In Moody’s U.S. college credit ratings, downgrades far outnumber upgrades

Howard University’s credit rating by Moody’s Investors Service fell this month for the second time in the past year, largely because of concerns about money troubles at its hospital.

But the historically black university in Northwest Washington has plenty of company: Moody’s has downgraded three dozen other four-year colleges and universities since July 2013, a sign of continuing financial fragility in higher education.

By contrast, nine of about 500 higher-ed institutions that Moody’s analyzes were given credit rating upgrades in the past year.

The Moody’s rating scale, from Aaa to C, is just one way of looking at the market. There is a plethora of college analysts, from Standard & Poor’s (which also rates college credit) to U.S. News and World Report (whose rankings are considered a measure of prestige). Even the federal government is planning to rate colleges on value and access, an initiative that has prompted much debate in the higher-ed world.

The Moody’s analysts — who are seeking to size up the risk of failure to meet contractual financial obligations and of estimated financial loss in the event of default — look at bottom-line metrics that matter to college leaders.

Among them: full-time equivalent enrollment, net tuition revenue per student, total cash and investments, total debt, average donations per student and the ratio of debt to operating revenue.

It’s worth pausing to lay out the 21-step Moody’s terminology for ratings. In descending order, the investment-grade levels are: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2 and Baa3. Those below investment grade are: Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca and C.

A Washington Post analysis of data from Moody’s found that 398 of 509 rated private and public four-year colleges, universities and university systems were deemed to have minimal to low credit risk.

●The top rating, Aaa, was bestowed on 23 schools, including Amherst College and the University of Virginia. Half of the Ivy League is rated Aaa (Columbia, Harvard, Princeton and Yale universities). The other half is rated Aa1 (Brown and Cornell universities and Dartmouth College) or Aa2 (University of Pennsylvania).

●Ninety-three schools — including Howard — were considered to have moderate risk (Baa1 to Baa3). Among Howard’s peers, with a Baa3 rating, are Augsburg College, Point Park University and Regent University.

●Eighteen schools were given ratings deemed below investment grade, with substantial to very high risk. Prominent among these is Yeshiva University in New York, which a year ago was rated A2 (the sixth rung on the scale) and now is rated B3 (the 16th rung) because of major fiscal concerns.

●Among the nine upgraded schools were Liberty University in Lynchburg, Va., which rose from the fifth rung (A1) to the fourth (Aa3), and American University in Northwest Washington, which rose from A2 to A1. The other seven were the University of San Diego (from A2 to A1), Creighton University (A3 to A2), Embry-Riddle Aeronautical University (Baa2 to Baa1), Nova Southeastern University (Baa2 to Baa1), University of La Verne (Baa2 to Baa1), Iona College (Baa3 to Baa2) and Birmingham-Southern College (Caa1 to B3).

●Ratings for several universities in the District of Columbia were unchanged. They are: George Washington, A1; Catholic and Gallaudet, A2; and Georgetown, A3. The University System of Maryland was rated Aa1, also unchanged.

Here are the schools that were downgraded, in alphabetical order:

Alabama State University: A2 to Ba1

Ashland University of Ohio: B3 to Caa2

Bard College of New York: Baa1 to Ba1

Canisius College of New York: Baa2 to Baa3

Central College of Iowa: Baa3 to Ba2

Claremont Graduate University of California: A3 to Baa1

Dowling College of New York: Caa1 to Ca

Earlham College of Indiana: A1 to Baa1

Eastern Illinois University: A3 to Baa1

Emporia State University of Kansas: A1 to A2

Franklin Pierce University of New Hampshire: B3 to Caa3

Glenville State College of West Virginia: Baa3 to Ba2

Governors State University of Illinois: A3 to Baa1

Hastings College of the Law in California: Aa3 to A2

Haverford College of Pennsylvania: Aa2 to Aa3

Howard University: A3 to Baa3

Illinois State University: A2 to A3

Morehouse College of Georgia: Baa1 to Baa3

Morgan State University of Maryland: Aa3 to A1

New Mexico State University: Aa2 to Aa3

New York Law School: A3 to Baa1

Northeastern Illinois University: A3 to Baa1

Regent University of Virginia: Baa2 to Baa3

Rollins College of Florida: A1 to A2

Southern Illinois University: A2 to A3

Southern University System of Louisiana: A2 to A3

St. Joseph’s College of New York: Baa1 to Baa3

St. Mary’s College of Maryland: A1 to A2

Texas Southern University: Baa1 to Baa2

University of California: Aa1 to Aa2

University of Illinois: Aa2 to Aa3

University of Kansas: Aa1 to Aa2

University of Puerto Rico: Ba1 to Caa1

Vermont Law School: Baa2 to Ba1

Western Illinois University: A2 to Baa1

Western State College of Colorado: A3 to Baa1

Yeshiva University of New York: A2 to B3

A former Post education editor, Nick writes about college from the perspective of a father of three who will soon be buried in tuition bills.
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