Moody's will maintain its negative outlook on the higher education sector in 2026, the rating agency announced.
Colleges and universities will be challenged by long-simmering demographic problems and a barrage of new threats from the federal government. However, the environment will not affect all schools equally, according to Moody's analyst Patrick Ronk.
"We see revenue growing for the sector next year, but not as much as expenses," Ronk said.
Moody's first
Revenue growth is projected to slow to 3.5% from 3.8% as demographics and competition limit pricing power, Ronk wrote in the report, published Thursday. Meanwhile, the sector is projected to see expense growth of 4.4%.
The federal government has added new obstacles, even to schools that have easily weathered prior challenges for the sector.
The Trump administration has cut funding for research, reduced staff at the Department of Education, and launched formal civil rights investigations over schools' diversity policies.
Next year, policies from the July 2025 budget reconciliation bill will take effect, the report said. The bill capped how much students can borrow from federal student loan programs, including the Parent PLUS program for undergraduates and the Grad Plus and Professional PLUS programs for graduate students.
Graduate degrees have been some of the only sources of growth for some universities. Prospective students who reach the cap on federal borrowing will likely turn to private loans, Ronk said, but there's a chance that private lenders won't lend for programs where graduates are less likely to have high earnings, like Master of Fine Arts degrees.
The reconciliation bill also expanded the endowment tax, Ronk said, although it only applies to schools which can easily cope with the hit.
In 2026, the enrollment outlook is "uncertain," according to the report. The demographic cliff will continue to shrink the pool of potential students. Declines in international enrollment spurred by the Trump-administration's anti-immigrant policies have been particularly painful, Ronk noted, as international students typically bring high net tuition revenue.
"We expect modest growth in community college enrollment, particularly in nondegree vocational programs that have expanded to meet workforce needs," Ronk wrote in the report. "Large comprehensive universities, both public and private, will continue to have the largest share of revenue gains given their growing enrollment, with 3.4% growth at comprehensive publics and 4% for privates."
Issuers in the higher education sector have very different circumstances, Ronk said. For large universities with strong brands, factors like the demographic cliff have been less challenging. Smaller universities have struggled to compete for a declining student pool.
"They don't have the wealth that gives them an investment spending income. They don't have, necessarily, as much donor support," Ronk said. "They're facing really tough challenges to their pricing power. Their tuition revenue per student is declining, even if they're holding on to their enrollment. And really, [they] need to work very, very hard to get students in the door, because student charges are their main revenue source."
Aaa-rated universities, Ronk said, are still incredibly strong financially. 92% of Moody's Aaa-rated universities hold over $1 million of wealth per student, allowing universities like Harvard to endure targeting from the White House.
Aaa-rated universities "might have be facing different headwinds in the past couple of years than they ever have before," Ronk said, "but they have so much student demand, so much donor support, so much wealth, that they retain [an] immense amount of credit quality, even with all these challenges."
Moody's rated universe of colleges and universities is very strong, Ronk said; its median university is rated around A1.
Their balance sheets remain strong, according to the report, bolstered by strong investment performance over the last three years. Additionally, state aid to public universities has increased between 5% and 7% annually, although it's projected to slow to 3% in 2026.
Ronk expects schools will use their funds to take out debt in the coming year.
2025 saw
This week alone, the calendar includes a $1 billion taxable deal from the Ivy League's Cornell University and $375 million of tax-exempts from the University of Pittsburgh.
S&P Global Ratings and Fitch Ratings have not yet released their 2026 sector outlooks for higher education.
S&P currently assigns a bifurcated outlook to the sector, with some well-positioned institutions doing well and smaller, less selective institutions struggling.
