Several private colleges may face rating downgrades because of unfavorable demographic and fiscal trends, a new analysis by Standard & Poor's Corp. concludes.
The report, detailed in this week's edition of CreditWeek Municipal, is based on a review of the five-year financial performance of the 147 private universities and colleges with outstanding, unenhanced debt that Standard & Poor's rates.
"While the overall rating distribution has not been affected by these trends, S&P's has assigned 18 negative outlooks in recent years which could lead to some downgrades within rating categories," says the study written by Standard & Poor's analyst Jennifer Neel.
All the schools in the review have investment-grade ratings. The agency said the most likely candidates for downgrades are in the A-minus and BBB-minus range.
One problem facing all higher education facilities is the shortage of high school age children. Because of that dynamic, colleges and universities are accepting a higher percentage of applicants but the number of candidates actually enrolling continues to decline, the report finds.
For example, the mean acceptance rate among 31 AA-rated private colleges rose to 46.2% in 1992 from 42.5 % in 1988. But the matriculation rate, which reflects the number of students actually enrolling, fell to 38.4% from 43.3% during the same period.
Acceptance and matriculation rates are important in determining a college's financial flexibility. Standard & Poor's noted that a college that denies admission to 70% of its applicants can still fill its freshman class by accepting more applicants. But that opportunity is not available to colleges that already accept a high percentage of applicants.
Another factor negatively affecting college and university credits is increasing reliance on tuitions and fees, costs that have been on the rise in recent years.
To offset tuition rises, many facilities are increasing their financial aid packages to students. But that comes at a time when federal financial aid money is on the decline, meaning colleges and universities are being forced to absorb the more generous aid packages on their own bottom lines.
