US universities will suffer most from coronavirus impact, says Moody’s

The credit rating agency has released its latest report on the impact of the coronavirus outbreak on higher education around the world

Credit rating agency Moody’s Investors Service has released its latest report on how the coronavirus outbreak will negatively affect higher education around the world.

While all universities will struggle financially due to lower student demand and lost income, it says, public US universities will suffer most.

‘Negative’ outlook for US

In March, Moody’s changed the outlook on US universities from ‘stable ‘to ‘negative’.

This reflects the disruption in international student enrolments upon US universities, which host around a quarter of the world’s international students.

The report also points out that public US universities are at higher risk than their global peers due to potential government funding cuts. State funding accounts for approximately 25% of their revenues.

Moody’s has forecast an economic contraction in the US of 2% of GDP in 2020, which may lead to cuts in university funding as states direct resources towards more essential services, such as healthcare. The state of New Jersey has announced a budget freeze of $900 million, including funding for universities, 23 March 2020.

This compares to UK universities, which Moody’s deems unlikely to receive less funding from the central government as a result of the outbreak.

US universities can also expect lower investment income due to disruptions to financial markets – investment income accounts for 9% of total revenue for private universities and 2.5% for public universities.

Other predictions

The Moody’s report also highlights Australian universities’ exposure to immediate credit risks. This would result from both a drop in international students and the timing of the Australian academic year, which began in February/March 2020.

Domestic student enrolments may also be lower across the globe, says Moody’s, because of disruptions to recruitment, “general unease” among students about moving away from home, and value for money concerns. This will be exacerbated by a declining university-age population in countries including Canada, the UK, and the Midwest and Northeast of the US.

Underlying strong demand for higher education will support a recovery once the pandemic has been contained

The credit rating giant also says that Chinese students, who account for 23% of international students worldwide, could be subject to prolonged government travel restrictions leaving them unable to attend foreign institutes.

International student demand will be considerably affected by national reputations for safety, it reports.

The report also predicts that the financial impact on universities, due to enrolment uncertainty, and loss of campus-derived income, will be concentrated in the upcoming 2020/21 academic and financial year.

It concludes: “Underlying strong demand for higher education will support a recovery once the pandemic has been contained. However, considerable uncertainty remains surrounding the severity and duration of coronavirus and the likelihood and trajectory of recovery.”

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