U.S. Higher Education Outlook is Negative Through at Least '09

PRESS RELEASE
New York, January 06, 2009 -- The credit and liquidity crisis and a deepening recession will drive negative credit trends in the higher education sector at least through 2009, says Moody's Investors Service in a new report. The outlook covers credit conditions over the next 12 to 18 months and does not predict a tilt in favor of negative rating actions for the period.

"While higher education was more insulated than other municipal market sectors from prior recessions, this is not likely to be the case this year," said Moody's Vice President Roger Goodman, author of the report. "Given the particular risks facing U.S. higher education at this time, we also believe that public institutions may fare somewhat better than private ones."

Those risks, which may be especially intense, include increased pressure on tuition and financial aid, the broad impact of investment losses on operations and philanthropic giving, illiquidity of balance sheets amplified by alternative investments, and volatility in debt markets as well as debt structures.

"Fundamentally, 2009 will be a year of re-evaluation of underlying assumptions for endowment management, tuition pricing strategies, and risk management," said Goodman. "Sound management skills and governance oversight will be even more significant in determining credit impact during this period of financial challenge."

The Moody's report focuses on these risks instead of what it calls baseline issues -- broader, longer-term fundamental issues such as long-term demographic trends -- as they are unlikely to alter the fundamental direction of Moody's outlook during 2009, especially if the current conditions persist.

"The nature of the current risks also contribute to why public institutions, both four-year institutions and community colleges, are likely to be somewhat less pressured than private institutions," said Goodman. "Some families, for example, may choose lower-cost alternatives for college in a weak economic period, lessening the potential for declines or weak growth in tuition revenue for public institutions than for those that are private."

Private colleges are also generally more reliant on endowment income and philanthropy, which will be significantly challenged in the coming year, and, while public institutions are likely to see appropriation cuts, public universities they are accustomed to periodic reductions and have proven adept at planning for them.

"However," said Goodman, "one of the tools used to deal with prior appropriation reductions -- tuition and fee hikes -- may be limited this time around by political pressure to keep tuition rates and increases low."

The report, "U.S. Higher Education Outlook is Negative for Higher Education Sector; Pressure likely to be Greater for Private Universities than Publics," is available at moodys.com