Outlook for Nonprofit Higher Education Is ‘Volatile,’ Report Says

Lower-rated nonprofit colleges and universities that do not respond proactively to the challenges outlined in Standard & Poor’s 2013 outlook report run the risk of developing weaker credits, according to the report from the credit-rating agency.

The report predicts an “increasingly volatile” view of the nonprofit higher-education sector, meaning there may be an increased number of positive and negative rating changes during the year. The report also predicts that higher-rated universities—those with a higher demand among students, a greater diversity of revenue sources, and a strong history of fund raising—will maintain or improve their creditworthiness.

It’s the lower-rated institutions, public and private, that face greater risks, if they do not develop strategies to respond to challenges listed in the report, including:

  • Dealing with deferred maintenance.
  • Balancing access and affordability for students.
  • Preserving their investments.
  • Managing a turnover in senior leadership positions.
  • Handling the uncertainty of state and federal appropriations.

Those challenges are causing many institutions to reassess their business models, the report states. Following the onset of the recession, many colleges limited their expenses and set priorities “with the goal of building operating margins and meeting educational missions.” They have received mixed credit ratings since then, and the report predicts the trend will continue.

The long-term outlook for colleges and universities remains strong because of continued strong demand for higher education. But operational changes in delivery systems, cost structure, and revenue initiatives could affect more ratings and outlooks in the short to medium term, according to the report.

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