S&P: Community colleges lifted by improved enrollment and finances

Dive Brief:

• With enrollment trends improving and state appropriations increasing, the community college sector has reason for “optimism,” according to a recent report from S&P Global Ratings. 
• For 2023, median full-time equivalent enrollment, at 5,439 students, was down just 0.3% from 2021 and up nearly 8.1% from the previous year, S&P found among the roughly 200 community colleges it rates. That comes after enrollment in the sector fell 7.7% year over year in 2022,.
• Meanwhile, median state appropriations per FTE student for the sector increased 19.1% to $4,930 between 2021 and 2023, analysts found.

Dive Insight:

Community colleges are “showing signs of rebounding” following the operating and financial challenges of the pandemic, S&P analysts said. 

According to S&P, fall 2022 brought an uptick in enrollment at community colleges across most credit ratings. Other research has shown the increases continuing. May data from the National Student Clearinghouse Research Center pointed to a 4.7% year-over-year enrollment increase at community colleges this spring, an addition of about 200,000 students. 

The spike accounted for almost half of the higher education sector’s headcount gains during the period, even though community colleges make up only a quarter of overall enrollment. 

The increases have helped community colleges regain ground lost during the pandemic, which brought steep drops in enrollment. 

Despite the improvement, S&P pointed to demographic trends — namely a declining population of high school graduates — that continue to present enrollment challenges. In addition, prospective students are facing issues such as financial hardships that prevent them from attending, the left-leaning think tank New America has found.

Community colleges have felt financial pain, including federal pandemic relief funding running dry. Yet their operating margins have remained relatively stable, S&P analysts noted. 

Specifically, margins declined just 70 basis points year over year to 6.7% in 2023, after rising slightly the previous year, according to S&P. Liquidity has also increased across the community colleges’ S&P rates, which analysts attributed to increased state funding and “prudent management.”