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Minneapolis, MN | December 19, 2024 | John Elliott, Assistant Vice President & Chief Compliance Officer
Higher education has experienced a few years of tumult and recovery since the COVID pandemic. While some institutions are catching their breath, others are struggling to survive. Given the gathering clouds around enrollment trends from this year and well into the future, few can afford themselves the luxury of complacency. We explore recent developments in enrollment below
Fall 2024 Enrollment: Reversal over 2023
First-year students out of high school dropped 5% this fall across the country according to an analysis by the National Student Clearinghouse Research Center (“NSCRC”). This is in contrast to a year-over-year increase of 3% in the fall of 2023. Across the higher education sector, institutions felt the impact differently. Public colleges and universities saw a sharper decline at 6.4%, with private four-years dropping 6.2%. Two-year institutions’ enrollment fell by only 1.7%. From another perspective, colleges and universities saw varying enrollment outcomes based on their level of prestige (as proxied by selectivity) in the higher education market. The most selective institutions (accepting one third or fewer of applicants) saw a drop of 3.4%, while “very competitive” (accepting half of applicants) and “competitive” institutions (accepting three quarters) saw drops of 8.7% and 7.4%, respectively. ⁱ
A large part of this drop may be due to the trials and tribulations confronting would-be students from the rollout of the new FAFSA. As of late November 2024, about 54% of the high school class of 2024 had completed a FAFSA versus almost 61% at that time last year, a decline of 8.7%.ⁱⁱ
The FAFSA debacle may have only been one factor of many. According to Kim Cook, Chief Executive Officer of the National College Attainment Network, which commissioned the analysis by NSCRC, the Supreme Court’s ban of race-conscious admissions and the growing national consensus that college isn’t worth the investment of time and money may all have resulted in the year-over-year enrollment decline. (A recent Gallup poll from this summer shows that 32% of Americans polled had “little or no confidence” in higher education, up from 10% when Gallup first started tracking the question in 2015.ⁱⁱⁱ)
All of this is tough news for the higher education sector, but according to a recently released and much anticipated report, things aren’t expected to get better any time soon.
Fewer Hands Knocking? At the Precipice of the Enrollment Cliff
Fall 2024’s enrollment numbers may be the beginning of persistent negative enrollment trends for the sector, at least at a national level. The Western Interstate Commission for Higher Education (“WICHE”) has published its “Knocking at the College Door” report every four years since 1979. This month saw the release of its newest edition, which focuses on the arrival of the demographic cliff. The report estimates national, regional, and state-level graduation rates through the year 2041 by calculating progression rates for grades one through twelve, while also accounting for immigration, birthrates, mortality, retention, and other factors that might impact high school graduation rates.
In short? We’re at the edge: the total number of high school graduates across the United States will peak in 2025 at 3.9 million, gradually declining to 3.4 million in 2041 (a decline of 13%). Compared to 2023, the projected 2041 number accounts for a loss of 388,000 students, or a 10.3% decline in the graduating class.ⁱᵛ While it has commonly been called the “demographic cliff” by higher ed industry watchers, however, the decline in total graduates is a steady, slow one instead of a sharp drop.
The report examines the effect of demographic changes by region and state as well. Twelve states and D.C. will see projected increases by 2041 – but that means 38 states will experience no or negative growth. For some states, the declines in high school graduates will be stark: California, Illinois, Michigan, New York, and Pennsylvania together account for around 75% of the total national decline in graduates from 2023 to 2041. Most regions at the aggregate level will feature declines as well: the West (-20%), Midwest (-16%), and Northeast (-17%) compare unfavorably to the South (+3%). Florida, Tennessee, and South Carolina stand out among those southern states with projected increases of 12 to 15%; just under half the southern states will see an increase in graduates. In fact, compared to the last edition of “Knocking at the College Door” in 2020, the results for the West, Midwest and Northeast are even more grim in the current 2024 edition, with projected graduates in 2037 (the final year for the 2020 report) shrinking against the 2020 projections by -3.5%, -1.5%, and -5.4%, respectively. The South’s projected 2037 number increased by 4.3% against the 2020 figure. The current report suggests that in-migration from other regions to the South is the likeliest reason for the continued strength in that region.
Now what?
Revenue from tuition and fees and auxiliary sources will increasingly feel stress from growing competition over a smaller pool of potential first-year students. All but the most selective institutions and those with premier brand names will need to develop strategies for survival, better define their value proposition, explore partnerships across the sector, and strategically use resources now to better position their organizations in the future. If you would like to discuss such strategies to bolster your institution’s future success, please reach out to your Blue Rose advisor today.
ⁱ “Amid FAFSA Crisis, Enrollment of 18-Year-Old Freshmen Fell Sharply This Fall,” by Eric Hoover, The Chronicle of Higher Education, December 2, 2024. https://www.chronicle.com/article/amid-fafsa-crisis-enrollment-of-18-year-old-freshmen-fell-sharply-this-fall
ⁱⁱ NCAN’s FAFSA Tracker, accessed December 13, 2024. https://www.ncan.org/page/fafsatracker
ⁱⁱⁱ “U.S. Confidence in Higher Education Now Closely Divided,” Jeffrey Jones, Gallup. July 8, 2024. https://news.gallup.com/poll/646880/confidence-higher-education-closely-divided.aspx
ⁱᵛ “Knocking at the College Door: Projections of High School Graduates,” 11th Edition, Western Interstate Commission for Higher Education. December 2024. https://www.wiche.edu/knocking/
Comparable Issues Commentary
Shown below are the results of two higher education deals that were priced earlier this quarter. On October 18, the University of North Alabama (“UNA”) priced its tax-exempt Series 2024 Revenue Bonds. The following week, on October 22, Illinois State University (“ISU”) priced its tax-exempt Series 2024 Certificates of Participation (“COPs”). ISU’s transaction was a dual-purpose issuance which served to finance various capital improvement projects, including the acquisition of a facility to house its new College of Engineering, and to refinance the outstanding Series 2014A-2 COPs. The proceeds from UNA’s bonds are being used to finance the UNA Athletic Facilities Project. Both financings were negotiated sales.
ISU’s COPs and UNA’s bonds both carried a “AA” rating from S&P Global through a bond insurance policy from Assured Guaranty. ISU’s COPs additionally carried an “A1” rating from Moody’s under the same bond insurance policy. ISU's COPs held underlying ratings of “A2” from Moody's and “A” from S&P, while UNA's bonds had underlying ratings of “A1” from Moody's and “A” from S&P. ISU’s transaction was the larger of the two, with par totaling approximately $76 million while UNA’s financing totaled $35 million. The structures of the deals only slightly differed. ISU’s Series 2024 was fully serialized from 2026-2046 and featured two term bonds in 2050 and 2054. UNA’s 2024 deal was fully serialized through 2044 with one term bond in 2049. All serial maturities apart from ISU’s 2043 (3%), 2045 (4%), and 2046 (4%) maturities used 5% coupons. UNA’s term bond featured a 5.25% coupon while ISU’s term bonds used 5% and 4.25% coupons.
From the beginning of October leading up to UNA’s pricing date on October 18, MMD increased by 17- 24 bps across the curve. The day of UNA’s pricing, MMD remained unchanged. The UNA was able to achieve spreads ranging from 40-70 bps on its maturities with 5% coupons.
On October 21, the day before ISU’s pricing, MMD jumped up by 3-7 bps after remaining unchanged for 10 days. On ISU’s pricing day, MMD rose again by 7-8 bps across the curve. Despite that week’s market volatility, ISU was able to achieve spreads of 36-57 bps on maturities with 5% coupons, 77 bps on all four-handle maturities, and 92 bps on the lone 3% maturity.
Meet the Author:
John Elliott | jelliot@blueroseadvisors.com | 312-332-1336
Mr. Elliott serves as Blue Rose’s Chief Compliance Officer. He also provides analytical and research support and project management for Blue Rose’s P3, strategic consulting, and debt advisory practice. Mr. Elliott joined Blue Rose’s California office as an Associate in 2021.
Prior to Blue Rose, Mr. Elliott worked as a research associate for a non-profit think tank in Washington, DC and as a compliance consultant for federal contractors.
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