Moody’s ‘Special Comment’ report on the global recession and public/private universities

They say a year is a long time in politics. This last year has been a particularly long one, not only in political and policy circles, but for whole nations and their institutions. The sub-prime mortgage collapse quickly turned into a fiscal meltdown and is now a full-blown global recession.  ‘Hunkering down’, weathering the effects, and practicing ‘recession-style prudence and risk management’ is now the new game in town.

So how are universities doing in this highly uncertain, fiscally-brutal environment? Clearly there are many kinds of stories which can and are being told — from departments closing to new ventures being advanced.

One story being put forward is by Moody’s — one of the two big global rating agencies whose pronouncements on the creditworthiness of nations and institutions makes them particularly powerful and worth noting (see also our earlier background report on rating agencies and higher education).

In June, Moody’s released a Special Comment report on higher education called Global Recession and Universities: Funding Strains to Keep Up with Rising Demand which makes for particularly interesting reading. The lead author of the report is Roger Goodman, Vice President-Senior Credit Officer, Moody’s Investors Service, New York.  Our thanks to University World News for bringing the report to our attention in their 5 July story ‘US: Universities fair well in recession, says Moody’s‘), and to Moody’s for permission to publish the figure below.

Essentially their argument is that (particularly public):

…universities are proving to be appealing investments for government stimulus efforts due to the sector’s stabilising, countercyclical nature in the short term as well as its potential to stimulate long term economic growth.

…Most universities demonstrate countercyclical ability to increase student enrollments during recessions, receive relatively strong support from sponsoring governments, and offer long term potential for increasing revenue diversity.

On page 3 of their report, Moody’s offer a useful graphic on the enrollment impact of recessions (see Fig 1 below).

MoodysFig1

In other words, as the economy nose-dives, individuals are more likely to consider investing in more education as a means of waiting out the recession, and positioning themselves for the labour market when it revives. For Moody’s this all means a possible ‘tail-wind’ for universities as student demand increases — particularly those who have an access oriented agenda.

Moody’s Report outlines 5 key ideas:

  1. While universities will experience some stress, they will be more sheltered than other sectors.
  2. Public university ‘credit quality’ will be steadier than that of private universities
  3. Private universities can achieve a high rating if they are able to show evidence of sustained demand, financial strength and liquidity is clear
  4. Universities are likely to seek more alternative sources of funding to offset the pressure on government balance sheets and limitations on public funding growth
  5. Despite efforts at diversifying, the public sector will continue to play a central role

There are several issues worth noting here. The first is that individuals have been encouraged to invest in a graduate education, very often at considerable personal expense (loans and so on) with the promise of future earnings that outpace non-graduate earnings. If wages are depressed across the public and the private sectors because governments and firms are having to manage the consequences of bailing out the banks, then a graduate education might not be as appealing as it once was.

Second, aside from the stark black and white categorizing of ‘public’ and ‘private’ in this report (for instance, is the University of Sydney, or the University of Wisconsin-Madison, public or private given that both receive around 14-18% of their core budget from government funding?),  Moody’s also offers us something of a paradox.

To weather the storm, public universities are going to have to become more ‘private’ in order to augment meagre government budgets.  However, the more private a once public university is, the greater the risk. Is this not a classic case of catch-22?

Susan Robertson

4 thoughts on “Moody’s ‘Special Comment’ report on the global recession and public/private universities

  1. Susan,

    I enjoyed reading your post. I have definitely noticed that trend in my life; many of my friends are changing their life plans to apply to masters/phd programs earlier than planned because of the unfavorable economic situation. It makes sense how the brain drain from layoffs, etc would cause a rise in qualified work-aged people to return for additional degrees. Exactly as you said, the reason why the people I know are applying early is to leverage themselves for a better job when the economy does pickup again.

    Great points, I look forward to reading more.

  2. Thanks for this post and for a great blog! Very informative. I will soon join the administrative staff of a public liberal arts college and will keep my eyes open for signs of this counter trend.

  3. While I agree and understand why people go back to school to get more education during a recession, is that really the answer?

    Don’t you think that this recession has taught us that we really can’t rely on our “Jobs” to provide security for us.

    With a higher education generally (not always) comes a “higher position” and typically, when companies need to downsize, they generally go after “middle management” first.

    So wouldn’t going back to school to “move up the corporate ladder” be counter productive?

    If you look at the times of the great depression when unemployment hit upwards of 22% it wasn’t all the money being dumped into the economy by the government that helped it was the fact that people finally realized that no JOB would save them so they started creating businesses, etc.

    Anyway, just my two cents.

  4. Pingback: The Financialization of Education and Sonoma State University Part II. | Project Censored

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