IVM suggests temporary risk reduction in stimulus-filled higher ed sector

New data shows an increase in financially stable institutions. However, this is likely a distortion from an influx of COVID-19 relief funds.

In 2022, the EY-Parthenon team released the Institutional Viability Metric (IVM) and applied the tool to evaluate risk within the four-year higher education sector. Using 2019 and 2020 Integrated Postsecondary Education Data System (IPEDS) data, our analysis showed that more four-year colleges and universities were at financial and operational risk than previously thought: roughly 20% of the four-year segment was “At Risk” in both 2019 and 2020, and another 20% was flagged as “Monitor.”

However, an analysis of recently released 2021 IPEDS data shows a starkly different picture. Based on 2021 data, only about 10% of four-year institutions are “At Risk.” Roughly 20% are in the “Monitor” category, with 70% of the market showing as “Stable” (Figure 1).

Figure 1: Institutions by IVM score, 2019-2021

Major upward swings in profit margin drove artificial risk category switches.

A significant increase in the number of institutions achieving surpluses in FY21 supported higher overall IVM scores and reduced the “stickiness” of risk assessments seen between 2019 and 2020. As shown in Figure 3, nearly 60% of institutions that were “At Risk” in 2020 moved into “Monitor” or “Stable” in 2021. Between 2019 and 2020, only 30% of “At Risk” institutions did so. Similarly, over half of institutions that were “Monitor” in 2020 moved into “Stable” in 2021. Between 2019 and 2020, only 25% of “Monitor” institutions did so. 

Figure 3: 2021 IVM scores for 2020 ranking cohort

Steadiness in averages for non-financial fundamentals – namely enrollment growth, graduation rate and retention rate – underscores the temporary nature of the risk reduction phenomenon.

Figure 4 illustrates that across 2019, 2020 and 2021, averages for these additional IVM metrics among four-year institutions with the data availability to be IVM-scored remained stable or slightly worsened. While short-term surpluses supported by federal stimulus may have pushed certain institutions into the green for FY21, deeper trends in market demand and student outcomes will continue to play longer-term roles in shaping institutional trajectories. 

Figure 4: Average enrollment growth, graduation rate and retention rate among scored four-year institutions, 2019-2021

The post-pandemic road ahead

Though COVID-19 relief funding was a critical intervention amidst unprecedented challenges for students and institutions alike, these efforts may have set higher education back in terms of change and transformation. With billions in emergency stimulus, the sector was positioned to reactively buoy day-to-day operations, but may have delayed proactively taking on existential threats to mission and model posed by decades of declining enrollment, increasing competition and shifting student expectations.

As the sector recovers from the COVID-19 pandemic, these enduring challenges are not only brought back into focus but are also joined by emergent economic shocks in the form of economic downturns and inflation. As the EY-Parthenon team reassesses risk in the four-year institutional landscape with 2022 data and beyond (as it becomes available), we expect a contraction in market stability due to these factors – particularly as stimulus funds dwindle.

In the meantime, it is critical for higher education leaders to take an active role in shaping their own paths to financial sustainability. While the road ahead may differ depending on an institution’s current “At Risk,” “Monitor,” or “Stable” status, the importance of developing strategic and operational plans that reverse “vicious” cycles and reinforce “virtuous” ones in response to acute market realities is commonly shared.