Private colleges kept their balance sheets stable in 2025, but rising costs threaten less financially diverse institutions in the long term, according to a Fitch Ratings report.
The credit agency found that private nonprofits generated higher net tuition revenue in fiscal 2025 than in the previous year. Strong investment returns and fundraising also boosted the sector’s cash flow.
Rising inflation and labor costs, demographic shifts and an “adversarial federal policy environment” strained all institutions financially. But the report revealed a growing divide between more financially flexible colleges and universities and those that remain heavily tuition dependent.
Your next read: Why Workforce Pell provides valuable funding for every college
Institutions rated “AAA” posted positive operating margins dating back to 2020. At the other end of the scale, the lowest-rated institutions experienced their third consecutive year of negative revenues.
The most resilient schools benefited from multiple streams of income. Grants, philanthropic gifts, and other assets not derived from student fees made up nearly half of their revenue.
The rest of the sector is more financially rigid, with at least two-thirds of funding coming from student-related fees, including tuition and auxiliary services.
Tuition revenue increases at cost
Colleges largely succeeded in raising student-generated revenue in fiscal 2025, with growth ranging from 2.2% to 5.6% across all institutional categories.
But increasing revenue came at a cost. Tuition discounting reached another record high, continuing a years-long trend of colleges offering more aid to attract students. The median discount rate among Fitch-rated private colleges climbed above 40%, extending what the agency describes as an “unsustainable trajectory.”
A warning for less financially resilient schools
Capital spending on facilities and infrastructure took a big hit in 2025. Dollars spent on construction, renovation and deferred maintenance reached their second-lowest level since 2018.
That may help preserve cash in the short term, but institutions with limited financial flexibility may eventually face difficult long-term decisions.
“Pent up capital and strategic needs may prompt an increase in new debt issuance for those that lack alternate means, and could pressure institutions with less financial flexibility to absorb additional debt or other financial shocks,” the report warned.