U.S colleges struggle to manage financial pressure in buyer's market: S&P

Reuters News
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Posted: Jan 15, 2015 12:23 AM

(Reuters) - The U.S. higher education sector is bracing for another difficult year in 2015 as colleges and universities face a tug-of-war to balance tuition affordability with rising costs.

A new report from Standard & Poor's Ratings Services found that while American students still want to attend post-secondary education, they are demanding better value for their tuition dollars. As a result, the not-for-profit higher education environment has become a more competitive, buyer's market, forcing universities to discount tuition despite growing costs.

"This competitive landscape is beneficial to students but financially challenging for colleges," said S&P analyst Jessica Matsumori. "Institutions face an expensive contest to attract and retain the best students."

Instead of dormitories with shared rooms and bathrooms located down the hall, students now expect living quarters with private rooms and more amenities. Basic gyms or swimming pools are being converted at many colleges to state-of-the-art recreation centers with extra touches, such as climbing walls, the rating agency found.

While costs tick up, colleges and universities are finding it difficult to hike tuition or raise revenues in other ways. In 2014, the ratio of downgrades to upgrades increased for the fourth consecutive year.

The result could be a management shake-up at some schools.

"We expect to see a growing number of leadership changes due to both the aging of current senior leadership teams and strategic changes that may require different expertise and skills than an institution's current management possesses," said Matsumori.

(Reporting by Robin Respaut; editing by Andrew Hay)