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Global Credit Research - 16 Jan 2013
New York, January 16, 2013 -- The 2013 outlook for the entire US higher education sector is negative,
including the market-leading, research-driven colleges
and universities, says Moody's Investors Service in its annual
industry outlook. Previously Moody's had a stable outlook
for these leading institutions and a negative outlook for the rest of
the sector since 2009. Moody's perceives mounting fiscal
pressure on all key university revenue sources.
"The US higher education sector has hit a critical juncture in the
evolution of its business model," says Eva Bogaty, the
Moody's Assistant Vice President -- Analyst who is the lead
author on the report "US Higher Education Outlook Negative in 2013."
"Even market-leading universities with diversified revenue
streams are facing diminished prospects for revenue growth."
The rating agency says that most universities will have to lower their
cost structures to achieve long-term financial sustainability and
fund future initiatives. Universities have been restraining costs
in response to the weak economic conditions since the 2008-2009
financial crisis, but they have only recently begun examining the
cost structure of their traditional business model.
"The sector will need to adjust to the prospect of prolonged muted
revenue growth," says Bogaty. "Strong governance
and management will be needed by most universities as they navigate through
this period of intensified change and challenge."
One critical factor behind the negative outlook is that price sensitivity
continues to suppress the growth in revenue from net tuition. Moody's
says all but the most elite universities face diminished student demand
and increased price sensitivity. Reasons include the prolonged
period of depressed family income and household net worth, as well
as the dip in the number of domestic high school graduates since the peak
of 3.34 million for school year 2007-2008.
Another factor behind the negative outlook is all non-tuition revenue
sources are also strained. Public universities can expect the share
of their operating revenues from state appropriations to continue to stagnate
or even decline. Research funding, already flat, is
vulnerable to cuts in federal budget negations.
In addition, universities that count on endowments must contend
with weak returns in fiscal 2012 and what is likely to be a volatile investment
environment in 2013. For universities that own and operate hospitals,
patient care revenues continue to face downward pressure.
The rising burden of loans on students and increase in student loan defaults
is also negatively impacting universities, leading more people to
question the value of a college degree. Most universities remain
well below the threshold for being cut off from federal aid because of
the rate of students default, says Moody's. However,
some for-profit universities as well as universities that serve
low income populations have very high default rates. Additional
risks to the sector include negative accreditation actions, which
increased by almost 50% from 2009 through 2011.
The outlook expresses Moody's expectations for the fundamental credit
conditions in the sector over the next 12 to 18 months. It does
not speak to expectations for individual rating changes and is not a prediction
of the expected balance of rating changes during this time frame.
For more information, Moody's research subscribers can access
this report at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_PBM148880.
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Asst Vice President - Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
John C. Nelson
MD - Public Finance
Public Finance Group
Moody's: 2013 outlook for entire US Higher Education sector changed to negative
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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