2019 US Higher Education Outlook - December 2018 - American Association of State ...
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2019 US Higher Education Outlook
December 2018
Moody’s-rated portfolio
Private Higher Ed Public Higher Ed
65
Breakpoint between
investment grade and
55 speculative grade
45
35
25
15
5
-5
Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
Rating distribution as of December 2018
» Moody’s has public ratings on 256 private universities and 226 four-
year public universities
» Other sectors include community colleges with revenue-backed debt,
not-for-profits, and independent schools
» The annual outlook reflects our forward looking view on sector credit
conditions for the next 12 to 18 months
Higher Education Outlook, December 2018 3Higher education outlook
2019 outlook remains negative with continued low net
tuition revenue growth
NEGATIVE STABLE POSITIVE
Drivers of the negative What could change outlook What could change outlook
outlook to stable to positive
» Weak net tuition revenue » A greater proportion of » Stronger pricing power leading
growth curbing operating colleges and universities to healthy net tuition revenue
revenue growth, which is able to grow net tuition growth.
revenue at 3% or higher.
projected in the 3%-4% range » Continued strong investment
(excludes patient care). » Revenue growth market, bolstering endowment
exceeding expense spending and philanthropy
» With rising labor costs, growth for most
expense growth will top universities » Operating surpluses for many
revenue growth for many universities, allowing greater
» Public universities face more capital and programmatic
difficulty than private investment.
universities.
This outlook represents our forward-looking view on credit conditions over the next 12-18 months. This sectorwide outlook, however, does not imply the likelihood or direction of rating
actions for individual issuers.
Higher Education Outlook, December 2018 4Expense growth will outpace constrained
revenue growth for many universities
Aggregate revenue growth Aggregate expense growth
Aggregate revenue growth without patient care Aggregate expense growth without patient care
8%
7%
6%
5%
4%
3%
2%
1%
0%
2013 2014 2015 2016 2017 2018 Est. 2019 For. 2020 For.
2018 is an estimate, 2019 and 2020 are forecasts; data includes Moody's-rated public and private universities
Source: Moody's Investors Service
Higher Education Outlook, December 2018 5Revenue growth varies greatly across
the sector
A majority of public universities generated revenue growth
below our proxy for higher education inflation
20%
2017 Outlook
Annual change in operating revenue
Revenue growth below 3% period
15%
10%
5%
0%
-5%
-10%
Each bar represents annual revenue growth at an individual university and those in the shaded area reported fiscal 2017 revenue growth
below Moody’s higher education inflation proxy. Outlook period extrapolates but may have different underlying institutions.
Source: Moody’s Investors Service
Higher Education Outlook, December 2018 6Public universities have weaker
performance than private counterparts
Fiscal 2017 operating margins for rated universities
Greater than a 5% deficit 0-5% deficit 0-5% surplus Greater than 5% surplus
Private universities
Public universities
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Moody's Investors Service
Higher Education Outlook, December 2018 7Growth rates by revenue stream
Net tuition revenue growth lags other revenue sources
12-18 month % of aggregate Median
Source of
forecast growth public university public university
operating revenue
assumptions operating revenue operating revenue
Net tuition 1%-3.5% 24% 50%
Included with
Auxiliaries 2%-4% 8%
net tuition
State appropriations 2.5%-3% 19% 24%
Patient care 7%-9% 19% 0%
Grants & contracts 4%-5% 16% 10%
Endowment income 5%-8.5% 4% 2%
Gifts for operations 4%-6% 3% 2%
Other revenue 5.5%-6% 7% 4%
Total 100%
Median data is the median for each revenue stream and will not add up to 100%. Median data may be 0 in some cases, meaning that the
median data point indicated no revenue from that particular revenue source. Aggregate data is driven by the largest universities in the portfolio,
whereas median data adjusts for the diversity across the sector.
Source: Moody's Investors Service
Higher Education Outlook, December 2018 8Steady moderation in pricing power felt
across all public university types
Median annual net tuition per student growth by public
university type
Total Small-sized Moderate-sized Comprehensive
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
2015 2016 2017 2018 est 2019 proj
“Est.” indicates our estimated data based on preliminary information. “Proj.” indicates our projected data.
Source: Moody's Investors Service
Higher Education Outlook, December 2018 9Changes in state funding vary widely
across states
5-Year % Change in State Support, fiscal 2013-18
» Seven large states (CA, TX, NY, FL, NC, GA and IL) accounted for half of FY 2018
state support for higher education. Their total increase for FY 2018 was 2.4%,
compared to 0.9% for remaining states.
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
Indiana
Alabama
Iowa
Ohio
Illinois
Michigan
Idaho
Hawaii
Utah
Oklahoma
Alaska
Kansas
Arkansas
Missouri
Delaware
Maryland
California
Louisiana
New Mexico
Montana
Wisconsin
Washington
North Dakota
Virginia
Maine
New York
Georgia
Nevada
New Hampshire
Texas
South Carolina
Rhode Island
Minnesota
Colorado
Oregon
Florida
Mississippi
Wyoming
Massachusetts
West Virginia
Tennessee
Kentucky
Arizona
Pennsylvania
Vermont
North Carolina
New Jersey
Nebraska
Connecticut
South Dakota
Source: Illinois State University Grapevine; Moody’s Investor Service
Higher Education Outlook, December 2018 10Research funding moderately improving
» Research funding will likely continue to shift toward comprehensive universities, which
offer more opportunity for collaboration across disciplines.
Federally funded Nonfederally funded
100
90
80
70
60
Billions ($)
50
40
30
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Est. For. For.
“Est.” indicates our estimated data based on preliminary information. “For.” indicates our forecasted data.
Sources: Moody's Investors Service, National Science Foundation, National Center for Science and Engineering Statistics, Higher Education Research and
Development Survey
Higher Education Outlook, December 2018 11Debt has funded approximately half of
public university campus infrastructure
Aggregate Debt ($ billions) Debt to Operating Revenue (x) Debt to Net PPE (x)
$180 0.7
$160
0.6
$140
0.5
$120
$100 0.4
$80 0.3
$60
0.2
$40
0.1
$20
$0 0.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Moody’s Investors Service
Higher Education Outlook, December 2018 12Pension benefit liabilities significantly
increase adjusted leverage
By public university classification
Total Adjusted Debt to Operating Revenue (x) Total Debt to Operating Revenue (x)
Comprehensive
Moderate Sized
Small
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80
Source: Moody's Investors Service, based on fiscal 2017
Higher Education Outlook, December 2018 13Increasing financial reserves support
public university flexibility
Total cash & investments Change in total cash & investments (right axis) Change in gift revenue (right axis)
$300 14%
12%
$250
10%
$200
8%
Billions
$150 6%
4%
$100
2%
$50
0%
$0 -2%
2013 2014 2015 2016 2017 2018 Est. 2019 For.
2018 is an estimate, 2019 is a forecast; data includes Moody's-rated public universities.
Source: Moody’s Investors Service
Higher Education Outlook, December 2018 14Salary boost by degree attainment
supports long-term ROI of higher
education
Mean earnings for people 18+ years old, 2017
$160,000
$138,378
$140,000
$118,903
$120,000
$100,000
$87,674
$80,000
$67,763
$60,000
$46,381
$38,145 $38,695
$40,000
$20,000
$0
High School Some College Associate Bachelor's Master's Professional Doctorate
Graduate (Incl No Degree Degree Degree Degree Degree Degree
GED)
Source: U.S. Census data
Higher Education Outlook, December 2018 15Susan Shaffer Susan Fitzgerald Kendra Smith
Vice President – Senior Credit Officer Associate Managing Director Managing Director
Public Finance Public Finance Public Finance
+1.212.553.4132 +1.212.553.6832 +1.212.553.4807
susan.shaffer@moodys.com susan.fitzgerald@moodys.com kendra.smith@moodys.com
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Higher Education Outlook, December 2018 17You can also read
