- Colleges and universities will maintain "sound" credit quality and experience steady demand, though they'll need "agile management" to handle a checklist of familiar risks, according to a new report from Moody's Investors Service on the global state of higher education.
- That list includes immigration and trade policies that could stem the flow of international students; growing reliance on the financial markets as institutions fundraise and build their endowments; and growth in online enrollment and the related costs and security issues.
- Institutions that fail to address these risks will be "prone to mergers or even closures," the analysts write. They also suggest the market value of a degree will help institutions withstand a "gradual economic slowdown."
Although institutions could make it through a moderate slowdown relatively unscathed, a more severe contraction would reduce affordability and lead to cutbacks in government funding — something to which the analysts say public universities "remain highly exposed" in the event of of a "sharp" economic downturn.
However, they note, college enrollment tends to swell in those conditions. And projected decreases in the size of the student body can be offset by targeting the adult learner market.
To the extent government funding is available, analysts say access to it is becoming more dependent on student outcomes such as graduation rates and employment. In the U.S., the report notes, funding is expected to increase this year in 43 states. However, after a decade of cuts, concerns around continued access to those funds will be a "high-profile policy issue," Moody's analysts wrote earlier this year.
Other headwinds for U.S. institutions include the combination of more stringent domestic immigration policies and increasing investment by countries such as China and India in their own higher education systems.
Additionally, a construction boom on college campuses is pushing institutions into the capital markets to finance maintenance and new projects. In some cases, they are doing that through public-private partnerships, which allow them to share risk. That's critical, too, as heavy reliance on endowments and gifts has private institutions, in particular, vulnerable to market volatility.
And as colleges assess demand for online learning, Moody's notes that it is "becoming a more crowded market." In recent months, public university systems in Massachusetts, New York and Missouri have announced plans to significantly expand their online education offerings — in some cases beyond their state borders and into competition with a set of existing national online institutions such as Western Governors and Southern New Hampshire universities.