Title

Extended Negative Credit Outlook for Higher Education

December 5, 2018
 
 

Higher education has received a negative financial outlook from Moody's, the credit ratings agency, for a second consecutive year. An expectation of continued low net tuition revenue, Moody's said, is the primary driving force behind a prediction that 4 percent growth in overall operating expenses for the sector will outpace projected revenue growth of 3.7 percent.

Concerns about affordability and return on investment will continue to curtail growth in net tuition revenue, according to Moody's. At the same time, colleges will remain focused on containing expenses, particularly rising labor costs, which comprise 65-75 percent of expenses for most institutions. As a result, colleges face longer-term challenges due to not investing enough in academic programs, housing and technology, the credit ratings agency said.

Up to 30 percent of credit-rated public and private colleges will continue to face material financial stress. And a small but growing number of colleges will close or merge with other institutions, Moody's predicted, particularly small colleges.

However, the higher education sector is adaptable, and most universities are adjusting to systemic changes.

"The sector has amassed healthy financial reserves during the outlook period following several years of robust investment returns," Moody's said. "This strength has bolstered endowment payouts and philanthropic support."

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