Tag: Negative

  • Moody’s Projects a Negative Outlook for Higher Education

    Moody’s Projects a Negative Outlook for Higher Education

    Federal policy challenges and a dwindling population of traditional-age students will make for a difficult year ahead for higher education, Moody’s Ratings predicted in a report issued last week.

    The credit ratings agency predicted that revenue growth will trail behind previous years while expense growth will put a squeeze on operating margins, though strong investment returns should help buoy institutions’ financial position. Moody’s noted that federal policy challenges are also expected to “cause operational and governance stress” as the Trump administration continues to cut federal research funding and seeks to limit the number of international students attending U.S. colleges.

    In March, just a few months after President Trump took office, the agency downgraded its outlook for the sector from stable to negative.

    The report noted that the fall 2026 enrollment outlook is uncertain and that “fierce competition for students will increase as the market for students begins to shrink” due to the demographic cliff.

    Overall revenue growth is projected to be 3.5 percent, down slightly from 3.8 percent in 2025. But anticipated growth will vary by institution type. Large, comprehensive, private universities are expected to see 4 percent revenue growth while their public peers will see 3.4 percent. Mid-sized private universities are expected to see the lowest revenue growth in the sector, at 2.3 percent.

    Moody’s offered a bleak outlook for federal research funding.

    “Federal funding for research grants and contracts will be stagnant, as a long period of continuous growth in federal research and development funding has leveled off and universities grapple with potential caps to indirect costs and ongoing grant cancellations,” Moody’s officials wrote. “While deep cuts to research are unlikely, we forecast modest declines in fiscals 2026 and 2027 to overall funding. These reductions will be concentrated in funding from the National Institutes of Health (NIH).”

    Despite some concerns and a slowdown in the spring, spending from NIH and the National Science Foundation for fiscal year 2025 matched the previous year, Science reported last week, though both agencies awarded fewer new grants.

    Other policy risks highlighted in the report include caps on graduate student loans; enforcement actions related to diversity, equity, and inclusion initiatives; the expansion of the endowment tax (which will only affect a limited number of wealthy institutions); regulatory changes to accreditation; and the elimination of TRIO and Hispanic Serving Institution grants.

    The report also noted potential unknowns ahead, citing the Trump administration’s proposed Compact for Academic Excellence in Higher Education. While the proposal, which would provide preferential treatment for universities that adopt certain policy changes, has been rejected by most of the institutions it was offered to, the report noted that a revised proposal may come in 2026 following sector feedback.

    Policy concerns highlighted in the report were not limited to the federal level.

    “At the state level, some state legislatures are increasingly tying appropriations to specific policy and workforce development goals that can limit financial flexibility,” the report read. “State governments also maintain generally strong influence over public university governance through control of board membership. While state oversight is generally supportive of good governance and accountability, it can introduce political risk.”

    Moody’s also pointed to various “idiosyncratic risks” ahead.

    Those include potential cybersecurity breaches, severe weather, geopolitical unrest, legal issues, and growing costs for universities with Division I athletic programs, which the agency projected will spend more on sports facilities, compensation for players and buyouts for fired coaches.

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  • Higher education outlook remains negative for 2026, Moody’s says

    Higher education outlook remains negative for 2026, Moody’s says

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    Dive Brief:

    • Moody’s Ratings anticipates another tough year ahead financially for U.S. colleges as the sector navigates enrollment pressures, rising expenses and political headwinds under the Trump administration. 
    • The ratings agency recently issued a negative outlook for the higher education sector for fiscal 2026 amid economic uncertainty and shrinking margins.
    • “Federal policy and a shrinking population of high school graduates create an increasingly difficult and shifting operating environment for colleges and universities,” analysts said in a report last week.

    Dive Insight:

    Higher ed started the year with a stable outlook overall from Moody’s. That changed less than two months after President Donald Trump retook office, when the ratings agency downgraded its 2025 outlook to negative. 

    By then, the Trump administration had begun curtailing research funding, increasing investigations into colleges over antisemitism-related claims, cracking down on immigrants and international students, and supporting massive changes to higher ed policy like higher endowment taxes. 

    The political challenges have only intensified since then, with the summer passage of Republicans’ massive spending bill that contains major higher ed policy shifts. The administration has also moved to start dismantling the U.S. Department of Education, slow down the visa system, and impose ideological and operational changes on colleges. 

    In last week’s report, Moody’s analysts highlighted changes to the student loan system as potentially the most painful. 

    Under the spending bill, the federal government next year will begin phasing out the Grad PLUS loan program, which helps graduate students finance their programs up to the cost of attendance. The government will also cap student borrowing at $100,000 for most graduate programs, with a $200,000 limit for professional programs such as medical school. 

    “Institutions with large master’s degree offerings will be particularly vulnerable to shifts in student demand if prospective students are not able to fully access the private loan market,” analysts said.

    All of those disruptions come on top of economic trends already pressuring the sector. Moody’s highlighted demographic challenges as the national population of high school graduates is projected to decline beginning next year. 

    For colleges, that means a slowdown in revenue growth. Moody’s estimates 3.5% growth overall in revenue, down from 3.8% in 2025. For smaller colleges, the 2026 increases could be even smaller — 2.5% for small public institutions and 2.7% for small privates.

    Expenses, on the other hand, will grow 4.4% by Moody’s estimates. While that represents more modest inflation compared to this year’s 5.2% increase, it’s still higher than revenue growth and will eat into institutions’ margins. 

    Moody’s forecast that the share of private colleges with negative earnings margins (before taxes, depreciation and amortization) will increase to 16% next year. That’s compared to an estimated 12.2% in 2025 and 7.2% in 2024. 

    “Given the strained revenue forecast, management’s ability to control costs and identify creative operational efficiencies will take on even greater importance even at the largest and wealthiest institutions,” analysts said. 

    Margin pressures could lead to more early retirement buyouts, workforce cuts, benefit reductions, shared services and mergers to “address fundamental business model weakness,” they added.

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  • Moody’s Downgrades Sector Outlook to Negative

    Moody’s Downgrades Sector Outlook to Negative

    Moody’s Ratings on Tuesday downgraded its outlook for the higher education sector from stable to negative due to recent and potential federal policy changes.

    The revised outlook comes as the Trump administration has gutted the Education Department via mass layoffs and sought to aggressively overhaul higher education with a flurry of executive orders that have destabilized certain funding streams.

    “Actions and potential changes include cuts to research funding, enforcement actions against diversity programs, staff reductions at the US Department of Education, uncertainty over federal student aid, and possible expanded taxes on endowments,” Moody’s analysts wrote in the report released Tuesday. “These factors are causing institutions to pause capital investments, freeze hiring, and cut spending.”

    In December, Moody’s projected a stable 2025 with anticipated revenue growth of 4 percent—the most optimistic outlooks for the sector among a trio of predictions from key financial organizations. Now the ratings agency notes federal policy changes could prompt revenue shortfalls, particularly at research universities, due to a proposed cap on National Institutes of Health reimbursements for research-related costs. That cap, which is currently blocked by a court order, would mean about $100 million in cuts annually for research universities that spend at least $50 million on research and award 70 research doctorates a year, according to Moody’s.

    In addition to the NIH rate cut, an increase to the endowment tax would hit wealthy, private universities and likely drive cuts to financial aid or in other spending categories, the report found. The current endowment tax is 1.4 percent for institutions with at least 500 students and $500,000 in assets per student, but recent Republican proposals have floated raising that tax significantly. One proposal has called for a 10 percent tax and changing the per-student endowment threshold from $500,000 to $200,000. Another GOP proposal would set the tax at 21 percent.

    Potential disruptions to federal financial aid disbursement, however, would impact all colleges and universities. Moody’s noted that “only a select group of wealthy institutions have the financial flexibility to manage such a scenario without likely seeing steep enrollment decline.” Given steep cuts to the Education Department, Moody’s expressed concern that the Federal Student Aid office could be affected, particularly after last year’s overhaul of the Free Application for Federal Student Aid, which was beset by multiple technical challenges.

    “The administration has said the reductions will not affect the department’s statutorily mandated functions such as administering Title IV financial aid and providing assistance to federal student loan borrowers, but the extent to which that will be the case is uncertain,” the report noted.

    Federal enforcement actions against diversity, equity and inclusion initiatives—which the Trump administration has targeted—also pose a financial risk to the sector, according to Moody’s. The report cited the potential for “a wide array of funding cuts, including Title IV funding suspension, if [universities] do not comply” with Trump’s executive orders clamping down on DEI offerings.

    Moody’s also flagged potential losses due to the possible reduction in visas for foreign students. Colleges and universities that would be hit the hardest, according to the report, are those that are “reliant on STEM master’s programs, or more niche offerings like art and design programs.”

    The report concluded that the outlook could revert to stable “if many of the federal policies and proposals are reversed or halted by judicial intervention or do not come to pass. Stronger-than-expected investment market returns and operating revenue growth could also lead to a revision of the outlook to stable.”

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