The higher education sector is expected to face “a deteriorating credit environment,” according to a 2025 outlook report from Fitch Ratings, a major credit ratings provider.
The report noted that rising pressures, including “uneven” enrollment trends, growing costs and flat state funding, are likely to financially hurt U.S. higher ed institutions—especially those with already tight budgets that heavily depend on tuition dollars. Fitch predicted modest net tuition growth, between 2 percent and 4 percent, for most colleges and universities.
The report highlighted that while undergraduate enrollment over all has rebounded since the pandemic, freshman enrollment has significantly declined, particularly at four-year colleges and universities. International student enrollment has been flat for the past two years, and the report predicted that it will continue to be “fragile,” given that the group is “highly susceptible to unfavorable shifts in both geopolitical sentiment and policy.”
State funding for higher education has increased in 42 out of 50 states this year, according to the report. However, in a handful of states, the loss of federal COVID-19 relief funding has led to declines. Fitch Ratings predicted a “meager” median 1 percent growth in fiscal 2025 budgets compared to 2024. The report also warned that backed-up deferred maintenance could further strain higher ed budgets.
Emily Wadhwani, a senior director at Fitch Ratings, said such pressures might lead to more closures and mergers.
“Variable enrollment, rising capital needs and continued operating pressures will continue to chip away at more vulnerable higher education institutions in 2025, even if inflationary pressures ease and interest rates fall,” Wadhwani said in the report. “A widening credit gap continues to prompt an elevated level of consolidation, thus far concentrated among smaller, less selective and more tuition-dependent institutions.”
