Public colleges face 'intensified' credit hurdles: Moody's

Reuters News
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Posted: Jul 26, 2012 12:24 PM

(Reuters) - Credit challenges for public colleges and universities have "intensified," Moody's Investors Service said on Thursday, and majority of the institutions it rates have a negative outlook due to their reliance on student tuition and government funding.

Only a minority of so-called market-leading universities, mainly rated Aaa or Aa, have a stable outlook because of their strong balance sheets and diversified revenue.

Moody's said this smaller group can better withstand the pressures affecting the entire higher education sector: the stumbling economic recovery, meager investment returns in their portfolios, funding cuts and a decline in households' net worth.

Its list of growing challenges for the sector includes the difficulty many students now have paying for college, the development of online courses, the need for bolder leadership by college and university presidents, and tighter scrutiny by regulators and accreditors.

"These developing risks are forcing universities to focus more aggressively on cost control amidst growing revenue challenges," Moody's said.

Since June, three universities' credit ratings have been hit: the outlook for Kean University, New Jersey, was revised to negative from stable, Mountain State University, West Virginia, was downgraded to B1 from Baa3 and put on review for potential downgrade, and Fort Valley State University, Georgia, was also put on review for a possible downgrade.

Standard & Poor's Investors Service on Wednesday also gave the sector a mixed outlook, citing state funding cuts and a slowly recovering economy.

(Reporting By Joan Gralla; Editing by Steve Orlofsky)