Bonds

Higher education’s struggles in West Virginia underscore national trend

Universities across the U.S. welcomed students this school year with trimmed budgets and fewer program offerings, changes implemented to stay afloat as enrollment and tuition remain depressed.

As the wider sector sees years-long revenue struggles that accelerated during the pandemic, West Virginia’s colleges and universities provide perhaps the most glaring example of the trends public and private institutions nationwide face.

Current market conditions have collided with long-term demographics and increased competition over a shrinking pool of candidates, leaving some schools with “unsustainable revenue and expense trajectories,” said Emily Wadhwani, director at Fitch Ratings.

West Virginia University’s campus in Morgantown, where student protests failed to stop a plan to eliminate majors and several dozen faculty positions.

WVU Photo/Brian Persinger

The stress is evident in West Virginia, where the state’s universities and colleges face steep and continued financial difficulties.

With enrollment down, West Virginia University, the state’s flagship higher education institution, is expecting a budget deficit of up to $74 million over the next five years, if intervention doesn’t occur first.

West Virginia’s government, despite record revenues, has been thus far unwilling to fully fund the school and to keep doors open, WVU trimmed program offerings and staff, increased tuition by close to 3%, and tapped reserves.

Protests by students on the Morgantown campus went unheeded as the Board of Governors in September, in a process spearheaded by President Gordon Gee, cut 10 undergraduate majors, 18 graduate and professional majors and eliminated 147 faculty positions at the school, which enrolls more than 24,000 students.

“For faculty and staff who remain here, please know that we are committed to supporting their efforts, by providing them the resources they need to be successful and by engaging as many of them as possible in planning for our future,” Provost and Vice President for Academic Affairs Maryanne Reed said in a statement.

Even larger public universities like WVU, traditionally given a competitive edge by strong brand recognition and diversified revenue streams, struggled as state governments nationwide cut higher education spending in the wake of the 2008 “Great Recession,” Wadhwani said.

Another of the West Virginia’s public universities, Marshall University, saw steep budget issues and entered the new academic year with 9,220 students, an 18% decrease from 2017.

In March, Fitch downgraded the school’s approximately $98 million of outstanding revenue bonds to A-plus from AA-minus and said the university would face continued competition for a dwindling pool of state funds and students in the future. Marshall’s issuer default rating was cut to AA-minus from AA.

While the state has launched efforts to draw students from neighboring Kentucky and Ohio, enrollment was critical to the school’s revenue bond rating as “the nature of the pledge is tied to auxiliary activities and student fees,” said Fitch.

Whatever short-term economic ups and downs influence the industry, long-term trends are sure to shape its future and mean a more competitive landscape for everybody, Wadhwani said.

“It’s becoming more of a national game than it used to be, and for the schools that have enough competitive strength for it to be a national game, they have footholds in a wider swath of states,” she said. “You also still have relatively elevated inflation, a tight labor market, a relatively flat college-going rate, and a shrinking demographic pool of high school students.”

In a recently published report on the U.S. higher education industry, Fitch said it expected to see more consolidations, trimmings, closures, and acquisitions as institutions adjust to new budgetary realities that will persist into the future.

Fitch outlined a difficult demographic reality for industry, predicting that by 2037 the number of high schoolers expected to graduate annually in the US would decline by 8%, a change driven in part by a changing labor market offering high-wage alternatives to pursuing a degree.

Fitch said it expected to see more consolidations, trimmings, closures, and acquisitions among higher education institutions as they adjust to new budgetary realities.

While the decline in graduates is uneven across regions, local eligibility numbers are mattering less and less as the nature of the industry’s competition changes.

Wadhwani said many schools are now seeing their local pool of students is no longer sufficient to sustain operations and have widened recruitment strategies. How they adapt to that change is paramount for their future fiscal health.

“The recruiting strategy for most schools has widened from local to regional to national, and whether or not you’re successful in cultivating, those strategies can make it a different story,” she said.

Fitch in its report said over half of its below-investment-grade ratings carry a negative outlook.

Lower enrollment numbers are especially felt at private universities more dependent upon tuition for revenues, making them less flexible in finding ways to make adjustments.

School closures are more common among private schools, Wadhwani said, as was the case for West Virginia’s Alderson Broaddus University, a private Baptist university in the city of Philippi founded in 1838; the university closed its doors in August after facing years of financial and enrollment difficulties, reporting a net income of negative $904,424 for 2023.

Schools in other states have experienced similar difficulties; Alabama’s private Birmingham-Southern College has sounded the alarm that financial pressures could force it to close. New York’s private Cazenovia College shuttered after almost 200 years in operation amid recent years of down revenue after defaulting on $25 million in bonds.

In January, Moody’s Investors Service downgraded Birmingham-Southern’s issuer rating and debt rating on the tuition revenue bonds to Caa2 from Caa, citing “sustained enrollment and revenue declines driving deep operating deficits and extraordinary endowment draws.”

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