Millennial and Gen-X graduates are not the only ones staring down a mountain of student debt in the US. Colleges and universities are also feeling the squeeze. Shrinking revenues, rising costs and smaller enrolments led to years of heavy borrowing. Now the sector is poised for a shakeout.
US institutions of higher learning went on a bond-selling spree during the pandemic. Between 2020 and 2022, they raised more than $70bn via corporate and municipal bond sales, according to data from Refinitiv. The sector now has $230bn of debt outstanding, representing between 8 and 9 per cent of the total US municipal bond market.
Of the 447 universities with a credit rating from S&P Global Ratings, more than a third are rated triple B plus or below. Rating peer Fitch warns that the sector faces a deteriorating credit environment in 2024. Expense ratios are increasing. In 2011, expenses were 93 per cent of revenue on average. By 2020, average ratios went from a surplus to a deficit, according to Bain & Company.