Hard economic times have traditionally been good for community colleges, as laid-off workers return to school to learn new skills. But the Covid-19 pandemic that began in early 2020 and the sharp (if brief) recession it brought on were a whole different story. Community colleges, which serve about a third of all undergraduates in the United States, were hit harder by enrollment declines than any other type of higher education institution.
Now the steep enrollment declines are over and according to a new report from S&P Global Ratings, despite the end of extra Covid-era federal aid, the finances of the 199 community colleges (in 22 states) it rates have stabilized. The report credits increased state support and local tax revenues, as well as increased tuition receipts and prudent management for the stability. (Nearly two-thirds of the rated schools are in California, Texas and Illinois.)
For community colleges nationwide, the enrollment swing has been a dramatic one. According to the National Student Clearinghouse, enrollment at two-year public colleges (as measured each March), fell 9.9% in 2021 and 8.6% in 2022 before creeping back up 1.5% in 2023 and rising a healthy 4.7% in 2024. That’s separate from the demographic challenges some of the schools may face in coming years, as the college-age population declines, particularly in certain states and in rural areas.
(The long-forecasted demographic cliff—starting in 2026, the number of high school graduates will drop precipitously—is the reason why Forbes, in its 2024 financial rating of four year-private colleges, warned students to pay particular attention to school finances.)
Of the 199 community colleges S&P Global rates, 98% received a stable outlook in fiscal 2023. Of the remaining schools, 1.5% were negative and 0.5% were positive. More than 60% of the rated schools received an “AA” rating, and another 30% received an “A.” Fourteen schools received a AAA rating from S&P while three schools received a BBB. Highly rated community colleges are less dependent on tuition revenue and state support, and enroll more full-time students.
S&P-rated community colleges in California, Illinois, Indiana, Oregon, South Carolina and Wisconsin saw median enrollment increases of at least 2% during fiscal 2023, while two-year schools in Ohio, Florida and Mississippi saw median enrollment declines of 3% or more, the report shows.
The two-year colleges S&P rates can, in part, thank a higher level of state support for their stable margins—state appropriations per full-time equivalent student (FTE) increased in fiscal 2023 to $4,930 from $4,701 in fiscal 2022 and $4,138 in 2021. “States have kept fairly stable funding for community colleges, in part because they’re very politically popular and they’re all throughout the state. Each local legislator has a community college constituent,” says Davis Jenkins, senior research scholar at the Community College Research Center. Highly rated colleges are also more dependent on taxes and other local support. S&P’s AAA-rated schools depend on taxes for a median 50% of their revenues, while A- schools rely on taxes for a median 5.7% of revenues.
While the new S&P report paints a picture of recovery for many two-year schools, it doesn’t capture the entire sector, Jenkins warns. There are nearly 1,000 community colleges in the United States, and some of them—especially those in rural areas—have not seen enrollment climb. “If this were done nationally in 950 schools, you would see similar patterns, but you would see much more concern for the smaller colleges,” he says.
Many of the enrollment bumps can be attributed to an uptick in dual-enrollment—students who take community college classes while they’re still in high school, according to Jenkins. But yield rates for dual-enrolled students have remained flat. “Among high school graduates, we see a lot of circumstantial evidence that students who in the past might’ve gone to a community college, are going to a four-year, plus many low-income students and rural students, and students of color are not going [to college] at all,” Jenkins says. Complex and antiquated credit transfer processes are somewhat to blame for this, he argues. “Theoretically you save money by going to a community college, but you’ve really got to know what you’re doing,” Jenkins says. “Some are successful and most are not and end up having to take too many credits.” In addition, most community colleges offer dual-enrollment students discounted tuition, so though their enrollment numbers may look better on paper, the extra students don’t translate to significant tuition revenue increases.
Community colleges have received new attention recently for the growing popularity of microcredentials—non-degree credentials that come in the form of certificates, badges and licenses that tend to focus on mastery of a specific skill or technology, and which students can complete in just months. These can be appealing pathways for workers who are looking to up-skill in their current careers, retrain to change jobs or move into a stable job as quickly as possible.
Again, while positive for community college enrollment numbers, these programs won’t save two-year schools, Jenkins says. “At the larger schools in the urban areas, there are more employers to work with and they tend to have more corporate training, non-credit training. It’s an important role for community college, but it’s not a big source of their funding or enrollment.”