Moody's: Free College a Credit Positive

Free college tuition proposals will be moderately credit positive for the overall higher education sector, Moody’s Investors Service said Friday in a report issued after New York, Rhode Island, Tennessee and San Francisco have recently introduced new or expanded proposals.

Proposals for free public college tuition tend to be relatively cost-effective ways for governments to support higher education access and affordability goals because they are usually structured as last-dollar programs that exhaust other sources of financial aid before drawing on new state subsidies, Moody’s said. Consequently, the ratings agency expects the trend toward free college to continue.

Different programs are structured differently and will have different credit implications, Moody’s noted. Analysts expect more credit-positive effects for community colleges in early years, paired with more negative effects for regionally oriented public and private colleges. That’s because most programs implemented so far have been at community colleges. But if students transfer in large numbers into four-year public university programs after completing two-year degrees, the net effect could balance out over time.

Any widespread expansion of free-tuition programs from two-year universities to four-year universities could have a negative effect on four-year private colleges with regional brands, according to Moody’s.