Higher education credit downgrades remain more likely than upgrades next year as colleges and universities cope with the latest form of the COVID-19 virus, analysts at Fitch Ratings said.

“The neutral sector outlook for U.S. colleges and universities reflects Fitch Ratings’ expectation for some enrollment recovery, solid state budget prospects and good levels of budgetary flexibility,” lead analyst Emily Wadhwani wrote in her 2022 outlook.

About half the nation’s post-secondary institutions saw a 3.2% drop in student enrollments this year, on top of a 3.4% decline last year, the National Student Clearinghouse Research Center found.

The cumulative 6.6% drop over two years has raised concerns that fewer Americans see the value of post-secondary education.

Higher education analysts see an historical inflection point for higher education and the demand for training that matches in-demand jobs and professions.

“In the last 50 years, we’ve seen nothing close to the steep decline in enrollments over the last two years,” said Doug Shapiro, executive director of the National Student Clearinghouse. “With the population growing and the complexity and demands of the labor market increasing, it’s hard to imagine that we could see such a large decline.”

Most universities across the United States planned for a predominantly in-person, on-campus academic year in 2021– 2022, which Wadhwani believes should help to stabilize student-driven enterprises, including auxiliaries.

“Solid market returns for most endowment portfolios in fiscal 2021 have also helped to ease revenue pressures,” she noted.

By any measure, higher education is facing a third year of challenges after the pandemic closed classrooms and led to mass cancellation of sports events in 2020. Universities with major medical schools stood on the front lines of the health battle.

In March, Moody’s Investors Service raised its outlook for the U.S. higher education sector from negative to stable, citing better revenue potential for colleges and universities over the next year and a half.

Moody’s attributed the improvement to a widespread return to on-campus and in-person learning in the fall of 2021 amid a flood of federal aid.

“The greater presence of students in housing and resumption of other auxiliary activities will fuel better revenue prospects from tuition and student fees heading into fall 2021,” said Moody’s analyst Debra Roane.

“Students’ ability to return to campus will improve as the vaccine rollout succeeds, which will reduce the public health crisis,” she added. “Most states have also lifted their revenue forecasts for the current fiscal year 2021 and upcoming fiscal 2022, which supports a steadier outlook for higher education.”

Fitch sees 2022 as likely the last year of meaningful budgetary support from any remaining stimulus funds.

“Relative to 2021, the risk of additional coronavirus outbreaks should continue to abate as vaccination rates increase,” Wadhwani said. “Top choice and selective four-year institutions have retained solid enrollment, although others continue to see pressures, particularly in the incoming freshman and transfer student groups.”

Fitch called international enrollment scenarios fragile but stabilizing.

“Overall, enrollment pressures related to demographics and demand that predated the pandemic will persist, both geographically and across institutions,” Wadhwani said.

State revenue forecasts for fiscal 2022 “generally reflect improved economic performance and, for many states, a return to near pre-pandemic revenue trajectories,” Wadhwani said.

“As such, Fitch anticipates broadly that state funding will be a neutral to favorable factor in most states for the current funding cycle, and final decisions on the use of remaining federal stimulus funds could be an additional factor,” she said.