Friday, July 27, 2012

Rating the Risks in American Public Higher Ed

Recently, several credit ratings agencies (S&P, Moody's) have reported on the risks to American institutions of higher ed.  In my view, the agencies have done a good job exposing the increasing risks that we face.

The main reasons why the ratings agencies are showing such interest in the problem are (1) the effects on the broader credit market e.g. housing; and (2) the recent surge in investor interest in various online firms that target the instructional sector.

There are several very large risks faced by public colleges in several states that are basically unmanageable at the level of school governance:

*The Euro crisis will continue to hold back a recovery of exports in several states, thus crimping state revenue and, in turn, threatening state funds for education; e.g. less auto exports in Michigan can lead to less state investment in faculty salaries, school infrastructure and student aid;

*The threat of DoD sequestration weighs very heavily on some states, particularly Virginia and Maryland, which could lose ~2M jobs in the near term. This would of course lengthen our unemployment lines and thwack state revenue.  Even if the sequestration is temporary, it is apparent to me that states like Virginia and Maryland could see credit rating downgrades as a result, which would have a longer-term ill effect.

There are other risks a bit further down the road as well, but anyone with a stake in public institutions should watch these two very closely for the next half year.  Worst case, we could see furloughs, recission of funds, and many other unfortunate jolts to the system.

Not to sermonize annoyingly, but I do wish that academics had realized their role in the bigger picture of global business and politics before we reached this point. Quite suddenly, many of the academic stakeholders are realizing just how interconnected our economies are. Our schools are physical parts of the broader economy- there is no immunity, no place to retreat and recuse ourselves from the politics and think brilliant thoughts. Surprise: academics are in the thick of it, just like their non-academic, private sector counterparts, who have already been feeling these pressures for several years. 

Further comment and links to the agencies' reports may be found here:

1 comment:

  1. A recent article in The Boston Globe Magazine states that small private colleges in the Northeast are in danger of closing down:
    It says that, according to Bain, up to 1/3 of these private colleges are on an unstable financial path and Moody's says that enrollment is down for 41% of private colleges. Any thoughts?