Moody's Has Bad News for Colleges

Tim Goral's picture
Thursday, March 14, 2013

To the catalog of financial stresses on higher education—the imminent explosion in online learning, cutbacks in state aid and weak endowments—you can add one more: tapped-out parents.

Moody’s, which rates 515 colleges and universities for credit quality, puts a number on the problem in a report released Mar. 12. The average family that has set aside money for a four-year degree has only $12,000 today, down from $22,000 three years ago. In that time the cost of educating a student has climbed 10%. Result: The net tuition income that colleges have to get elsewhere (per student, over four years) has climbed from $59,000 to $77,000.

Those other sources of fuel for the higher education industry are, primarily, the current income of parents and students, borrowing by students and parents and government aid. None of these sources can now be counted on to keep up with rises in the cost of running a college. Students’ willingness to borrow seemed limitless a few years ago but is now tempered by awareness of how much recent grads are struggling with their loans.

Moody’s got its data partly from the latest Sallie Mae analysis of “How America Saves for College” and partly from its own research into collegiate financial statements. The report supplements a grim survey of higher education that Moody’s released in January. That report warned the education industry of weak family income, a declining contribution from state appropriations, the competitive threat from computerized education and “price sensitivity”—meaning, students are not so enamored as they once were of paying extra in order to attend a more glamorous school.

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