The higher education sector continues to face pressure, often forced to increase spending to attract students, as applications decline and international enrollment falls. As investors take a closer look at the sector, not all schools will be impacted equally.
Enrollment issues have put more stress on a sector that had been battered by threats to their tax-exemption, research and funding, plus civil rights investigations over schools' diversity policies and failure to curb antisemitism.
Eighty percent of professionals polled by The Bond Buyer at the start of the year predicted the higher education sector would experience the greatest challenges over the next five years.
The sector has accounted for less issuance in 2026. Education issuance totaled $150 billion in 2025, with K-12 issuance at $103 billion (69% of total education issuance) and higher education at $44.6 billion (30%), according to LSEG.
So far this year, higher education issuance is at $23.5 billion in 201 issues, down 19.3% year-over-year. At this point last year, issuance was at $29.1 billion across 230 deals.
And while issuance is down, the universities and colleges coming to market are trying to stay competitive, said Ilya Perlovsky, fixed-income market strategist at Fidelity Investments.
To attract incoming students, "you want to have the newest dorms, you want to have the new facilities," he said.
But even this may not be enough. Municipal Market Analytics reports that "impairments are likely to increase" for the sector moving forward. As such, investors are being more particular about what credits to buy.
It's hard to see value in the higher education sector, right now, at least for some institutions, said Jude Scaglione, director and head of fixed income portfolio management at A&M Private Wealth Partners.
"The bigger names tend to be bellwethers, not a lot of performance opportunity, but you're still going to see a lot more consolidation and a little bit more M&A activity and probably defaults on some of the lower-rated ones," he said.
"Anyone involved in higher education is going to look at whether a school has the capacity to sustain itself in the future," Hilco Global Managing Director David Crawford said.
When considering the effect on the muni market, Crawford said investors will have to take into account the quality of the institution and the credit risk it will provide.
Larger institutions with legacy brands will be able to survive, but the future seems bleak for smaller universities, he said.
"There's going to be a greater impact on smaller to mid-sized schools, which are going to have to explain how they are going to programmatically attract enough students to keep their institution viable," Crawford said.
"Among the universe of four-year institutions, small private, nonprofit institutions in areas with more rapid declines in high school graduates are at the greatest risk of merger or closure," MMA reported.
There have been at least 89 mergers or closures since 2020, including the Massachusetts-based
In an article, Crawford described the university's termination as a potential "end of magical thinking in higher education."
"Whether it will be seen as the beginning of the end, a new beginning, or both will depend on where you sit in the higher education ecosystem; it will also depend, of course, on money," he wrote.
Eve Lando, portfolio manager at Thornburg Investment Management, believes smaller private institutions will have to adapt or die. The schools that are able to cater their offerings to best reflect the evolving workforce and changing workplace demands have the best chance of braving this new "survival-of-the-fittest environment."
"It's not just about analyzing where a school stands financially today," she said. "The bigger question is what these institutions will look like over the next five to 10 years, because as bondholders, we invest with a longer-term horizon."
— Jessica Lerner contributed to this report
