BRADENTON, Fla. — Kentucky State University's plan to disenroll 645 students for failing to make payments will exacerbate already stressed operations but could be a credit positive in the long run, according to Moody's Investors Service.
KSU announced plans recently to disenroll about 25% of its students for failing to arrange for the payment of charges such as tuition, fees and board. Moody's rates the university's bonds Aa3 with a stable outlook.
"This is a significant figure in light of the university's small enrollment and revenue," Moody's analyst Mary Kay Cooney said in a comment Sept. 9. "The university expects that ultimately a portion of the disenrolled students will address their outstanding charges and be readmitted."
The university had 2,533 students enrolled in the fall of last year, and operating revenue of $61.9 million.
KSU is a historically black liberal arts university based in Frankfort.
Removing students from the roll is an attempt to address increasing gross student accounts receivable, which rose more than three times from $2.5 million in fiscal year 2007 to $7.76 million in fiscal 2013, according to Moody's.
At this time, there is no impact on KSU's bond rating, which is subject to a state intercept program, the rater said. The Kentucky Public University Intercept Program provides a mechanism to intercept state appropriations to pay bondholders, if necessary.
"The implementation of this plan will further exacerbate already stressed operations, at least in the short-term, as the college will lose revenue from the impacted students," said Cooney.
The university's operating revenue fell by nearly 11% between fiscal years 2011 and 2013, resulting in a small operating deficit in fiscal 2013, she said. Preliminary fiscal 2014 estimates show an additional decline in tuition and fee revenue, and a modestly growing deficit.
However, the move to disenroll students "could ultimately be credit positive if the university is able to realign its operations," said Cooney.
Some students have balances ranging as high as $40,000, KSU said on its website Sept. 3.
"We face a nearly $7 million historic deficit largely due to 645 students that have not paid KSU this fall," said interim President Raymond Burse. "This is terribly unfortunate, and we must take the necessary steps to protect KSU's financial stability."
Burse said he ordered KSU foundations to pay student balances whose accounts were less than $1,000, and he also ordered the payment of $65,000 worth of scholarships and book
vouchers to 42 students who were poised to graduate this year or were first-time students.
"We have done everything we can to help students who need it the most," he said. "The last thing we want to ever do is remove a student from enrollment, but the university cannot endure the entire burden."
Students not meeting their financial obligations were informed by the university about its payment plan 22 times over a 14-month period. They were counseled and encouraged to sign payment agreements.
