Higher ed sector upgraded to 'stable' by Moody's

One in five schools still predicted to struggle

Moody's Investors Service upgraded its outlook for the four-year higher education industry to "stable" from "negative," which had been assigned to the sector since January 2013.

In the report released Tuesday, the ratings service says it improved the outlook based on 3% increases in expected state funding and 1% to 2% increases in federal research funding.

Four-year colleges will earn an unimpressive 3% aggregate operating revenue growth—just above inflation—over the next 12 to 18 months, says report author  and Moody's VP Eva Bogaty.

Nevertheless, Moody's says the industry's outlook is better because institutions have had strong returns on investments and managed to contain costs. In addition, government funding is predicted to grow.

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This will provide colleges and universities with "some predictability in operating budgets for the first time since FY 2009," Bogarty adds.

But not all schools will feel that stability. About 20% of institutions will continue to face financial "stress," which will be highest at small, private colleges and regional public universities.

The upgraded rating comes on the heels of two Moody's reports released this month that found the gap between well-performing and at-risk schools is growing (Thomason, "The Ticker," Chronicle of Higher Education, 7/20; Moody's Investor Service release, 7/20; "Quick Takes," Inside Higher Ed, 7/21).

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