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Moody's: Outlook for higher ed sector now negative

Published on NewsOK Modified: January 16, 2013 at 12:41 pm •  Published: January 16, 2013

Moody's Investors Service on Wednesday downgraded its outlook for the higher education sector to negative across the board, saying even prestigious, top-tier research universities are now under threat from declining enrollment, government spending cuts and even growing public doubts over the value of a college degree.

Previously, its outlook had been stable for those better-positioned institutions, and negative for the rest.

The report explaining the decision outlines a range of financial challenges now burdening virtually all institutions, though in different measures in different places — stagnant family income that limits pricing power, substantial state funding cuts, a demographic dip in the population of new high school graduates and a federal budget standoff that almost certainly bodes ill for the future flow of dollars for research and student-aid programs like Pell Grants.

And despite the obvious pressure, Moody's says too many college leaders still haven't made the bold choices required to survive and thrive.

"The actions that have been taken right now are fairly reactionary — cutting expense in order to align with the revenue declines, but not looking at the structural changes to how universities do business," said Moody's vice president and senior analyst Karen Kedem in a telephone interview.

The report speaks to a painful reality in the field: While institutions continue to increase tuition much faster than overall inflation, angering parents and politicians, most are in fact struggling to collect much more tuition revenue.

While colleges raise their list prices and collect more from those who can afford to pay, most simply cannot fill seats without offering substantial discounts. The report cites federal data showing the average American family's net worth declined 39 percent in the three years ending in 2010, dropping to its lowest level since 1992. Increasingly, price is a factor for families.

A separate survey of about 300 colleges released last week by Moody's found about one-third were expecting tuition revenue this year either to decline or fail to keep pace with inflation. A few years ago, virtually all colleges were seeing tuition revenue rise.

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