have gone level at median 0.2% which is below the normal rate for endowment withdrawal of 5% in order to sustain the operations. The Moody’s report thus concluded that public universities would need to work harder in the reevaluation of their tradition models of business and in the cutting of their expenses so that they can sustain a long-term, healthy financial situation.