The Fallacy of Credit Ratings

College administrators and Trustees most often look to Moody’s and other credit rating agencies for feedback on the financial health and well-being of their schools. Credit rating agencies are called “credit rating agencies” for a reason. Based on complex algorithms that take many factors into account, they simply rate the creditworthiness of the bonds of schools for the benefit of those who are thinking about buying those bonds. And if the bond is riskier, it simply means the interest that has to be paid to investors is higher.   

But credit ratings don't tell prospective and current students if a school could find itself in trouble financially while they are there, or if it will even remain open long enough for them to earn their degrees. Credit ratings don't tell alumni if their degrees will retain their value in the years ahead. Credit ratings don't tell faculty and staff if their jobs are secure. And credit ratings do not tell the leadership and trustees of a college or university if their school is being managed well in a financial sense.

To recap:  For the initial purposes of this study, a school was deemed to be "at risk"  if its  steady state Staying Power is less than 3 years.  And the first cut looked specifically at 31 of the 44 schools in the Survey who would be "at risk" if their enrollments declined by 15%.  

So the question here is how well Moody's credit ratings align with the Staying Power of these at risk schools. Moody's ratings are available for 17 to the 31` at risk schools   And here is a breakdown of the Moody's ratings for those 17 schools along with their average Staying Power in years based on a range of declines in enrollment.