The alma mater of “Tonight Show” host Jimmy Fallon, the College of Saint Rose in Albany, N.Y., closed its doors in May. Hans Pennink/Associated Press, file

The business of higher education is getting costlier.

Private U.S. colleges raised their prices, but margins fell to the lowest level in over a decade in the 2023 fiscal year, according to a report published this week by Fitch Ratings. The declines hit schools across the sector but were sharpest among lower-rated institutions.

The report paints a concerning picture of the competitive landscape for colleges and universities, with more pain on the horizon. Analysts expect pressures to intensify as higher costs and a “fractured” enrollment weigh on schools’ bottom lines. The number of high-school graduates is slated to dwindle in coming years after birth rates declined in the US following the Great Recession in the mid-2000s.

“The pace of college closures is likely to gather steam as we approach the peak of the demographic cliff,” said Emily Wadhwani, senior director at Fitch Ratings. Smaller, tuition-dependent colleges will bear the highest burden, she said.

Fitch maintains a “deteriorating” credit outlook on the sector in 2024 and expects further bifurcation will widen the gap between smaller, tuition-dependent colleges and stronger, more prestigious schools that tend to be more selective. Almost one in five of the private schools’ Fitch rates has a negative outlook.

According to Fitch data, the core issue facing the country’s colleges is a lack of students, creating a supply-demand mismatch that has already forced over a dozen schools to close this year. A bungled revamp of the Free Application for Federal Student Aid, or FAFSA, prevented some students from applying for aid and is expected to further dampen enrollment figures in the fall.

The US tuition cost is among the highest in the world. According to the National Center for Education Statistics, undergraduate students living on-campus at private four-year colleges paid an average of $57,000 in the 2022-2023 school year.

Rising prices are forcing more schools to offer tuition discounts – the difference between the sticker price and what students actually pay. According to Fitch’s report, discount rates at lower-rated schools have been rising faster.