Overview

As of March 24, 2025, S&P Global Ratings maintains 49 public ratings on Pennsylvania colleges and universities, the most in the higher education sector, including 44 private college and university ratings and five public university ratings. For fall 2024, these universities enrolled about 330,835 full-time equivalent students (FTEs), 173,834 for private colleges and 157,001 for public colleges. Compared with fall 2023, private colleges saw an estimated 2.5% decline in FTEs while public universities saw a roughly 2.8% increase.

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Pennsylvania has the fourth highest number of colleges and universities in the country (after Texas, California and New York), with 313 active colleges and universities, including 39 public four-year institutions and 106 private not-for-profit four-year institutions offering bachelor's and advanced degrees, according to the National Center for Education Statistics. S&P Global Ratings' higher education sector encompasses large research universities to smaller, more regional colleges--and the rating medians for Pennsylvania private universities reflect this diversification in credit quality.

Among the 44 private universities rated by S&P Global Ratings, 26 have debt rated 'BBB+' and below, while 18 have issuances rated 'A-' and above. For private colleges and universities, there are five with ratings in the speculative-rating category, with the lowest rating at 'B-'. At the high end of the rating's spectrum, there is only one with issuances rated 'AAA', Swarthmore College.

We also rate five public universities' debt, with ratings ranging from 'BBB+' to 'AA+'.

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Credit Fundamentals

We believe the colleges and universities in Pennsylvania, especially the private institutions, are a microcosm of the broader trends we are seeing across the higher education sector: A widening credit bifurcation between the stronger and weaker rated institutions, as well as increasing negative credit pressure at the lower end of the rating spectrum.

Among the commonwealth's private institutions between 2024 and year-to-date 2025, those with ratings at 'A-' or higher have demonstrated more stability, with only two rating changes: one upgrade (Carnegie Mellon University) and one downgrade (Lycoming College). Meanwhile, private colleges with obligations rated 'BBB+' or lower saw two downgrades (Harrisburg University of Science and Technology and Neumann University) and one negative outlook revision (St. Francis University). During the last few years, private college obligations experienced more frequent outlook revisions between stable and negative (with no rating change) than outlook revisions between stable and positive.

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When comparing fiscal 2023 medians between Pennsylvania's higher-rated ('A-' and above) and lower-rated ('BBB+' and below) private colleges and universities, we noticed several areas that highlight the widening gap between the two groups.

Some characteristics of higher-rated ('A-' and above) private colleges include:

• Stronger demand profiles, with lower selectivity and higher matriculation rates;
• Higher retention and stronger six-year graduation rates;
• More geographic diversity, with a median of only 30% in-state FTEs, which we believe is an important strength given the state's impending "demographic cliff"; with projected declines in high school graduates over the next 15+ years;
• Better operating margins, although schools are still fairly dependent on student-generated tuition and fees;
• Higher cash and investments, both on a nominal basis and relative to operating expenses and debt;
• Larger endowments per FTE due to stronger fundraising capabilities and sizable investments that have benefited from record growth during the last few years; and
• Greater financial flexibility and liquidity.

Conversely, we believe private colleges and universities rated 'BBB+' and below may be more susceptible to enrollment fluctuations and operating challenges. Many of these schools do not have strong differentiating factors, and often rely on tuition pricing and financial aid to compete for students. Many schools at this rating level also experienced more enrollment fluctuations caused by the Free Application for Federal Student Aid (FAFSA) delays than their higher-rated peers; given their higher percentage of lower-income or Pell Grant-eligible students.

Characteristics of lower-rated ('BBB+' and below) private colleges include:

• Weaker demand profiles, with more limited selectivity and lower matriculation rates;
• Lower retention and six-year graduation rates;
• Limited geographic diversity, with a median of 70% in-state FTEs, which we believe will add additional enrollment and financial pressure in the coming years due to the state's projected demographic challenges;
• Operating deficits with a larger reliance (almost 90%) on student-generated fees as a percentage of total revenue;
• Lower cash and investments relative to operating expenses and debt;
• Smaller endowments per FTE and more limited fundraising abilities; and
• Limited financial flexibility with weaker liquidity.

Among the public universities we rate, trends are similar with higher-rated institutions often larger is size and scope with greater financial flexibility. The lower-rated institutions are more regional with fewer resources by comparison.

What We're Watching

Demographic pressure/the "demographic cliff"

The percentage change of FTE enrollment for private Pennsylvania universities in fiscal 2023 showed larger declines compared with overall fiscal 2023 medians, with schools rated 'BBB+' and below showing a slightly larger decline than those rated 'A-' and above. While fiscal 2024 enrollment showed some improvement, demographics remains a pressure point. A recent article by the Western Interstate Commission for Higher Education projects that Pennsylvania--and the other eight states in the Northeast region--will see a 17% decline in high school graduates between 2023 and 2041. Meanwhile, states like Texas and Florida are projected to see enrollment growth of 5% and 12%, respectively. While Pennsylvania university management teams have broadened their recruitment efforts, we expect that the high number of higher education options within the state and the significant projected demographic declines will only increase competition for students and be a long-lasting pressure on enrollments. We believe private universities with a local draw that are primarily undergraduate, have higher tuition elasticity, and largely dependent on tuition and student fees for revenue will likely experience the most negative effects.

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State funding

For the five public universities we rate in Pennsylvania, the ratings and outlooks have remained stable. State funding for the three largest public universities (Pennsylvania State University, University of Pittsburgh of the Commonwealth System of Higher Education, and Temple University) has been relatively flat during the past few years despite rising expenses. Meanwhile, state funding for the Pennsylvania State System of Higher Education (PASSHE), which include 10 universities (including Indiana University of Pennsylvania) and Pennsylvania College of Technology have seen increases. Senate Bill 1154, which relates to performance-based funding, is currently being worked on in the commonwealth's legislature and could offset some of the larger public universities' demographic challenges and rising costs.

Political headwinds

The political landscape continues to rapidly change and has the potential to affect many aspects of higher education, including new immigration policies, potential research funding cuts, indirect cost recovery caps, and increased campus safety scrutiny. There are five R1 research universities in Pennsylvania (two private and three public), all of which are highly rated and could be susceptible to federal research funding cuts or indirect cost recovery caps. However, these schools generally have significant financial flexibility, larger endowments, and greater fundraising capabilities, which we believe mitigates some of these risks. While smaller universities will be less affected by research cuts, they could experience negative credit pressure from changes to overall access and affordability, such as student loans and federal financial aid. Stronger enforcement of immigration policies under the new administration could also have an adverse influence on international enrollment levels, depending on materiality. In fall 2024, international students made up approximately 9% of total FTE for Pennsylvania colleges rated 'A-' and above and only 2.7% of total FTE for colleges rated 'BBB+' and below.

Rising costs and varied financial flexibility

Operating margins will likely remain pressured, given the sector's rising expenses and general enrollment challenges. Colleges and universities with reserves that are more limited or very restricted are at greater risk of having liquidity issues when faced with operating pressure. The ability for lower-rated schools to access markets to address liquidity concerns is more limited and often more costly than their higher-rated peers. During the past few years, some schools have opted to make extraordinary endowment draws to balance the budget or invest in certain programming, which shrinks the endowment's long-term growth potential. For public universities, state appropriations have averaged about 5%-6% of total adjusted operating revenue, which has not offset their rising costs. We expect both private and public universities will face difficult decisions regarding expenditure cuts to balance their budgets going forward, especially if the state cuts higher education funding in the coming years.

Covenant violations

During the past two years, 18 higher education entities rated by S&P Global Ratings have seen covenant violations. Of those, two were in Pennsylvania: Harrisburg University of Science and Technology (B-/Negative) and Mercyhurst University (BB/Negative). While none of the violations have resulted in an event of default to date, the sector's ratings and outlook continue to reflect the increased covenant violation risk. For more information, please see our article, "Rising Covenant Violations Are A Symptom Of The Pressure Facing Lower-Rated U.S. Higher Education Entities," published June 20, 2024, on RatingsDirect.

Mergers and closures

Private and public college mergers and closures are on the rise, driven by falling enrollment and rising financial stresses. Pennsylvania colleges in particular have experienced a growing number of mergers and consolidations--as well as closures--in recent years. The process to get final approval from a school's leadership and regulatory and judicial parties is long and not always successful--and the subsequent integration also poses risks regarding additional costs and the reconfiguration of programming and facilities. As a result, these partnerships take time. The short-term effect of a merger is typically an enrollment boost, but the longer-term influence on finances is still undetermined with our rated entities. Given that several Pennsylvania colleges have closed within the past two years and the sector's ongoing likelihood of enrollment and material operating stress, we expect this number will rise gradually during the next few years.

Public universities are not immune to closures or consolidations. Pennsylvania State University is considering shutting some of its commonwealth campuses due to declining enrollment, and PASSHE has gone through consolidations in the past, which resulted in six universities being integrated into two institutions. There are currently no plans to consolidate any of the 10 universities in the PASSHE system.

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