Moody’s Cuts 2013 Higher Education Outlook to Negative

Moody’s Investors Service cut its 2013 outlook for all of U.S. higher education to negative, citing mounting pressure on revenue sources.

“Most universities will have to lower their cost structures to achieve long-term financial sustainability and fund future initiatives,” Moody’s said today in a report, led by analyst Eva Bogaty.

The ratings company previously had a stable rating for market-leading research institutions and a negative rating for other U.S. universities and colleges since 2009. The cost to attend college has increased faster than the rate of inflation over the past four decades, with some private institutions topping $60,000 a year.

Price sensitivity is having a greater impact on student demand because of a “prolonged period of depressed family income and household net worth,” and because the number of high school graduates has been declining since the 2007-2008 academic year, Moody’s said.

Public universities, which have seen state funding decline in recent years, can expect more of the same, Moody’s said. It said research funding is also vulnerable to federal budget cuts.

Colleges Downgraded

The rating company downgraded more than 20 universities last year, according to data compiled by Bloomberg. Among the largest was Pennsylvania’s State System of Higher Education, a 14-school system including Bloomsburg University.

Moody’s cut $1.5 billion of the system’s debt to Aa3 from Aa2 largely because of its financial dependence on the state, which was also downgraded, it said in a release in October.

Other institutions downgraded included the private schools Franklin W. Olin College of Engineering in Needham, Massachusetts, and Morehouse College in Atlanta.

While private institutions with the greatest endowments have flexibility to subsidize tuition, they are also facing more volatile returns, according to Moody’s. Harvard University in Cambridge, Massachusetts, the world’s wealthiest school with a $30.7 billion endowment, lost 0.05 percent on its investments in the year ended June 30 after gaining 21 percent the previous year.

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net

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