Dive Brief:

• Colleges with more resources and brand recognition have had an easier time navigating the increasingly competitive post-recession environment for higher education than have smaller, less-resourced institutions, a new report from S&P Global explains.
• Although analysts expect the sector to remain stable, they write that the latter group of colleges will "face substantial pressures" in the coming decade.
• They highlight several headwinds: declining enrollment and state support and a growing focus on value and affordability. Colleges are addressing such challenges via tuition discounts, fundraising and debt-driven campus enhancements.

Dive Insight:

Those headwinds are combining to generate a higher level of competition for the same student, the analysts note. But colleges fare differently based on how well-equipped they are.

"What we're seeing in the sector now is this bifurcation of schools, in both public and private institutions," said Jessica Wood, senior director and education sector lead at S&P Global, in an interview with Education Dive. "You'll see that the stronger-rated, maybe larger schools with more national reach, whether public or private, have done better over the past 10 years."

That trend is expected to continue.

In the absence of high levels of state support, low interest rates have spurred some public colleges to take on debt to finance facilities upgrades to attract students.

With state funding accounting for a smaller share of revenue than it did pre-recession, public colleges today rely more on tuition. Those institutions' lower price relative to private colleges gives them an advantage in that regard, the analysts write, with undergraduate enrollments increasing at higher-rated public institutions and holding steady at lower-rated ones. 

One possible outcome of these differing trajectories, the analysts write, is that states with several public institutions may begin to close or consolidate smaller regional universities "that are more susceptible to financial and demand pressures."

Their analysis reflects similar conclusions in a report released last month from the National Bureau of Economic Research, which found that a decrease in state funding had a bigger negative impact on non-research-oriented public universities.

Private colleges, meanwhile, can lean on a more diverse revenue stream that includes student tuition and fees, endowments and fundraising. To compete with lower-cost publics, private colleges are more heavily discounting tuition — reaching a rate of 39.2% across the sector in the fiscal year 2018 compared to 34.6% in the fiscal year 2013, the report notes. 

Tuition discounts at private colleges grew by 13.3% to from 2013 to 2018, while those at publics increased 6.9% during the period, rising to 24.8%. 

Colleges that can discount tuition without "pressuring margins" will successfully draw students, while those that can't will lose out on demand, the analysts write. They expect small private colleges with fewer than 1,400 full-time students will face the most pressure. 

In addition to using debt, colleges have been looking to public-private partnerships (P3s) in the years following the recession to finance critical campus improvements. While most have been in the housing space, Wood said, there is also interest in P3s for parking, dining and energy.

"For schools pursuing these, it's not only about debt, and it shouldn't be for it to be a successful P3," she said. "It's about enhanced flexibility. Outsourcing expertise … may be the right move for schools if they view that as not their core mission."

The analysts expect state support to continue to increase, though another recession could stunt that growth.

Endowment returns increased for public and private colleges. Analysts also expect fundraising to continue. The last year has seen institutions in both sectors raise record amounts as they rebalance their revenue streams.