The U.S. higher education industry has endured two turbulent years of pandemic-related obstacles. Institutions have navigated sudden shutdowns, changing instruction modes, severe labor shortages, and rising inflation, coupled with a difficult demographic backdrop. Yet, better times could be on the horizon for colleges and universities across the board. Institutions rapidly returned to in-person teaching in an effort to offer students a better collegiate experience and boost enrollment. Flexibility and adaptation in real time became essential not only in the classroom but also in the boardroom. Institutional resilience and innovative thinking helped stabilize enrollment, at least in the immediate term, as indicated by a rebound in enrollment for fall 2021, and early indications are similar for fall 2022.

Changes From 2020 To 2021

The charts and tables in this report represent enrollment and demand data from the more than 400 four-year colleges and universities that S&P Global Ratings rates. We have excluded institutions that we consider specialty schools offering niche degrees and programs, where trends might not reflect the entire sector. Effects on enrollment continue to vary widely across the sector, depending on the type of school, location, and overall credit quality. At 42 schools (38 private and four public), total full-time equivalent (FTE) enrollment materially increased (greater than 10%) in fall 2021 relative to fall 2020 (chart 1). This compares with only six schools in fall 2020--all private universities--that recorded such growth. At the same time, only 19 schools (14 private and five public) saw material declines (greater than 10%) in FTE enrollment in fall 2021; this compares with 32 schools that recorded decreases in fall 2020. On the positive side, FTE enrollment at 148 institutions rose between 0% and 10%; however, it fell at a similar number (139) up to 5%, and at 67 more schools, declined between 5% and 10%. Although much disparity remains across the sector, the year-over-year trend improved from fall 2020. We believe that early indications for fall 2022 have also been positive, with further enrollment growth at most institutions, especially compared with fall 2020.

Chart 1

Despite the positive momentum in fall 2021, our two-year analysis of enrollment during the pandemic suggests that colleges and universities might not be out of the woods just yet. Since fall 2019, enrollment fell at 57% of schools , and at 18% of schools, the drop was significant (chart 2). For only 24% of schools, enrollment increased between 0% and 5% and an even smaller 6% reported material growth. This indicates that the rebound in fall 2021 was an "almost" return to pre-pandemic levels of enrollment and not true growth in student numbers, which remains a challenge. Some institutions, however, did record extraordinary growth of more than 20% in the past two years: Eastern University, Pa.; Howard University, D.C.; Southern New Hampshire University; Sweet Briar College, Va.; and University of St. Thomas, Texas. Each of these institutions attributes the growth to various reasons such as significant investment in new academic programs and an uptick in the graduate student population that had been planned for many years prior to the pandemic. Sweet Briar's growth is primarily a rebound in the student base since the announcement of the closure, though it is still much smaller than its original student base. Southern New Hampshire's early entry into remote learning proved very beneficial and allowed the university to record extraordinary growth; however, it is not a typical school in terms of mode of instruction and thus, might not reflect strategies traditional institutions could adopt to achieve enrollment gains.

Chart 2

The Widening Gap Between Higher And Lower Rated Schools

Table 1

For fall 2020, average FTE enrollment dropped across all rating categories, but higher-rated institutions fared better than lower-rated peers. This trend continued in fall 2021, and the bifurcation in credit quality became even more apparent (table 1). Total enrollment at high investment-grade schools, especially 'AAA' rated private universities, rebounded by about 15% on average in fall 2021. In fall 2020, FTE fell at most of these campuses due to significant deferrals and leaves of absence, coupled with the fact that many of these institutions were among the first to announce their transition to online learning, furthering the impact on enrollment for fall 2020. With the restoration of in-person classes in fall 2021, students flocked back. For public and private universities in the 'AA' category, enrollment also rose by about 3.6%. For all other rating categories, total FTE continued to drop, albeit at a slower rate than in fall 2020.

Private Universities Rebound

On average, total FTE enrollment increased at private universities by 1.4% in fall 2021 from a 2.7% decline in fall 2020 (table 2). This was in line with our expectations once in-person activities gradually returned. Consistent with this, undergraduate FTE started to stabilize with 1% growth year over year, an uptick from the 3.7% average decline in fall 2020. Of particular interest is the continued growth of graduate FTEs in fall 2021, with a 4.7% average increase relative to a 5.8% average in fall 2020. In our opinion, difficult economic conditions and the looming recession, coupled with the flexibility provided by graduate programs offering online courses, have greatly boosted enrollment growth in this cohort. Most graduate students do not want the same experience as they had as undergraduates. Accordingly, in the past decade, many institutions that invested heavily in graduate programs, mostly higher-rated institutions, are now enjoying the fruits of their efforts in the form of higher graduate student numbers. In our opinion, schools with more diversified course selection will fare better in the next few years in terms of enrollment, especially given the quickly approaching "demographic cliff" of fewer high school graduates. Overall, for private universities, we believe the fight for college-age students will continue, and competition will lead to slower growth or even a shrinking student population.

On the other hand, applications, matriculants, and total enrollment at most Ivy League institutions materially rebounded (table 2). These schools recorded the most dramatic increase in enrollment across both undergraduate and graduate FTE of the entire rated universe. They are some of the most selective institutions in higher education and in fall 2021 they become even more so. Average selectivity improved 2% for these institutions with acceptance rates hovering around 5% or lower. As students that had taken leaves of absence or deferred enrollment returned, so did retention and matriculation at these schools, improving an average of 9.8% and 12%, respectively, for fall 2021. Although we believe that these schools' exceptional market position and abundance of resources will help them sustain the positive trend, we do not expect the same magnitude of improvements for fall 2022 and beyond.

Table 2

We rate 31 private institutions that we define as "smaller," meaning enrollment of fewer than 1,400 total FTE students. These schools were also able to stabilize enrollment and sustain modest growth in graduate FTE enrollment of 2%. However, some other enrollment characteristics, such as selectivity, matriculation, and retention, weakened. This indicates that while these smaller schools were able to meet their enrollment targets, it came at the cost of being less selective. Annual fluctuations in enrollment can have much more of an effect, given the size of these institutions.

Public Universities Held Steady

While enrollment at private universities rebounded in fall 2021, the same could not be said for public universities. On average, the latter have enjoyed greater enrollment stability; however, they faced persistent difficulties with an average enrollment drop of 1.6% in total FTE for fall 2021, similar to that of fall 2020. Only flagship universities held total FTE enrollment flat with 3.6% growth in graduate enrollment offsetting a 1.8% decline in undergraduate enrollment. Although graduate enrollment continued to increase, it did slow from previous years.

Table 3

At regional universities on the other hand, enrollment decreases were larger for fall 2021 than in fall 2020. While these universities were already experiencing pressures at the undergraduate level, many were able to compensate by expanding graduate populations. For fall 2021, enrollment growth in graduate FTE slowed to 1.1% from 4.2% in fall 2020, which contributed to the overall decrease in total FTE. This difference between undergraduate and graduate enrollment numbers is also partially due to fewer international students. Across the board, public institutions accepted more domestic students as students stayed closer to home and pursued their education in hybrid mode, which also added to stability in retention across the board.

Program Growth Is A Key Differentiator

In the past decade, work force needs have evolved and student preferences have changed. As would be expected, computer and information science is the fastest-growing program with the largest increase in number of degrees granted in the past 10 years, closely followed by health care and related professions. History and English language and literature, among other disciplines, recorded a steep drop in number of degrees awarded, per data provided by U.S. Department of Education Fields of Study.

Chart 3

Based on Integrated Postsecondary Education Data System program data for 10 years, we analyzed how rated institutions fared in program diversity. Public universities invested in more graduate programs while private universities invested more heavily in undergraduate programs (chart 7). Public colleges and universities in the 'AA' category displayed the greatest and most diverse program growth, encompassing graduate, undergraduate, and other programs (doctorate, associate, and certificate programs). This could reflect higher research funding received by public institutions, allowing them to invest more in expanding programs versus private university peers. In our opinion, schools focused primarily on the undergraduate experience will need to tailor programs to student needs and those seeking to diversify their student body will need to invest in more graduate and nontraditional programs.

One of the lessons from the pandemic is that some form of remote classes is desirable. Traditional thinking is that the undergraduate experience is fully in person and the fully online experience is more for nontraditional learners and graduate students that need flexibility. But since the pandemic, it's become clear that flexibility remains a key priority for university students. In a recent survey from Barnes and Noble College Insights, nearly half of students said they prefer a hybrid class format: not fully in person but also not fully remote. Lines are blurring from the norm, which is evolving. Although online learning is becoming more fully integrated into the higher education landscape, schools need to invest further in it.

On Average, Gross Tuition Has Increased--But Not Enough To Offset Inflation

For fiscal 2021, most public schools either froze tuition rates or raised them minimally at an average rate of 0.8%, and average tuition rate increases for private universities were nominal and lower than in pre-pandemic years, at 1.8%. However, across rated schools, increases were higher in fiscal 2022 (table 4).

Table 4

On average, in fiscal 2022, all rated colleges and universities raised tuition by 2.5%, 2.2% for private universities and approximately 3% for public universities. This isn't surprising, as public universities have historically kept their costs lower given the state appropriations they receive for operations. But as state budgets struggled and revenues were uncertain, state support lessened, resulting in schools seeking higher tuition increases to make up for the lost revenue. In particular, higher-rated private universities (AAA, AA, and A rating categories) implemented above-average increases in tuition. This indicates their financial flexibility and ability to raise tuition while expanding enrollment and keeping their demand profile unchanged.

In the past five years, enrollment has been pressured and steadily dropping both at public and private universities, except for growth in total FTE for private universities in fall 2021 (charts 4 and 5). The tuition discount rate (institutional financial aid) has also been rising and universities continue to rely on institutional financial aid to attract students and meet their enrollment targets. As a result, net tuition revenues have also been stressed. The average tuition discount rate for first-time undergraduate students at private universities reached an all-time high of 54.5% in fiscal 2021, according to the National Association of College and University Business Officers 2021 Tuition Discounting Study.

Chart 4

Chart 5

Over the same period, institutions have not been able to raise tuition much, especially given the discussion around the value proposition of a college degree and the rising cost of education. While in the past, college tuition increased more or less at the rate of inflation, the same cannot be said for the past two years. With market volatility, investment returns for college endowments in fiscal 2022 were much more modest or negative relative to the extraordinary returns in fiscal 2021, thereby moderating the resources and balance-sheet strength with which schools exited the pandemic. During the past two years, students also received more grant aid and scholarships due to the several rounds of relief funding, much of which was earmarked for student support; this provided some relief to schools as they navigated tighter budgets. Anecdotally, we have been hearing that since students received increased grants and scholarships funded by federal dollars, institutions are finding it harder to budget for similar levels of funding from institutional dollars to keep the same students. This, coupled with rising costs and inflation, is putting stress on university budgets, especially now that federal funding has mostly been spent and schools have to find new sources of revenues. With enrollment expected to be only slightly better and costs of services rising, universities have much to figure out to achieve financial equilibrium, especially in the absence of federal relief funding.

Tuition Strategies Across Rating Categories

More private colleges implemented tuition resets to try to soften the sticker shock. Four out of five are in the 'BBB' rating category, indicating their highly competitive landscape, limited financial flexibility, and the pressures of falling net tuition revenue coupled with increasing discounts (table 5). Each of these institutions reported higher tuition as being a deterrent for families and aimed to attract more students by lowering gross tuition. This approach will also enable them to lower their tuition discounting, which is among the highest of schools we rate. However, this strategy has a mixed impact on enrollment and it is yet to be determined whether tuition resets offer institutions the solution they seek to broaden their applicant base and boost enrollment.

Table 5

Southern New Hampshire University took an interesting approach to its tuition strategy. It raised tuition 56.3% for fiscal 2022. In the past two years, the university had tried several tuition pricing strategies, including a scholarship program covering 100% of tuition for incoming traditional freshman. Subsequently, it lowered its traditional tuition rate to match the online program tuition rate. However, for fall 2021 (fiscal 2022) it raised the tuition rate for on-campus students to higher than that for online students but still substantially below the fall 2019 rate. This decision was spurred by the need to reduce merit scholarships awarded to on-campus students while maintaining the average net cost. If we included this in the average tuition changes (chart 7), it would show extraordinary growth at 'A+' rated institutions, to approximately 7.7%. However, given the uniqueness of the issuer's situation, we have excluded it from the chart, which depicts the slightly elevated 4.4% average tuition increase for the 'A+' rated schools.

Chart 7

Chart 8

Most public universities nominally raised tuition, except for 'A' rated institutions (chart 8). Some of these increases were spurred by colleges using this as an opportunity to bring their pricing on par with that of other public institutions in the region, as they had been lagging in the past. For example, Ramapo College, N.J. implemented an above-average increase in resident tuition for fall 2021, but in the past it made among the lowest tuition increases of all schools in the state.

Ongoing Innovation Is A Necessity

The effects of the pandemic have been varied and profound for each institution; however, in general, U.S. universities have made great efforts at all levels to be resilient and acclimate rapidly to changes. Uncertainty remains, and we are closely monitoring how institutions shape the future of the education they offer. Expanding programs, offering flexible instruction options, and investing more in services to meet student needs, all while holding tuition low, are just some of the strategies schools have adopted. These actions, coupled with high inflation, increasing cost of services, and decreasing external support, mean more merger activity in the space is highly likely. At the same time, we believe that institutions that find their niche and are able to innovate should succeed and hold their position in the sector.

Megan Kearns, Natalie Nash, and Ginger Wodele contributed research to this report.