U.S. Sector View: Stable
After four years of it being negative, we have revised our sector view for U.S. higher education to stable. Most colleges and universities have successfully responded to the pandemic, with significant help from federal emergency funding and record investment gains in fiscal 2021. A return to on-campus learning in fall 2021 buoyed tuition and auxiliary revenues, but the effectiveness of health and safety measures will be critical to continued in-person learning amid new variants. While financial flexibility has improved, additional risks remain, such as inflation and enrollment pressures. Schools with weaker demand and financial profiles still have less operating flexibility and could face credit deterioration. Notably, despite their worst crisis in decades, no rated colleges or universities defaulted on their debt.
S&P Global Ratings had maintained a negative view on the sector for several years and during that time, we downgraded 109 college and university ratings. While the pandemic exacerbated many of the pressures that had already been facing the sector (such as enrollment challenges and overall affordability pressures), the significant federal funding schools received, coupled with overall expense cuts schools made and further supplemented by record investment returns in fiscal 2021, have placed most schools in a position of greater financial strength heading into 2022. As a result, we have revised our sector view to stable.
As campuses returned to on-campus learning, enrollments generally improved for many and auxiliary income has rebounded from fiscal 2020 lows. College and university management teams have demonstrated their ability to adapt swiftly as implementing sound health and safety measures took top priority, providing significant risk mitigation as first delta and then omicron variants spread across the country. While longer term risks such as demographics and expected declines in high school graduates are expected to cause enrollment challenges in the future, our sector view shows our expectation of credit quality in 2022. The questions below highlight what we believe will be the main drivers for credit quality this year and beyond.
Chart 1
Questions That Matter
1. Why is the higher education sector view revised to stable for 2022?
For the first time in several years, the college and university sector is experiencing financial tailwinds from unprecedented federal emergency relief funds and extraordinary endowment returns in fiscal 2021, and public universities are benefiting from stable to growing state operating funds. While student enrollments still face uncertainty from COVID related variants, and several economic challenges could present themselves in the coming year, colleges and universities have learned how to manage through the pandemic and most enter 2022 more prepared and with greater financial flexibility. We expect 2022 to regain some sense of normalcy.
How this will shape 2022
Colleges and universities enter 2022 in a better financial position. Colleges adapted budgets to the pandemic and most schools ended fiscal 2021 with improved, and for many, positive operating results; however, these results can at least partly be attributed to emergency funding and we will be monitoring how schools deploy these resources. At the same time, higher education investment gains averaged over 25% in fiscal 2021, growing school balance sheets and providing greater financial strength entering 2022.
Economic growth not seen in a decade will continue. The 5.5% U.S. GDP growth expected in 2021 was the strongest seen in over three decades. Even the 3.9% S&P Global Economics forecast for 2022, if realized, will exceed any growth in the past 10 years. This should allow state revenues to come in close to or on target for fiscal 2022, which bodes well for state operating appropriations in fiscal 2022. (See "Economic Outlook U.S. Q1 2022: Cruising At A Lower Altitude," published Nov. 29, 2021, on RatingsDirect, for more information on the economic outlook.)
Some recession-driven pressures remain. Inflation challenges, supply chain bottlenecks, staffing shortages, and volatile markets reacting to pandemic swings could pressure state revenues, which in turn could cause funding cuts to colleges and universities. However, strong liquidity positions and expected stabilization of enrollments will allow the sector to remain stable in the face of the continuing economic uncertainties.
What we think and why
Extraordinary expense controls lent themselves to sustainable operating improvements. To offset enrollment declines and tuition and auxiliary revenue deterioration during the pandemic, institutions undertook significant expense-cutting measures including furloughs and layoffs. Some of these initiatives were non-recurring, such as elimination of pension contributions, while others are likely more sustainable. Post-pandemic, we expect many of these controls to remain in place and managements' continued focus on cost (or expense) opportunities.
Meaningful federal stimulus funds provide liquidity. After receiving generous federal emergency funding, and since state funding was not impaired (contrary to initial expectations) many of our rated colleges and universities expect improved operating results for fiscal 2022. The amount of federal funding, coupled with the flexibility in timing and usage of the third round of such funds, bolster our rated schools' unrestricted liquidity and operations.
State stability means steady operating appropriations for publics. While federal sources of liquidity to colleges and universities have been key to supporting operations and providing flexibility, the $204 billion provided to states as part of the American Rescue Plan has played a critical role for public universities. Stronger results at the state level meant better operating appropriations for higher education, a key indicator of renewed fiscal stability for colleges and universities highly reliant on state revenues. Of course, funding levels differ by state--however, we expect fiscal 2022 and beyond will bring general stability in funding.
Record investment gains buoy balance sheets. Given annual market fluctuations, one good or one bad year of investment returns, in isolation, does not typically affect investment strategies, capital spending plans and debt capacity. Our criteria methodology takes a three-year weighted average as we evaluate balance sheet ratios, coupled with a forward-looking view on potential debt issuance or defeasance. However, fiscal 2021 generated outstanding investment returns that exceeded anything we have seen in recent years , and thus created some additional balance sheet flexibility for institutions. This financial strength could be tempered as some schools accelerate debt plans given rising interest rates. We will be watching to see how, and when, universities use these record investment gains.
Chart 2
International enrollment is improving from dismal lows in fall 2020. After significant declines in fall 2020, initial indications show international enrollment rose moderately in fall 2021, as borders opened and travel picked up--although nowhere near pre-pandemic levels. While the pandemic continues to disrupt international students' ability to come to school in the U.S and global competition for this population of students is rising, we expect international enrollments at U.S. colleges and universities to stabilize or grow in 2022.
2. How will regional pandemic responses and demographic differences continue to affect higher education?
While colleges and universities have largely followed state health related measures--such as vaccination status, testing and social distancing in response to ongoing challenges presented by COVID variants--these have differed across the country. These local or regional health related factors--especially vaccination rates--may have influenced some student demand but evidence to date appears largely anecdotal. Public universities are also affected by the status of their state's finances and some states are better positioned from a reserve standpoint. Finally, demographic pressures resulting from declining birth rates and thus reduced numbers of traditional college bound high school graduates are expected to continue to cause enrollment pressure in certain parts of the country that may also still be facing enrollment stress from the pandemic.
Chart 3
How this will shape 2022
Vaccination rates and other health measures could influence school preferences. Vaccination successes continue, although the U.S. still lags most of the developed countries in rate of vaccination: currently about 75% of the population has received at least one dose, but these figures differ significantly by state. With the emergency of new variants, the effectiveness of measures such as vaccination, masking, and social distancing will remain critical to in-person learning during spring 2022 and will likely play a role in fall 2022 enrollment decisions.
What we think and why
Per-pupil funding levels vary. State funding for higher education differs materially by state. However, across our rated universe, we expect at least stable to growing operating appropriations in fiscal 2022.
Employment challenges will continue as the "Great Resignation" ages. The national unemployment rate has returned to 4.2%, a level reflective of a robust economy, and yet over 10 million positions remain open. Employment decisions made by workers seeking higher wages or more satisfying roles will continue in the new year. For colleges and universities, this means that some schools are struggling with staff shortages. If this continues, schools and academic medical centers will likely see higher expenses as they have to pay more to attract and retain staff. In addition, a stronger economy has typically meant more high school graduates have chosen to directly enter the work force upon graduation rather than pursue post-secondary education.
Pension costs and contributions have stressed public schools' budgets. The cost of unfunded pension and other postemployment benefit liabilities (OPEB) is passed on to participating colleges and universities, contributing to operating budget stress when it increases. Yet, pension and OPEB liability and funding challenges are not uniform across the states. While some states have very large current and future cost obligations, others are at or close to being fully funded with limited risk of escalation, so the effect on credit from this obligation can vary greatly. While we expect funded ratios could improve for many plans in fiscal 2021, given generally strong market returns, we will continue to watch pension and retirement obligation costs for schools in certain states. For more on fixed costs, please see "U.S. States Weigh Risk Reduction In Managing Pension And OPEB Liabilities," published Sept. 20, 2021.
3. Where will we see the greatest credit pressures across the higher education sector?
Schools that entered the pandemic with relatively weaker demand profiles have faced elevated operating pressures, and the credit quality split between higher-rated institutions and lower-rated schools continues to widen with more downgrades of lower-rated, mainly regional institutions. These schools often lack the size and scale, reputation or balance sheet to compete as effectively as higher-rated organizations. Institutions with limited flexibility--whether that be due to declining enrollment, modest financial operations and resources, or management turnover--will continue to face weakened credit profiles in 2022 and beyond. Within the higher education sector, the privatized (off-balance sheet, or OBS) student housing sub-sector will continue to struggle to fill beds and, in some cases, replenish debt service reserves, if occupancy restrictions continue.
How will this shape 2022
Disparity between higher and lower rated schools grows. Many higher education institutions were already facing operational and financial challenges before the pandemic, and COVID-19 has only accelerated these pressures. However, our rated universe represents a disparate community and higher-rated schools with strong demand profiles are doing fine, relatively speaking. There is no "one size fits all." Institutions in a weak position relative to competition and balance-sheet strength have faced greater pressure and will likely continue to struggle.
What we think and why
Increased consolidation or closure activity. Across the higher education sector, consolidation is on the rise, driven by a downward trend in state support for several years and demographic shifts away from traditional-aged students, especially in rural or more regional parts of the country. We have seen multiple state systems propose or complete mergers of regional universities or community colleges with the stated goal of increasing efficiency. With the pandemic contributing to even greater uncertainty in demand and enrollments, which could have long-term financial consequences, we believe the consolidation trend is likely to accelerate. While some struggling colleges or universities with valuable real estate, brand, or institutional core competencies will have an easier time securing an affiliation or merger, we expect we will see more closures, in particular among smaller, regional private liberal arts colleges. We are seeing more schools consider monetizing non-core assets by selling land, buildings, or other assets such as works of art and intellectual property as a short-term solution. Given the projected persistence of challenging demographics for high school graduates, schools will continue to compete for a reduced pool of students.
The OBS student housing sub-sector continues to face pressure. We saw an unprecedented level of rating and outlook movement in our rated universe of privatized student housing projects during the past two years. We lowered the ratings on 18 privatized student housing projects in 2020 and seven projects in 2021, with only one upgrade recorded since the start of the pandemic. Several rated projects (44%) have returned to stable outlooks, driven by factors such as a rebounding of occupancy levels in fall 2021, solid reserve levels, or extraordinary support from the associated higher educational institutions. However, many other housing projects continue to face strained demand, often characterized by a more gradual recovery in occupancy rates. In addition, these projects face financial pressures due to their high breakeven occupancy rates, weak reserve levels after pandemic-related extraordinary draws, and the continued need for external support from the institutions they service. Owing to these factors, we anticipate that rating pressures will continue for OBS student housing projects in 2022.
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During 2020 and 2021, we saw several universities re-evaluating the structure of these housing projects, resulting in some exercising the option to purchase the projects. From our rated portfolio, 11 projects were acquired by their sponsor university since the start of the pandemic (four in 2020, seven in 2021). Despite these ongoing occupancy pressures and a high proportion of speculative grade ratings (27 out of 52 projects), only two rated projects have defaulted since March 2020, both of which faced financial pressures prior to the pandemic.
Community colleges continue to face enrollment stress. Historically, enrollments in two-year programs have grown significantly in a recessionary environment, yet this pandemic and economic recovery has been like no other. The sudden stop-and-start nature of the economy, cutbacks in course offerings, and overall health and safety concerns, resulted in material declines in community college enrollment in fall 2020, which continued in fall 2021. Given the current labor market, many community college students have chosen jobs over education. Lower community college enrollment also reduces the transfer enrollments at four-year colleges and universities.
Academic Medical Centers face labor shortages and associated higher costs. Most academic medical centers (AMCs) provide high acuity, essential care. This has supported their patient volumes, as much primary care and elective surgeries were deferred following the outbreak of COVID-19. At the same time, federal support has provided some financial cushion to AMC operations. However, these organizations are facing labor shortages at all staffing levels, including in nursing where early retirements, resignations, quarantines, and illness have led to unavailability. AMCs are being forced to rely more on high-cost temporary nurses to fill staffing slots, which drives up expenses.
4. What ESG issues will challenge credit quality?
Environmental, social, and governance (ESG) factors continue to contribute to higher education credit evaluations. While most higher education institutions have broad tools to address ESG risks, not all have the financial resources and personnel expertise to implement comprehensive risk management strategies to insulate operations from the evolving nature of these issues- and we expect the focus on these risks to continue to heighten in 2022. We share our ESG views on college and university credit quality in dedicated paragraphs of our individual credit reports, but also through our commentaries.
How this will shape 2022
Disclosure of ESG issues remains in the spotlight. As interest grows in assessing and quantifying ESG risks and how they are being managed, disclosure will continue to be a hot topic in the sector. With the evolving nature of these factors, we believe certain risks as detailed below may be more influential and material to creditworthiness for U.S. public finance issuers in 2022 and could lead to credit pressure.
Chart 6
What we think and why
Proactive management Is more important than ever. Pre-COVID, while most universities had not identified a potential "pandemic" explicitly in their enterprise risk management processes, many had crisis plans and procedures in place. This allowed management teams to pivot swiftly and successfully to varied instructional modes throughout the pandemic, which demonstrates the importance of contingency planning. The ability of management teams to forecast, react to events decisively, communicate, and manage expenses through event risk--whether pandemic, cyber threat, labor shortage, social unrest, or other concerns--remains critical.
Environmental risks have accelerated. On average, annually in each the past five years there have been almost 17 storms with losses of over $1 billion, and the drought in 2021 at one point was affecting two-thirds of the states. These conditions are expected to continue in certain parts of the country and will further bring analytical attention to any colleges or universities affected and the actions taken, including associated costs to remediate these catastrophic events. (See "ESG in U.S. Public Finance Credit Ratings: 2022 Outlook And 2021 Recap," Nov. 29, 2021 for more information.)
Colleges and universities remain highly susceptible to cyber threats. Cybersecurity lapses continue to create disruption and drain liquidity throughout public finance. For colleges and universities, the move to virtual learning and increasing online presence makes them more susceptible to cyber threats. For more on cybersecurity in ratings, please see "ESG Brief: Cyber Risk Management In U.S. Public Finance," June 28, 2021, and "Cyber Risk In A New Era: Are Third-Party Vendors Unwitting Cyber Trojan Horses For U.S. Public Finance?," Oct. 25, 2021.
Elevated social risks continue. Vaccine progress in the U.S. has helped alleviate some of the health and safety social risks created by COVID-19, but we believe that not-for-profit colleges and universities continue to face potential operational pressures in light of emerging variants. Several schools have closed or transitioned online as omicron case counts have risen across the country. While many schools have taken steps to protect their campuses and broader communities with the implementation of vaccine requirements, mask mandates and regular testing, some schools are more exposed than others to this risk given the below-average rate of vaccination in the state, even though generally the university's student and faculty populations will have higher vaccination rates than the state's average.
Access and affordability. The pandemic has disproportionately hurt low income populations. The implication of this for higher education is that affordability and access will be further challenged, which is not a positive for the economy long-term. Colleges and universities will continue to struggle with rising financial aid while facing pressure to keep tuition and fees low. At the same time, schools are facing inflation challenges, pressuring the costs of services and staffing.
5. What are some of the longer-term impacts of the pandemic on higher education?
While the pandemic created many challenges for colleges and universities, it also accelerated some changes already occurring across the sector and introduced some new trends that we expect will continue.
How this will shape 2022
Continued creativity across the higher education landscape. As institutions look for ways to add more versatility to their program offerings and offer more flexibility to students while diversifying revenues, we see shifting industry dynamics and evolving technology leading to more programs transitioning to fully online post-pandemic, particularly in the graduate and non-traditional space. Schools continue to add new programs in cybersecurity and health care, among other areas.
What we think and why
Greater focus on space efficiency. COVID-19 has transformed how schools think about campus space utilization, and we hear from colleges they are re-thinking campus space and efficiencies. We will see more strategies aimed at using less classroom or office space in order to realize cost savings long after the pandemic is over.
As demographics shift, enrollment pressures will continue after the pandemic. College enrollment nationwide has been falling, with the largest impact felt by small- and medium-sized private colleges--and this was before the pandemic. U.S. demographics are shifting; the number of high school graduates is flat, and in some cases declining, because of lower birth rates about 20 years ago. These demographic trends are expected to continue, with a big drop-off expected in the mid-2020s. Schools struggling with enrollment pre-COVID are likely to face continued declines. At the same time, most higher rated and more nationally known schools continue to experience strong demand and enrollment growth. Longer term, a significantly lower number of babies were born in 2020 due to the pandemic, which will increase demographic pressures well into the future.
Testing requirements fading fast. During the pandemic, test exam sites closed or reduced their capacity so thousands of colleges put a moratorium on the SAT and ACT requirement. As a result, in fall 2021, we saw increased applications and improved selectivity for many. Whether these improved acceptance rates are maintained depends on what happens with this move toward test-optional.
The future of testing requirements looks dim, as Harvard, the University of California, and Cal State, among other schools, have announced they will phase out using the tests in admissions, becoming permanently "test optional" for potential students. This move, if it continues to accelerate across the sector, could have significant impacts on how colleges and universities address accessibility and diversification efforts.
Federal funds will last a while; how they are deployed will be key. Given limited restrictions on the usage of the third round of stimulus (ARP) funds, most schools were able to replenish their reserves, and most cases still have stimulus dollars to use for new projects. How colleges and universities use the one-time revenues will be an important factor for long-term credit stability and ratings. For those facing enrollment declines or financial challenges, the stimulus may be a lifeline arriving just in time to avert major expenditure reductions. Others could use stimulus money to accelerate projects. We believe this final round of stimulus supports credit quality for the sector but we will monitor issuers for the longer-term implications of the pandemic.
Non-U.S. Sector View: Mixed
We have revised our view of rating stability for non-U.S. higher education providers to mixed from negative as the challenges that institutions face on their pandemic recovery paths vary across regions. Despite our concerns that COVID-related travel restrictions would severely constrain the pipeline of lucrative international students, only rated institutions in Australia saw an aggregate decline in enrollment last year. Elsewhere, we expect that enrollment growth and financial performance will be generally stable in 2022. Management teams have had to react nimbly to evolving challenges throughout the pandemic, and successive variants threaten to continue upending university plans in the near term.
Chart 7
Questions That Matter
Why do we believe the sector view for rated higher education providers outside the U.S. is mixed?
The global pandemic has affected the operations and finances of higher education institutions across the globe and severely tested their management teams, although the effects have not been felt uniformly across regions. Accordingly, we believe that the near-term challenges facing institutions in different countries, while often common in theme, vary sufficiently in significance to warrant our mixed sector view for rated higher education providers outside the U.S.
Total enrollment levels at rated universities outside the U.S. did not fall as previously feared, partially due to robust domestic demand throughout the pandemic, although rated Australian universities saw total combined enrollment decline more than 5% in 2020 (see chart 8). However, we expect that global competition for higher fee-paying international students will increase, especially given the threat of further lockdowns and travel restrictions. In addition, the pandemic will likely drive shifts in longer-term trends such as the demand for health and science courses, online course delivery, transferable and stackable micro-credentials, as well as campus land use plans and related financing.
Chart 8
We believe that continued rating stability depends to a large degree on the ability of management teams to react nimbly to an often fast-changing operating, regulatory, and financial environment while overcoming hurdles such as inflationary pressures, an often-limited ability to further reduce non-core expenditures, and reduced capacity for operating support from governments struggling to overcome large fiscal deficits. As has been the case for much of the past two years, material uncertainties surrounding the pandemic recovery trajectory remain and successive variants have the potential to result in significant deviations to our current expectations.
How this will shape 2022
The drop in international enrollment will hurt Australian universities for several years. Although Australia recently re-opened its border to vaccinated international students, Australian universities have higher exposure to foreign markets than their counterparts in Canada and the U.K. and the sharp drop in onshore international student enrollments already experienced will have a lagging impact on their finances for the next few years. Total enrolled foreign students in the higher education sector dropped 13% in the year to August 2021 while sector-wide tuition revenue earned from foreign students fell 9%, year on year in 2020. Nevertheless, the balance sheets of the four rated public universities have generally weathered the storm well.
Canada's draw for international students could be threatened by the Biden Administration's push to attract more foreign students. The number of international students in Canada had risen more than threefold in the decade leading up the pandemic and while there was a significant dip in 2020, visa application data suggests a healthy rebound is taking place. We expect that international student tuition will continue to drive incremental revenue growth as provincial government transfers remain flat in real terms. Although a renewed focus on increasing the value of international education in the U.S. could disrupt this lucrative pipeline over the longer term, we expect that generally strong liquidity levels and robust domestic demand will provide some buffer against near-term volatility.
U.K. universities' strong reputation will support continued international student demand. We expect the sector to maintain a competitive advantage for international students, due to institutions' strong global reputation and considering stricter border controls in other regions. The ability of U.K. universities to adapt to hybrid learning and implement cost-saving measures has already resulted in better than expected financial performance. We expect that continued student demand should offset some of the potential pressure on financial performance, for example from the aftermath of Brexit and rising pension costs.
Enrollment growth at Mexican public universities limited to the level of federal and state transfers. The vast majority of operating revenue for public universities in Mexico is expected to continue to come through government grants that offset the relatively low tuition fees for domestic students and as international students are not a material contributor. We believe that domestic demand for public universities in Mexico will remain elevated as students seek out more affordable options, but stagnated government transfers and a low appetite for additional borrowings among rated universities will in turn constrain enrollment growth in the medium-to-longer term.
What we think and why
Constrained fiscal capacity and shifting government funding policies complicate institutional budgeting. We have not seen material extraordinary support from governments for rated universities outside the U.S. and at this point, we do not believe it likely. We expect large fiscal deficits incurred during the pandemic by supporting governments will continue to constrain ongoing operating support, exacerbated in the U.K. and the Province of Ontario (where six of eight rated Canadian universities are based) given near-term uncertainty over domestic tuition frameworks.
Reliance on international students will continue but competition will intensify. In the face of rising inflationary pressures and largely stagnant government funding, rated non-U.S. universities (outside Mexico) will continue to rely on expanding international enrollment for incremental revenue growth. While many of our rated non-U.S. public universities enjoy strong market positions and international reputations, rising competition from within Asia and the U.S. highlights the need to diversify source markets.
ESG factors are increasing in relevance, both operationally and for financing strategies. The pandemic has heightened institutional awareness of health and safety risks for both students and staff and their responsibility to address them, often with little additional government funding. The medium-term demographic outlook for the university age population in countries outside the U.S. where we maintain ratings is fairly healthy, suggesting that sustaining adequate accessibility, not to mention funding, for domestic students may exert greater pressure in the next decade. University capital projects often incorporate positive social and environmental outcomes, and we expect that more institutions will seek ESG financing options, as we have already seen in Australia, Canada, and the U.K. At the same time, we expect that ESG-related awareness and activism will continue to drive shifts in university investment strategies (e.g., greenhouse gas reduction targets and oil and gas stock divestures).
Creditworthiness of non-U.S. universities remains strong. Rating distribution among non-U.S. universities remains concentrated in the 'AA' category, reflecting their generally strong demand characteristics and healthy balance sheets, which offers some protection against moderate downside scenarios.
What could change the trajectory
Emerging variants threaten further restrictions. Despite continuing vaccination efforts globally, variants of the coronavirus continue to emerge and with them, the potential for student mobility and on-campus activities to be curtailed, which could materially affect the financial performance of higher education providers.
A shifting competitive landscape. The rise in the international standing of Asian universities, many of which enjoy strong government support, could undercut the source of international students for many higher education providers. In addition, geopolitical strains or rising nationalism could cause more students to opt to study in their home countries, materially affecting university finances.
Material changes to university operating models. While we believe that students will still prefer a traditional in-person campus experience, the pandemic-driven shift to online course delivery at many institutions could represent an opportunity to appeal to a broader group of potential students and grow revenues without significant additional infrastructure (outside of large upfront IT costs). Although these shifts would likely evolve over the medium to longer term, management teams will need to continue to adapt their offerings to remain competitive.
Evolution of capital plans and related financing. The pandemic may prompt a strategic rethink of how universities use their campus space for academic and administrative purposes, balancing changing student preferences, longer-term growth needs, and sustainable development. We will continue to monitor capital plans and their implications for borrowing.
U.S. Higher Education Ratings Performance
As of Dec. 31, 2021, S&P Global Ratings had 444 public ratings on U.S. private (298) and public (146) colleges and universities which are secured by a general obligation or the equivalent. Approximately 7% of our rated universe reside in the speculative grade category; this compares to a much smaller percentage of institutions rated non-investment grade a few years ago. Both the lower investment grade ('BBB') rating category and non-investment grade categories ('BB+' and below) have grown over the past few years as more regional institutions have been increasingly challenged by enrollment and operating pressures.
Chart 9
Chart 10
Chart 11
Within our private university ratings, approximately 44% are rated 'BBB+' or below. This compares to nearly 47% of public university ratings falling within the 'A' rating category, and only 12% rated 'BBB+' or below. During 2021, we lowered 14 ratings, raised 12 ratings and added 13 new public ratings.
The higher education sector, especially the rated universe, has experienced general resiliency and credit stability over time, benefiting from fundraising capabilities and endowments providing balance sheet cushions. While this provides most schools with some level of flexibility, the longer the pandemic effects enrollments, the more that schools will need to dip into their reserves. The table below indicates that over time within our rated universe of colleges and universities, there have been only seven payment defaults (failure to make payment of principal and interest as scheduled, per S&P Global Ratings' definition) within the sector--three of them private institutions and four of them student housing projects.
Table 1
| Payment Defaults In Rated U.S. Higher Education | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Obligor | State | Subsector | Default date | Next-to-last rating | Initial rating | |||||||
| Bradford College | MA | Coll/Univ | 11/2/2000 | CCC | BBB- | |||||||
| Capital Projects Finance Authority | FL | Auxiliary | 7/13/2012 | C | BBB | |||||||
| Thomas Jefferson School of Law | CA | Coll/Univ | 11/5/2014 | CC | BB+ | |||||||
| Dowling College | NY | Coll/Univ | 8/7/2015 | B- | BBB | |||||||
| TC3 Foundation | NY | Auxiliary | 10/15/2019 | CC | BBB- | |||||||
| Provident Oklahoma Education Resources | OK | Auxiliary | 8/4/2020 | CC | BBB- | |||||||
| Texas Student Housing Corporation | TX | Auxiliary | 10/28/2021 | CCC | BBB- | |||||||
| Source: S&P Global Ratings | ||||||||||||
Non-U.S. Higher Education Ratings Performance
Chart 12
As of Dec. 31, 2021, S&P Global Ratings had ratings on 19 higher education providers outside the U.S. (all public universities), eight in Canada, four in both Australia and the U.K. and three in Mexico. In 2020, we revised the outlooks on three non-U.S. universities, two in Australia and one in the U.K., to negative from stable and in 2021 we revised the outlook on a Mexican university back to stable from negative. Currently 84% of our rated universities outside the U.S. have stable outlooks (see chart 13).
Despite the outlook revisions in the past two years, issuer credit ratings have remained stable and concentrated in the 'AA' category, led by Australian and Canadian public universities (chart 14). The U.K. has three rated public universities in the 'A' category, while one is located in Canada (all rated 'A+'). The three rated Mexican universities carry non-investment grade ratings.
Chart 13
Chart 14
This report does not constitute a rating action.
| Primary Credit Analysts: | Jessica L Wood, Chicago + 1 (312) 233 7004; jessica.wood@spglobal.com |
| Adam J Gillespie, Toronto + 1 (416) 507 2565; adam.gillespie@spglobal.com | |
| Secondary Contacts: | Laura A Kuffler-Macdonald, New York + 1 (212) 438 2519; laura.kuffler.macdonald@spglobal.com |
| Jessica H Goldman, Hartford + 1 (212) 438 6484; jessica.goldman@spglobal.com | |
| Ken W Rodgers, New York + 1 (212) 438 2087; ken.rodgers@spglobal.com | |
| Stephanie Wang, Harrisburg + 1 (212) 438 3841; stephanie.wang@spglobal.com | |
| Mary Ellen E Wriedt, San Francisco + 1 (415) 371 5027; maryellen.wriedt@spglobal.com | |
| Secondary Contacts-Non U.S.: | Omar A De la Torre Ponce De Leon, Mexico City + 52 55 5081 2870; omar.delatorre@spglobal.com |
| Martin J Foo, Melbourne + 61 3 9631 2016; martin.foo@spglobal.com | |
| Noa Fux, London 44 2071 760730; noa.fux@spglobal.com | |
| Research Contributors: | Ruchika Radhakrishnan, Toronto + 1 (647) 297 0396; ruchika.r@spglobal.com |
| Nicholas Breeding, New York (303) 721-4362; nicholas.breeding@spglobal.com | |
| Nicholas K Fortin, Boston + 1 (312) 914 9629; Nicholas.Fortin@spglobal.com | |
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