Moody's Releases Update on Higher Education Sector

As we approach audit season for higher education institutions, we are pleasantly surprised at how private universities navigated their way through the pandemic and remained financially steady compared to fiscal year 2019.

In the most recent study done by Moody’s, private colleges and universities maintained operating cash flow margin of nearly 14% for fiscal 2020, which is consistent with the prior year, by executing cost-savings efforts, yet still remaining operationally stable.  In addition, many colleges and universities also received federal aid in various forms over the past year, which helped boost performance amid the decline in fiscal 2020 operating revenues. While the recently passed American Rescue Plan Act and the Coronavirus Response and Relief Supplemental Appropriations Act will positively impact results in 2021, the higher education sector does not expect future emergency funding beyond these bills.

The significant uncertainties of the pandemic led some colleges and universities to obtain lines of credit to increase their liquidity and give them more cash flow flexibility.  Across the institutions that Moody’s rates, monthly days cash on hand grew to a median 344 days in fiscal 2020, compared to a median 330 days in 2019, as many sought to preserve cash, delay capital expenditures and explore various methods of cost-cutting to bolster this figure. Although colleges and universities were able to have their short-term liquidity remain steady from 2019, they were challenged with a significant decrease in total revenue and enrollment in fiscal 2020.  

The median net auxiliary revenue for fiscal 2020 dropped a whopping 19% compared to a 2% increase in the prior fiscal year due to the closure of campuses and the issuance of significant room and board refunds.  In an article Medians – Private universities demonstrated flexibility amid pandemic in fiscal 2020,  Moody’s Investor Service says small universities were challenged with the largest enrollment loss of nearly 5%, which may indicate those colleges were already facing enrollment issues prior to the pandemic, as stated in the article written by Mo.  Yet, despite these declines in tuition and auxiliary revenue, many college campuses are still holding strong.

What have we learned from all of this?  Many organizations, especially higher education institutions, have yet again adapted to the ever-changing dynamics the pandemic has dealt them. More so than ever, this pandemic leaves decision-makers to reevaluate campus and capital needs, and we expect each institution to make financial and operational changes to better suit their future goals with an eye on sustainability.  As Winston Churchill said, “Never let a good crisis go to waste,” and institutions of higher education should seek to use this time to implement changes to ensure future success.


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