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Moody's Gives Higher Education a Bleak Outlook

Moody's Gives Higher Education a Bleak Outlook
July 27, 2012

Moody's Investors Service's U.S. Higher Education Mid-Year Outlook, released Thursday, paints a grim picture for higher education in which existing challenges of heightened competition for students, declining revenue sources, and backlogged maintenance get worse, while new problems emerge.

Problems that the ratings agency sees on the horizon for higher education institutions include the following:

  • Based on poor returns in financial markets, Moody's expects that after endowment spending is accounted for, endowment portfolios will decline for fiscal year 2012, the first decline since 2009.
  • An increase in outcomes-driven state and federal funding, federal regulation, re-examination of the tax-exempt status for nonprofit universities, and a demand for better disclosure for all universities.
  • An increased level of political attention on affordability in higher education and student loan burdens through the presidential election.
  • A greater number of warnings and sanctions imposed by accreditation agencies as those organizations seek to avoid tighter regulations from Congress.

The agency says public colleges and universities will have to shift toward a more market-driven approach rather than continuing to act as state agencies, "which means accelerating the pace of tuition increases or enrolling a higher percentage of out-of-state students, and adjusting their operating models to allow for surpluses that can be carried over as cash reserves." The conflict between that model and public pressure to continue to act as low-cost institutions with a public mission of accessibility is likely to lead to more conflicts between boards, administrators, and faculty members similar to what transpired at the University of Virginia last month.

 

 

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