Over the past year, Moody’s has downgraded around the financial ratings for about three dozen colleges. Given the financial state of higher education, this shouldn’t be terribly surprising.
Moody’s analyzes more than 500 four-year colleges and universities, assessing their financial reliability and creditworthiness. 398 of these schools are considered to be “minimal to low” credit risks. The colleges of the Ivy League, with their generous endowments, are, of course, among the most financially stable schools.
However, thirty-seven schools have slipped in their ratings between summer 2013 and summer 2014, while just nine schools improved. (You can review the full list on the Washington Post website). Schools were rated on various factors including “full-time equivalent enrollment, net tuition revenue per student, total cash and investments, total debt, average donations per student and the ratio of debt to operating revenue.”
Given this particular set of ratings criteria, a downgrade could probably have been expected. In part, this is because college endowments are still playing catch-up from the effects of the recession. In addition, public college and university budgets are still reeling from post-recession decreases in college funding at the state level (a trend that, although exacerbated by state budgets during and after the recession, dates back twenty-five years). And, as was revealed recently, college practices of tuition discounting are no longer effective stopgap measures for protecting college budget increases.
Considering all of these factors squeezing college budgets (and often leading to tuition increases, which pass the burden onto families), Moody’s downgrades are not a surprise. The only surprise here will be if fewer such downgrades are forthcoming.