Education

Moody’s Upgrades American Colleges


Moody’s upgraded the national outlook on colleges and universities this month – from negative to stable.

You can be excused for missing it, almost no one reported it. There was a ton of news being made this month, so the future of American higher education may not have made it above the fold in your local paper. Or below it.

Even so, the idea that higher education as a marketplace is “stable” should be news. It probably is for many. After all, Moody’s previously prognosticated that higher education institutions were on the brink of economic collapse, giving two consecutive negative ratings to the sector. Those assessments were big news. Nearly everyone reported that.

Some of the most invested in displacing and replacing college nearly celebrated it because it fueled a convenient and popular narrative of college catastrophe. Some even predicted that half of all colleges would go bankrupt within a decade – a ridiculous notion that also received more attention than it should have.  

But as I’ve written repeatedly, thankfully, that’s not true. It was never true.

As I also pointed out at the time, Moddy’s previous negative assessments missed the mark, in some places badly. They too predicted school closures that did not materialize.

Now, it seems that Moody’s has figured out that American college finances are not nearly as fragile as many assumed. According to reporting on the upgrade by Inside Higher Ed, Moody’s “sees steady revenue streams, solid reserves and strong operating performance at large comprehensive universities bolstering the sector over the next year to 18 months.” And Moody’s expects “large comprehensive universities” to show operational revenue boosts “in the 3.5 percent to 4.5 percent range” while smaller public and non-profits would see increases, “in the 2 percent to 3 percent range.”

A big reason that Moody’s has reversed its outlook is that – surprise, surprise – colleges have other revenue options, tuition aside. And college leaders tend to look ahead and make budget adjustments to withstand droughts in one line item or another. It’s why a black and white assessment of college fiscal health based on tuition revenue, discounting and enrollment is certain to be incomplete, if not misleading.

If the expected revenue growth and stability of colleges surprises you, this will shock you.

Even tuition, the core revenue source for many schools, is expected to grow, says Moody’s. In 2020, “net tuition revenue will increase by 1 percent for public institutions and by 2.3 percent for private colleges and universities.” In other words, in a steady and growing economy, in the shadow of state education funding cuts and facing a temporary dip in college-age students, colleges are growing revenue – even tuition revenue.  

Naturally, not everyone will agree with Moody’s recalculation. As mentioned, they’ve been wrong on this very point before. This time though the evidence, or lack of it, is on the side of their most recent view, on the side of stability. Fitch Ratings, for example, kept their “negative” outlook on higher education in place.

The point of all this is not whether Moody’s or Fitch gets their call right. The point is, and should be, that there continues to be very little evidence to support the idea that American colleges are under life and death pressure, facing their imminent demise. True, times on campus are tight, even uncomfortable in many places. But the overall landscape is pretty darn stable, which is pretty darn amazing.

The more important point is how much of this positive survival story is unknown, untold in conventual places. Most people still believe, I am sure, that student debt is apocalyptic and that colleges are in the middle of a deserved, historic collapse. Probably because people keep saying those things. And probably because nobody actually checks. Neither the student debt crisis nor the college collapse crisis is accurate. Both stories do a tremendous disservice to the truth about being in college or being a college.

In a better world, every media outlet that citied the past Moody’s outlooks in their reporting about a crisis among colleges should report that Moddy’s has changed its view, that the pervious assessments may have been, probably were, hyperbolic. But that’s not going to happen. That never happens.

What will happen is that most colleges will continue to adjust their financials, make good investments and be poised for hyper growth the next time the economy slows down. Or when state or federal leaders finally figure out they’ve been shortchanging education for a generation. Either way, colleges will be fine – even Moody’s now thinks so.



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