Standard & Poor’s and Moody’s Investors Service both assign mixed outlooks to the higher education sector and agree that the sector is still wrestling with the aftermath of the financial crisis.
Weak stock markets and low interest rates in the past year will continue to constrain charitable giving to colleges and universities, Moody’s wrote in a report.
State appropriations as a percent of total revenue for public schools have steadily declined in recent years, both credit agencies point out.
Moody’s notes that “market-leading universities” should retain a stable credit outlook. However, analysts have a negative outlook on the remainder of colleges and universities that constitute the majority of Moody’s higher education ratings.
Economic stress and increased public scrutiny of higher ed prices have reduced schools’ abilities to increase their tuition, Moody’s said.
Schools reduced capital spending due to the economic downturn. However, in the last year schools have started funding previously delayed capital projects and Moody’s expects that trend to continue. Funding needed for capital projects will continue to be a financial challenge to the higher ed sector, Moody’s wrote.
Higher education’s new online education platforms will help some schools and hurt others, according to the agency.
To deal with tough financial conditions and create efficiencies of scale, bolder and more centralized leadership will be needed in the public college and university sector, both agencies said, and in the private higher ed sector as well, Moody’s wrote.
Some key measures in the sector have improved in the last few years, S&P wrote. Median unrestricted net assets as a percent of operations declined from 2007 to 2009 but then increased slightly since then at schools S&P rates A or above.
“This is due to higher enrollment, increased tuition charges, cost containment initiatives, and improved investment performance, especially at larger institutions and those with significant endowments,” S&P wrote. However, public higher education is still are suffering in the aftermath of the financial crisis. For example, financial aid as a percent of operating expenses increased from 2007 to 2011, Standard & Poor’s said.
This was also true at private nonprofit higher ed schools, S&P analysts wrote.
In fiscal 2011 private nonprofit college and university budgets and endowments improved, continuing a trend that started in fiscal 2010.
However, in the private nonprofit higher ed sector parents are increasingly sensitive to school tuition, room, and board levels, according to S&P. Private nonprofit “universities continued to face financial aid pressures, particularly in highly competitive regions or in states with strong public university systems,” analysts said.
Standard & Poor’s is projecting flat or slight gains in endowment totals and improved demand to attend these schools in the current fiscal year.
