Credit rating agencies split on higher ed outlook in 2024

Higher Ed Dive

Jeremy Bauer-Wolf

December 7, 2023

Dive Brief:

• Two credit rating agencies are somewhat divided in their outlooks for U.S. higher education in 2024, with one arguing the sector has stabilized, while the other forecasts tough economic conditions for less selective, regional colleges.

• Revenue growth from sources like tuition and state funding looks promising, Moody’s Investors Service argued in an analysis Thursday. S&P Global Ratings, however, said Thursday that only highly selective institutions will enjoy student demand and healthy balance sheets. Their less selective counterparts face enrollment declines and credit pressures in turn, S&P said.

• Both organizations agreed that labor shortages and similar challenges will squeeze colleges next year. Higher ed is contending with a boom in union activity, while widespread faculty tenure “remains a unique sector risk, limiting budget and operating flexibility,” Moody’s said.

Dive Insight:

Moody’s prediction of a stable industry will likely raise eyebrows as colleges — from prominent publics to obscure privates — draw headlines for dropping academic programs and faculty.

A rivaling agency, Fitch Ratings, said recently it expects deteriorating sector conditions and predicted consolidation will persist as institutions attempt to align offerings with student and employer interests.

But Moody’s argues gains from multiple revenue sources will materialize. A recent enrollment uptick will modestly improve net tuition revenue, while public colleges will benefit from a likelihood of strong state investments, it said.

Undergraduate enrollment grew 2.1% and graduate enrollment rose 0.7% year over year, according to preliminary fall 2023 enrollment data from the National Student Clearinghouse Research Center.

Meanwhile, high costs will slow down “as the benefits of easing inflation accrue and operations return to normal,” Moody’s said.

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