As enrollment trends shift, competition grows and operational risks emerge, the charter school sector remains under pressure, according to a recent report.
Twenty-four of the 53 reported impairments in the first quarter of 2026, or 45%, were from charter schools, the highest single-sector share of first-quarter impairments since the first quarter of 2022, when 50% of the all-time low number of impairments came from retirement projects, according to the report from Municipal Market Analytics.
Eight of the 24 first-quarter impairments, or 33%, were rated at issuance, the same percentage as the rated charter impairments in the first quarter of 2025, the report found.
The sector's challenges have also impacted the overall high-yield education index. In March, the HY education index was the worst performing sector, returning negative 2.8% by month-end. Most of this was because of underperformance in charters and certain K-12 schools, according to an April 8 Barclays report.
Several factors have contributed to the stress. For one, charter schools are contending with shifting enrollment trends, which Barclays strategists said in a Feb. 20 report, are a major factor behind the spike in charter school defaults.
In many states, the school-age population is falling amid "lower fertility rates, affordability concerns, outmigration, and shifting U.S. immigration policy," Barclays strategists said in the report.
Charter schools in Texas and Florida keep benefiting from growth in school-age population, which has ticked up 2% and 1%, respectively, along with strong charter laws that make it easier to transition from public schools to charter schools, they said.
By contrast, charter schools in California, New York and Pennsylvania face more challenging fiscal and demographic conditions, Barclays strategists said.
This, though, has not led to a decline in enrollment as the sector draws students from the public school pool. A little over half of charter school enrollment comes from five states: California, Arizona, Florida, Texas, and New York, they said.
The sector has an "outsized dependence" on state charter laws, and those with "strong charter laws typically allow for unconstrained growth, feature multiple independent authorizers, and waive select statutory education requirements, providing greater operational flexibility and scalability," Barclays strategists said.
Along with changing enrollment trends, the sector faces competition from homeschooling and private school programs, which, along with charter schools, have seen growth, they said.
For homeschooling and private school programs, growth stems in part from the popularity of publicly funded Education Savings Accounts, an "often universal and more flexible than the traditional school choice voucher, which typically targeted lower income families," Barclays strategists said.
Additionally, this year will see increased focus on teacher wages and working environments, especially in areas with teacher shortages, Barclays strategists said.
"Charter renewal risk has increased for weaker operators, as some authorizers have issued shorter than maximum renewal terms to maintain closer oversight amid financial and academic pressures," they said.
Barclays strategists added: "Cyber breaches, significant management turnover, governance scandals, or weather events can also constrain schools' operating flexibility."
It's possible some of pressure comes from the sector having several years during the pandemic where "typical rules" were suspended, such as easier charter renewals, lighter testing requirements and one-time federal aid and state assistance, said Matt Fabian, president of MMA.
"So this could be catching up to what might have happened otherwise during COVID," he said.
Some buyside firms are cautious on the charter school sector, such as Belle Haven.
As school choice has become more popular, which is a boon for charter schools, it has also increased the amount of competition, said Dora Lee, director of research and partner at the firm, in a mid-March interview.
And while enrollment may not be struggling in some schools, waitlists have gotten shorter, she said.
Furthermore, charter schools can't raise taxes and don't have any levers for raising revenue, Lee said.
Combined, she said, these factors have led to more defaults and impairments and weakness in the sector, she said.
However, some shops are more constructive on charter schools.
Clinton Investment Management sees some value in charter schools, but market participants need to be "highly selective," said Andrew Clinton, the firm's CEO and founder.
"You want a community that's in desperate need, ideally, of the services that charter schools provide," he said. "You want to have both tenured teachers who are committed as well as management that understands how to manage growth, as well as build a long wait list of folks who want to get into the school. These are all qualities that tend to be highly correlated with successful credits over the long term."
