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LJWorld.com weblogs Heard on the Hill

A moody outlook for higher education industry

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Higher education is education, but it's also an industry in this country. As evidence of that I would point to the fact that Moody's Investor's Service issues market outlooks for higher education. (Perhaps you remember Moody's from the run-up to the financial crisis, when it and other investment ratings agencies gave high seals of approval to the toxic mortgage-backed securities that blew up the economy.)

And Moody's view on the higher education industry the last couple years has been "mostly bleak," writes Scott Carlson from the Chronicle of Higher Education.

The service's most recent outlook for higher ed., issued this week, was negative once again. Moody's cited a weak economy, which hurts families' ability to pay for college, and political fights over the federal budget, which could decrease the student aid available.

The sluggish economy led to rising loan default rates, high unemployment and stagnant family income — all of which can hurt the revenues of schools. More expenses are coming up as well, after years of colleges and universities having avoided investments in human capital (i.e., raises and new hires) and infrastructure.

At Kansas University, total student enrollment is down for the fifth straight year, though the school had a 6.1 percent larger freshman class compared with last year. Along with federal battles over revenue, the university has also faced sharp cuts from the Kansas state government. With a $34.3 million decrease of funding for state schools over two years, Kansas is one of the few states in the U.S. to make outright cuts to higher education funding.

All these factors would seem to suggest that KU could keep struggling for a couple of years yet to regain previous enrollment levels, especially if tuition rates rise in response to state cuts. Lower levels will make it all the more difficult for the university to make capital investments.

See how easy that was? Maybe I should start my own investor outlook service. To subscribe to my outlooks, for a Moody's-esque price, or to send KU news tips, email me at bunglesbee@ljworld.com

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