U.S. Not-For-Profit Private Universities' Fiscal 2013 Median Ratios: Despite An Improved Investment Environment, Budget Pressures Continue

Transcription

1 U.S. Not-For-Profit Private Universities' Fiscal 2013 Median Ratios: Despite An Improved Investment Environment, Budget Pressures Continue Primary Credit Analyst: Carolyn McLean, New York (1) ; Secondary Contacts: Ashley Ramchandani, Chicago (1) ; Laura A Kuffler-Macdonald, New York (1) ; laura.kuffler.macdonald@standardandpoors.com Research Contributor: Phillip A Pena, San Francisco (415) ; phillip.pena@standardandpoors.com Table Of Contents Ratios Help Measure Credit Quality Enrollment And Demand Medians Provide Context Financial Medians Provide Perspective Financial Resource Ratios Measuring The Debt Burden JULY 8,

2 U.S. Not-For-Profit Private Universities' Fiscal 2013 Median Ratios: Despite An Improved Investment Environment, Budget Pressures Continue Although U.S. private colleges and universities continue to face multiple challenges, Standard & Poor's Ratings Services' fiscal 2013 demand and financial medians for this sector have remained stable relative to the previous year. Increased endowment market values due to strong market returns were the primary improvement that strengthened university financial resources. At the same time, our net operating income margin medians have compressed in every category. We believe that this margin compression reflects affordability concerns combined with increased competition for students. Although the higher education sector has been stable for the past 10 years, current economic conditions and the slow recovery from the Great Recession will continue to pressure the sector as a whole, and our lower rated universities in particular. A historically stable sector with approximately 90% of ratings affirmed each year, higher education was increasingly volatile in 2013, with more rating actions and outlook revisions than previous years (see "Many Factors Burden The U.S. Higher Education Sector in 2014," published Feb. 6, 2014, on RatingsDirect). The number of downgrades outpaced that of upgrades, continuing the accelerating rate of negative rating activity. The current number of obligors with negative outlooks is more than double those with positive outlooks; coupled with the sector's other challenges, we expect negative actions to continue to dominate rating changes in Overview Demand medians in 2013 were stable overall compared with Number of credits in this sector has remained relatively flat year over year. Endowment values have increased due to strong financial market performance in fiscal Operating margins at universities were compressed in 2013, due in large part to affordability concerns. While many institutions have earned strong investment returns in fiscal 2013, operating performance remains under pressure. Like past years, we expect universities to offset declining revenue through viable expense controls and modifications to tuition and financial aid strategies. Each university adopts its own strategy, but at some point inability to grow revenue could overwhelm management's ability to cut administrative expenses or trim the margins, and rectifying the imbalance will require deeper expense cuts. Colleges and universities are slow to change relative to other industries, in part because of their year-long business cycle, as well as academic culture and the need to balance the concerns of varying stakeholders, including students, faculty, alumni, and donors. Although strong market returns will improve balance sheet strength, it will not have an immediate impact on the bottom line due to smoothed endowment spending rules and the small percentage of endowment support for operations for most of our rated universities (excluding the 'AAA' and high 'AA' credits). JULY 8,

3 Managing student affordability and university financial health is a difficult balancing act for both public and private universities, although we believe the difficulties are more acute for private universities, particularly those that rely on tuition for the vast majority of revenue. We believe tuition discount rates (financial aid expense divided by gross tuition revenue), net tuition revenue change (net tuition growth or declines from year to year), matriculation rates, and full-time equivalent (FTE) enrollment could deteriorate at private universities, which could cause us to consider negative rating actions. We observed compressed operating margins across the sector in fiscal 2013 and believe that the aforementioned metrics were largely responsible. Although the problems extend across the ratings spectrum, we believe the pressure to downgrade will most likely occur at the lower end of the rating scale (see "Higher Costs For Students Could Spell Trouble For Private U.S. College and University Credit Quality," published Aug. 13, 2013). We believe this strain on operating performance will continue for at least the next few years. Standard & Poor's expects that negative ratings actions on private universities will outnumber the positive in fiscal As in the past few years, we expect that the strongest universities will increase in strength and be somewhat isolated from market pressures, and the weakest universities will be the most affected by affordability issues, decreasing enrollment, and fierce competition for students. Universities have discussed improving their access to alternative revenue sources, although other than the highest rated institutions, we find these options difficult. Most often, regional universities diversify outside the geographic region from which they draw students, particularly in the Northeast and Midwest where changing demographics have already slowed enrollment growth. Universities are continuing to focus on international recruitment, which diversifies the student base as well as attracts students less likely to require financial aid. Universities across the board have increased their online offerings through massive open online courses (known in the sector as MOOCs) and through more traditional online degree or supplemental programs. Although these low-cost, high-margin programs could provide additional revenues for most universities, we believe revenue generation will be minimal relative to traditional student tuitions and fees in the majority of cases. We expect financial resource ratios to continue to grow given strong investment returns in fiscal 2013 and solid market performance in fiscal For more information, see our 2014 sector outlook, published on Feb. 6, 2014, on RatingsDirect. Ratios Help Measure Credit Quality Demand and financial ratios are pivotal in measuring the credit quality of U.S. higher education institutions. We calculate means and medians to assess the financial and operational health of individual institutions, gauge industry-wide trends, and produce meaningful comparisons of rating categories (see table 1). We publish these medians as general benchmarks and means to observe industry trends. Credit analysis for any particular institution involves the assessment of many unquantifiable risks that are not included in this article. These medians should not be considered thresholds to achieve a particular rating. Our ratios fall into two main categories: demand and financial. From a very broad perspective, the ratios provide a clear picture of the difference in credit fundamentals between rating categories. Both demand and financial ratios are highly correlative with credit quality, and the differences seem to become more distinct over time. JULY 8,

4 Table 1 Selected Financial Ratios For Private Colleges & Universities (Fiscal 2013) Rating AAA AA A BBB Speculative grade Sample size* Demand FTE Enrollment Median 11,449 3,184 3,442 3,274 2,224 Mean 10,928 8,956 5,981 4,237 2,933 Undergraduates as a % of total enrollment (%) Median Mean Freshman acceptance rate (%) Median Mean Freshman matriculation rate (%) Median Mean Retention Rate (%) Median Mean Year Graduation Rate (%) Median Mean Average SAT score for entering freshman Median Mean Financial Performance Net Adjusted Operating Income (%) Median Mean Revenue diversity Tuition Dependence (%) Median Mean Grants and contracts (%) Median Mean Gifts and pledges (%) Median Mean JULY 8,

5 Table 1 Selected Financial Ratios For Private Colleges & Universities (Fiscal 2013) (cont.) Investment and endowment income (%) Median Mean Auxiliary operations (%) Median Mean Financial aid and expense ratios Financial aid burden (%) Median Mean Tuition discount (%) Median Mean Instruction (%) Median Mean Endowment Endowment market value ($000s) Median 7,240,505 1,028, ,497 54,901 18,800 Mean 10,945,016 1,756, ,710 67,875 23,040 Debt ratios Total debt outstanding ($000s) Median 1,475, ,027 89,201 53,642 46,045 Mean 1,924, , ,342 75,359 62,218 Current debt service burden (%) Median Mean Average age of plant Median Mean Financial resources ratios Cash and investments to operations (%) Median Mean Expendable resources to operations (%) Median Mean JULY 8,

6 Table 1 Selected Financial Ratios For Private Colleges & Universities (Fiscal 2013) (cont.) Cash and investments to debt (%) Median Mean Expendable resources to debt (%) Median Mean Full-time equivalent ratios Net tuition ($) Median 24,912 25,843 20,744 17,460 16,269 Mean 25,628 25,999 20,682 17,376 17,070 Total adjusted operating revenue ($) Median 181,940 86,000 49,345 35,384 29,075 Mean 188, ,530 51,162 35,465 30,592 Total operating expenses ($) Median 154,246 67,001 35,146 26,007 22,962 Mean 159, ,667 38,621 26,110 23,863 Total debt ($) Median 131,792 66,670 28,921 18,913 18,445 Mean 172,929 84,941 36,440 20,671 23,575 Expendable resources ($) Median 1,002, ,635 41,637 15,183 9,728 Mean 1,033, ,213 57,486 17,417 9,364 Endowment market value ($) Median 1,020, ,758 54,376 16,582 9,824 Mean 1,081, ,727 78,185 22,547 10,273 *Sample size is smaller than indicated for each category. We began presenting sector-wide ratios for select indicators in fiscal Although most of the ratios do not indicate meaningful trends in the past year, endowment market values and all of the financial resource ratios strengthened slightly in fiscal We believe this is due to solid market returns for most university investment portfolios in fiscal 2013, which in many cases meant endowment market values exceeding pre-recessionary levels. The sector-wide median for tuition discounting also increased over the last three years, which further illuminates the sector's response to student affordability concerns. We believe that tracking median ratios over time will help spot industry-wide trends, rather than category-specific trends (see table 2). Table 2 Selected Ratios For Private Colleges & Universities Sector-Wide Fiscal Year Sample size* JULY 8,

7 Table 2 Selected Ratios For Private Colleges & Universities Sector-Wide (cont.) Demand FTE enrollment Median 3,274 3,206 3,308 Mean 5,956 5,918 5,853 Undergraduates as a % of total enrollment (%) Median Mean Freshman acceptance rate (%) Median Mean Freshman matriculation rate (%) Median Mean Retention rate (%) Median Mean Five-year graduation rate (%) Median Mean Financial performance Tuition dependence (%) Median Mean Financial aid and expense ratios Tuition discount (%) Median Mean Endowment Endowment market value ($000s) Median 147, , ,493 Mean 969, , ,181 Total debt outstanding ($000s) Median 84,300 84,752 86,159 Mean 305, , ,499 Current debt service burden (%) Median Mean JULY 8,

8 Table 2 Selected Ratios For Private Colleges & Universities Sector-Wide (cont.) Average age of plant (years) Median Mean Cash and investments to operations (%) Median Mean Expendable resources to operations (%) Median Mean Cash and investments to debt (%) Median Mean Expendable resources to debt (%) Median Mean *Sample size may be smaller than indicated. The sample size for our private college and university ratios remained flat since the fiscal 2012 report, with just marginal shifts in the number of credits per category. Our speculative-grade category continues to grow because of downgrades from the 'BBB' category as well as new credits coming in at the lower end of the credit spectrum. Although the number of ratings have increased in the speculative-grade category, the distribution remains relatively stable, with the majority of ratings (70%) in the 'A' and 'BBB' categories. We believe this indicates downward ratings pressure at the weaker institutions but stability overall in the U.S. private higher education universe. JULY 8,

9 Chart 1 JULY 8,

10 Chart 2 JULY 8,

11 Chart 3 Enrollment And Demand Medians Provide Context Our analysis of a private institution's enterprise profile includes FTE enrollment and undergraduate enrollment by category. We also assess the correlation between the rating categories and admissions flexibility, using acceptance and matriculation rates and student quality. We believe that important indicators of student success and university effectiveness are retention and graduation rates, which we find typically correlate with student quality. Demand, selectivity, and matriculation In the past few years, we have observed trends of flat to declining enrollment at many universities, which we believe indicate a highly competitive landscape, as well as unfavorable demographics, particularly in the Northeast and Midwest. In fiscal 2013, there was a slight reversal of recent trends as FTE enrollment increased by 2% across all rating categories except 'A' rated institutions, whose enrollment remained flat. We believe that some of the growth in FTEs is due to increased enrollment in graduate, professional, and nontraditional programs given that undergraduate enrollment at most universities has remained flat or declined. The speculative-grade institutions balked this trend with a 10% increase in enrollment in fall There were some additions to the relatively small speculative-grade category since the last issuance of this report, which inflated this trend. JULY 8,

12 Chart 4 In our view, enrollment at higher-rated institutions remains diverse, with undergraduates comprising less than one-half of the total in the 'AAA' category. Many are major research universities with substantial graduate and professional programs. Institutions with 'AA' ratings had a similar percentage (75%) of undergraduates constituting total enrollment as those in the 'A' (78%), 'BBB' (77%), and speculative-grade (70%) categories. We believe student and program diversity enhance a school's flexibility, resulting in greater credit strength (see table 1). Notably, overall enrollment composition shifted slightly in fiscal 2013 across all categories with the exception of the 'AAA' and 'BBB' categories. Undergraduate enrollment relative to total enrollment declined 3.5%, 1.7%, and 4.2% in 'AA', 'A', and speculative-grade rated universities, respectively. We believe this is in-part due to the implementation of diversification strategies, growing graduate, professional, and nontraditional programs to offset declines of traditional undergraduates. As previously mentioned, affordability and competition for students continue to be key factors as universities recruit new freshman. Notably, matriculation continues to decline except at the most elite universities and at the same time, selectivity remains relatively stable. We believe this trend is partially due to the ease of applying through the Common Application, but also to 'financial aid shopping.' Like past years, selectivity is highly correlative to credit quality. The highest-rated institutions have the most competitive acceptance rates (11%), with each successive rating category becoming less selective ('AA', 29%; 'A', 64%; 'BBB', 70%; and speculative-grade, 69%). Matriculation declined JULY 8,

13 moderately in all ratings categories except for 'AAA'. Stable matriculation rates in the 'AAA' rating category indicate that universities in this category have very strong market positions, which are relatively protected from national trends and demand pressures. We believe that the lower rated universities, which often have a regional draw, will continue to be subjected to competitive stresses over the next few years as slow recovery from the Great Recession leaves families more price-sensitive than five or 10 years ago. Student quality, freshman retention, and five-year graduation rates often correlate directly with selectivity and matriculation. We believe that strong student quality partially insulates a school from decreased demand. As the most selective group, the 'AAA' rated institutions often attract students with the highest standardized test scores (see table 1). In 2013, the national average SAT score for incoming freshmen was 1010, while median SAT score in the 'AAA' category was Although a significant amount of federal grants have been dedicated to improving both retention and graduation rates, we believe these new programs will not meaningfully affect either ratio for several years (see table 1). Strong retention and graduation rates help universities to attract students and parents, but also provide more predictable tuition income and less reliance on new students for revenue. Financial Medians Provide Perspective Our analysis of a private institution's financial strength covers an assessment of revenue and expense composition, financial operating performance, financial resources, and debt burden. Revenue diversity and operating margins Revenue diversity is important for the credit standing of a private university, but it is difficult to achieve given that nontuition revenue is most often derived from gifts, grants and contracts, and endowment income. These alternative revenue sources have to be developed over time and built through relationships with alumni, federal agencies, and other donors. As a result, revenue diversity remained the strongest for the 'AAA' category and decreased as credit quality weakened. The sources of such revenues favor institutions with a focus on research, a strong and wealthy alumni base, and a significant endowment. We believe that revenue diversity can also be achieved through a diverse program or student mix, which are more difficult to measure from the audited financial statements. For fiscal 2013, tuition and fees remained flat relative to fiscal 2012 as a percentage of revenues in all rating categories except for the 'AA' and speculative-grade categories, which increased in both. We believe this is correlated to flat government grants and endowment spending policies in the 'AA' category, limiting growth in nontuition revenues. In the speculative-grade category, other sources of revenue outside of tuition are relatively limited, given that these universities often have very small endowments, limited grant income, and little track record of fundraising. Increased dependence on tuition revenue could further pressure universities in this category as they struggle to grow net tuition revenue and meet affordability concerns of students. Revenue diversity distribution is stark across rating categories: the 'AAA' rated institutions on average had, in our view, a relatively small portion of their revenue derived from tuition and fees with a 25.4% median, while speculative-grade issuers were the most highly tuition-dependent at 77% (see chart 5) with the other categories falling in between. Investment and endowment income and grants and contracts remained the two other major categories of revenues in the higher rated categories (see table 1). JULY 8,

14 Chart 5 We included median and mean ratios in each category for operating margin starting in fiscal 2012, providing a relative measure of operating strength. As previously noted, margins in every category were slightly compressed in fiscal Overall, the ratios indicate that operating surpluses remain modest across rating categories, with the strongest margins in the 'AAA' category at 3.5%. Margins were more modest for the other categories at between 0.2% and 1.7%. We believe the margin compression is directly correlated to increasing financial aid budgets and increased discounting, as well as flattened revenue growth compared with a fixed expense base. More modest endowment spending rates have been implemented at many universities, reflecting reduced estimated long-term market returns. While this would likely materially affect only higher rated universities with more reliance on endowment income, it could also contribute to the weaker margins. Operating margins are less correlative to rating categories unless combined with other measures such as revenue diversity and financial resource ratios. All medians are positive on a generally accepted accounting principles basis, indicating that many universities are budgeting for operating surpluses on a full accrual basis, and that operating deficits are an offsetting factor to an institution's financial profile. Financial aid and tuition discounting We believe that in order for private universities to remain competitive, offering financial aid is key to students choosing to matriculate. We measure financial aid in two ways: as a discount rate (financial aid/gross tuition and fees) and as a financial aid burden (financial aid expense/adjusted operating expenses). Although not always included in our reports, JULY 8,

15 our analysis increasingly focuses on growth in net tuition revenue (gross tuition less financial aid expense) year-over-year, which we believe indicates sustainability of most universities' key revenue source. In the highest-rated universities, the discount rate is higher than in the other categories, with a median of 41.4% in fiscal At the same time, the financial aid burden is the lowest of any category at just 10.5%. We believe these two ratios indicate greater expense flexibility for 'AAA' rated universities, complemented by a higher degree of revenue diversity and endowment income providing significant funding for financial aid. By comparison, unfunded discounting of tuition rates is more prevalent at lower rating categories. Many highly rated institutions use tuition discounting to provide access to education for students who are qualified regardless of their ability to pay (need blind admissions) a luxury most lower rated institutions cannot afford. As credit quality weakens, the tuition discount rate tends to decrease, but the financial aid burden on a school's operating budget increases. We believe the lower amount of financial aid expenses in the speculative-grade category is indicative of a reduced ability to fund financial aid given limited resources (see chart 6). Chart 6 Year-over-year, the tuition discount rate decreased across the 'AAA' and 'AA' categories, remained stable at the 'A' category, and increased slightly in the 'BBB' and speculative-grade categories. In fiscal 2013, financial aid burden and tuition discount remained flat or decreased marginally in all rating categories compared with fiscal We believe JULY 8,

16 this marginal decrease illustrates management teams' continued efforts to balance students' needs, competitive forces, and budgetary pressures while attempting to maintain net tuition revenue growth. Endowment Investment and endowment income provide significant revenue in the higher rated categories; many institutions use endowment income to fund financial aid and other programs. Many institutions' endowments market returns were positive in fiscal 2013, an improvement over the flat to negative returns of fiscal Endowment market values grew in each rating category, with growth ranging from 4% to 9% except for endowments of speculative-grade rated schools which grew 33% in fiscal The shift in the speculative-grade is due to additions of new universities to the category which are slightly larger and shifted the median calculation, rather than reflective of annual market returns. The median endowment market value for institutions in the 'AAA' category was $7.24 billion, up 9% from fiscal The National Association of College and University Business Officers (NACUBO) reported average market returns of 11.7% in fiscal 2013 (see 2013 NACUBO-Commonfund Study of Endowments published Jan. 28, 2014). Although the market returns we observed were slightly lower than the NACUBO study, we believe our calculation reflects the noise associated with varied fiscal year end dates and inconsistencies in endowment market value reporting in audited financial statements. The NACUBO study also includes over 850 institutions, while we include just 265 in our universe. Chart 7 JULY 8,

17 Chart 8 Financial Resource Ratios Financial resource ratios strengthened markedly across all rating categories in fiscal 2013, due in large part to strong market performance, as well as limited debt issuance. Financial resource ratios are paramount to our analysis as they reflect the relative strength of the university's balance sheet. Expendable resources Expendable resource ratios strengthened relative to operations and debt levels across all rating categories. Endowment market returns bolstered expendable resource ratios, combined with reduced operating expenses and limited debt issuance (see charts 9 and 10). We believe that financial resource ratios will continue to improve in fiscal 2014 given strong market returns in recent months. This is the first year where endowment market values are higher than pre-recessionary levels across the rating spectrum. Cash and investments Cash and investments is typically a less conservative measure of balance sheet strength, given that this measure comprises all cash and investments, including restricted endowment funds. Similarly to expendable resource ratios, cash and investments relative to operations and debt levels strengthened to varying degrees across almost all rating JULY 8,

18 categories. We believe operating expenses increased at a faster rate than assets in fiscal 2013, substantiating a marked strengthening of cash and investments to debt compared to operations. The ratios relative to debt improved from fiscal 2012 across almost the entire rating spectrum, only remaining flat in the speculative grade (see table 1). We believe that this is due partly to limited debt issuance in fiscal 2013 except for refunding to achieve savings primarily self-supporting projects such as needed housing. Chart 9 JULY 8,

19 Chart 10 Measuring The Debt Burden Standard & Poor's measures a university's debt burden primarily by comparing annual debt service with annual operating expenses. The average debt service burden remained relatively flat or declined slightly in each of the rating categories. Given the continued low interest rate environment, refunding debt issuance for economic savings has continued across categories in fiscal 2013 and Another debt measure is the average age of a college or university's physical plant or facilities. We view deferred maintenance as a future liability, and changes in average age of plant reflect a potential need to invest more heavily in physical plant. We believe that tracking the age of campus infrastructure is a key ratio because campus facilities and attractiveness are important selling points in the highly competitive higher education market. As age of plant rises, we believe it is critical that colleges and universities make the necessary investments to update and renovate facilities with internal funds or external funds, such as debt or gifts. The average age of plant has remained steady across all categories since fiscal 2010; however, in fiscal 2013, the average plant age increased marginally for all categories except for speculative grade (see chart 11). We believe this is a result of budget cuts related to capital projects and deferred maintenance to balance strained budgets across the sector. JULY 8,

20 Chart 11 The nominal amount of debt outstanding increased between 1% and 2% at every investment-grade rating category, except for the 'A' rating category, which reduced total debt outstanding by 6% over the previous year. In contrast, total debt outstanding increased 24% to $46 million in the speculative-grade rating category, which on the surface, indicates a higher degree of leverage. However, we believe the picture is more nuanced, like the change in endowment market value, which indicates a shift in the composition of universities in the category rather than a marked increase in debt issuance. It is interesting that at the same time, total debt outstanding per FTE increased 5% to 7% in each rating category except for the 'AAA' and speculative-grade rating categories, which had 5% and 4% decreases in total debt outstanding per FTE, respectively (see chart 12). We believe this trend shows the continued need to finance building projects with debt regardless of enrollment growth as well as continued competitive pressures at the mid-range universities, which require updated facilities to attract students. JULY 8,

21 Chart 12 Table 3 Ratings On Private Colleges And Universities By Rating Category* State Rating Outlook AAA Columbia University NY AAA Stable Grinnell College IA AAA Stable Harvard University MA AAA Stable Massachusetts Institute of Technology MA AAA Stable Northwestern University IL AAA Stable Pomona College CA AAA Stable Princeton Theological Seminary NJ AAA Stable Princeton University NJ AAA Stable Stanford University CA AAA Stable Swarthmore College PA AAA Stable Washington University MO AAA Stable William Marsh Rice University TX AAA Stable Yale University CT AAA Stable JULY 8,

22 Table 3 Ratings On Private Colleges And Universities By Rating Category* (cont.) AA+ Amherst College MA AA+ Stable Brown University RI AA+ Stable California Institute of Technology CA AA+ Stable Colby College ME AA+ Stable Dartmouth College NH AA+ Stable Davidson College NC AA+ Stable Duke University NC AA+ Stable Rockefeller University NY AA+ Stable Smith College MA AA+ Stable University of Pennsylvania PA AA+ Stable University of Richmond VA AA+ Stable Wellesley College MA AA+ Stable Williams College MA AA+ Stable AA Agnes Scott College GA AA Negative Bryn Mawr College PA AA Stable Colgate University NY AA Stable Cornell University NY AA Stable Denison University OH AA Stable Emory University GA AA Stable Haverford College PA AA Stable Johns Hopkins University MD AA Stable Liberty University VA AA Stable Middlebury College VT AA Stable Oberlin College OH AA Stable The Juilliard School NY AA Stable Trinity University TX AA Stable University of Chicago IL AA Negative University of Southern California CA AA Stable Vanderbilt University TN AA Stable Wake Forest University NC AA Stable Washington & Lee University VA AA Stable Wesleyan University CT AA Stable AA- Boston College MA AA- Stable Carnegie Mellon University PA AA- Stable Case Western Reserve University OH AA- Stable Colorado College CO AA- Positive Franklin & Marshall College PA AA- Stable Holy Cross College MA AA- Stable JULY 8,

23 Table 3 Ratings On Private Colleges And Universities By Rating Category* (cont.) Lafayette College PA AA- Stable Lebanese American University NY AA- Stable Lehigh University PA AA- Stable Mount Holyoke College MA AA- Stable New York University NY AA- Stable Reed College OR AA- Stable Saint Louis University MO AA- Stable Southern Methodist University TX AA- Stable Syracuse University NY AA- Stable Tufts University MA AA- Stable University of Rochester NY AA- Stable Vassar College NY AA- Stable A+ American University DC A+ Stable Bates College ME A+ Stable Baylor University TX A+ Stable Brandeis University MA A+ Stable Clark University MA A+ Stable Dickinson College PA A+ Stable Gallaudet University DC A+ Stable George Washington University DC A+ Stable Kenyon College OH A+ Stable MCPHS University MA A+ Positive Medical College of Wisconsin WI A+ Stable Muhlenberg College PA A+ Stable Olin College of Engineering MA A+ Stable Philadelphia College of Osteopathic Medicine PA A+ Stable Rhodes College TN A+ Stable Teachers College at Columbia University NY A+ Stable Thomas Jefferson University PA A+ Stable Transylvania University KY A+ Stable Trinity College CT A+ Stable University of Denver (aka Colorado Seminary) CO A+ Stable University of Puget Sound WA A+ Stable University of the South TN A+ Stable Villanova University PA A+ Stable Worcester Polytechnic Institute MA A+ Stable A Adelphi University NY A Stable Berklee College of Music MA A Stable Boston University MA A Stable JULY 8,

24 Table 3 Ratings On Private Colleges And Universities By Rating Category* (cont.) Bradley University IL A Stable Bryant University RI A Stable Buena Vista University IA A Stable Catholic University of America DC A Stable DePaul University IL A Stable Doane College NE A Stable Drexel University PA A Stable Fordham University NY A Stable Gettysburg College PA A Stable Hampden-Sydney College VA A Stable Hobart and William Smith Colleges NY A Stable Hofstra University NY A Stable Loma Linda University CA A Stable Loyola University in Maryland MD A Stable Loyola University of Chicago IL A Stable Loyola University of New Orleans LA A Stable Lycoming College PA A Stable Mercy College NY A Stable Messiah College PA A Stable New England Institute of Technology RI A Stable Providence College RI A Stable Seattle University WA A Stable Seton Hall University NJ A Stable St. Lawrence University NY A Stable Tulane University LA A Stable University of Dayton OH A Stable University of Scranton PA A Negative Willamette University OR A Stable Yeshiva University NY A Stable York College of Pennsylvania PA A Stable A- A T Still University (KCOM) MO A- Stable Allegheny College PA A- Stable Assumption College MA A- Stable Babson College MA A- Positive Baldwin-Wallace College OH A- Stable Baylor College of Medicine TX A- Stable Bellevue University NE A- Stable Bethune-Cookman University FL A- Stable Centre College of Kentucky KY A- Stable Duquesne University PA A- Stable JULY 8,

25 Table 3 Ratings On Private Colleges And Universities By Rating Category* (cont.) Fairfield University CT A- Stable Georgetown University DC A- Stable Goucher College MD A- Stable Hampton University VA A- Stable Hendrix College AR A- Stable Illinois College IL A- Stable Illinois Wesleyan University IL A- Stable Johnson & Wales University RI A- Stable Juniata College PA A- Stable Lesley University MA A- Stable Lewis & Clark College OR A- Stable Midwestern University IL A- Stable Moravian College PA A- Negative Morehouse College GA A- Stable Mount Aloysius College PA A- Positive Mount Sinai School of Medicine NY A- Stable Nebraska Wesleyan University NE A- Stable New York Law School NY A- Negative Quinnipiac University CT A- Stable Randolph College VA A- Stable Ranken Technical College MO A- Stable Rensselaer Polytechnic Institute NY A- Stable Roanoke College VA A- Stable Saint Joseph's University PA A- Stable St. Ambrose University IA A- Stable St. Francis College NY A- Stable St. John's University NY A- Stable St. Mary's College IN A- Stable St. Michael's College VT A- Stable The New School, A University NY A- Stable Universidad Interamericana de Puerto Rico PR A- Stable University of Indianapolis IN A- Stable University of Miami FL A- Stable Ursinus College PA A- Stable Washington & Jefferson College PA A- Stable Wayland Baptist University TX A- Stable Wofford College SC A- Stable Xavier University OH A- Negative BBB+ Belmont University TN BBB+ Stable Brooklyn Law School NY BBB+ Negative JULY 8,

26 Table 3 Ratings On Private Colleges And Universities By Rating Category* (cont.) Butler University IN BBB+ Stable Carroll University WI BBB+ Stable Columbia College IL BBB+ Stable Elizabethtown College PA BBB+ Stable Emerson College MA BBB+ Stable Florida Southern College FL BBB+ Stable High Point University NC BBB+ Stable Hope College MI BBB+ Stable Howard University DC BBB+ Stable Marietta College OH BBB+ Stable McDaniel College MD BBB+ Negative Molloy College NY BBB+ Stable Nazareth College of Rochester NY BBB+ Stable New York Institute of Technology NY BBB+ Negative Niagara University NY BBB+ Stable Notre Dame of Maryland University MD BBB+ Stable Regent University VA BBB+ Negative Rider University NJ BBB+ Stable Saint John Fisher College NY BBB+ Stable Simmons College MA BBB+ Stable St John's College MD BBB+ Stable St. Edward's University TX BBB+ Stable St. Louis College of Pharmacy MO BBB+ Negative Stevens Institute of Technology NJ BBB+ Stable University of Portland OR BBB+ Stable University of St. Thomas TX BBB+ Stable University of Tampa FL BBB+ Stable Waynesburg University PA BBB+ Negative Widener University PA BBB+ Negative BBB Albany College of Pharmacy NY BBB Stable Albany Law School NY BBB Stable Arcadia University PA BBB Stable Barry University FL BBB Stable Benedictine University IL BBB Stable Chatham University PA BBB Negative Curry College MA BBB Stable Gannon University PA BBB Stable Georgian Court University NJ BBB Negative Gwynedd-Mercy College PA BBB Stable Iona College NY BBB Negative JULY 8,

27 Table 3 Ratings On Private Colleges And Universities By Rating Category* (cont.) La Salle University PA BBB Stable Lasell College MA BBB Stable Lubbock Christian University TX BBB Stable Lynchburg College VA BBB Positive Mercyhurst College PA BBB Negative Meredith College NC BBB Negative Methodist University NC BBB Stable Neumann University PA BBB Stable New York Chiropractic College NY BBB Positive Nova Southeastern University FL BBB Stable Olivet Nazarene University IL BBB Stable Pacific Lutheran University WA BBB Stable Pacific University OR BBB Stable Philadelphia University PA BBB Stable Regis University CO BBB Stable Rivier University NH BBB Stable Roger Williams University RI BBB Stable Sacred Heart University CT BBB Positive Sarah Lawrence College NY BBB Stable Southern California College of Optometry CA BBB Stable Southern New Hampshire University NH BBB Stable Springfield College MA BBB Stable Suffolk University MA BBB Stable Sweet Briar College VA BBB Stable Texas Lutheran University TX BBB Stable Thomas M Cooley Law School MI BBB Negative Universidad del Sagrado Corazon PR BBB Negative Western New England University MA BBB Stable Westminster College UT BBB Stable Wheelock College MA BBB Stable Wilkes University PA BBB Stable BBB- Ave Maria University FL BBB- Stable Bethany College WV BBB- Negative California College of Arts And Crafts CA BBB- Stable Carlow University PA BBB- Stable Eastern University PA BBB- Stable Fisher College MA BBB- Stable Hodges University NY BBB- Stable Lake Forest College IL BBB- Stable Lawrence Technological University MI BBB- Stable JULY 8,

28 Table 3 Ratings On Private Colleges And Universities By Rating Category* (cont.) Lindsey Wilson College KY BBB- Negative Long Island University NY BBB- Stable Marian University IN BBB- Stable Marywood University PA BBB- Stable Merrimack College MA BBB- Stable Pace University NY BB+ Stable Polytechnical University of Puerto Rico PR BBB- Stable Rockhurst University MO BBB- Stable Saint Francis University PA BBB- Positive Sistema Universitario Ana G Mendez PR BBB- Stable Southwest Baptist University MO BBB- Stable St. Bonaventure University NY BBB- Stable University of Dubuque IA BBB- Stable University of Hartford CT BBB- Stable BB+ Cedar Crest College PA BB+ Stable Concordia University OR BB+ Stable Eastern Nazarene College MA BB+ Stable Hawaii Pacific University HI BB+ Stable Immaculata University PA BB+ Stable Judson College AL BB+ Negative Medaille College NY BB+ Negative Mount St. Mary's University MD BB+ Stable Roseman University NV BB+ Stable Woodbury University CA BB+ Stable BB Vaughn College of Aeronautics and Technology NY BB Stable BB- Benedict College SC BB- Negative B+ Thomas Jefferson School of Law CA B+ Negative B Dowling College NY B Negative Franklin Pierce University NH B Stable *Ratings are as of May 1, JULY 8,

29 Table 4 Ratings On Private Colleges And Universities By State Rating Outlook Alabama Judson College BB+ Negative Arkansas Hendrix College A- Stable California California College of Arts And Crafts BBB- Stable California Institute of Technology AA+ Stable Loma Linda University A Stable Pomona College AAA Stable Southern California College of Optometry BBB Stable Stanford University AAA Stable Thomas Jefferson School of Law B+ Negative University of Southern California AA Stable Woodbury University BB+ Stable Colorado Colorado College AA- Positive Regis University BBB Stable University of Denver (aka Colorado Seminary) A+ Stable Connecticut Fairfield University A- Stable Quinnipiac University A- Stable Sacred Heart University BBB Positive Trinity College A+ Stable University of Hartford BBB- Stable Wesleyan University AA Stable Yale University AAA Stable District of Columbia American University A+ Stable Catholic University of America A Stable Gallaudet University A+ Stable George Washington University A+ Stable Georgetown University A- Stable Howard University BBB+ Stable Florida Ave Maria University BBB- Stable Barry University BBB Stable Bethune-Cookman University A- Stable Florida Southern College BBB+ Stable JULY 8,

30 Table 4 Ratings On Private Colleges And Universities By State (cont.) Nova Southeastern University BBB Stable University of Miami A- Stable University of Tampa BBB+ Stable Georgia Agnes Scott College AA Negative Emory University AA Stable Morehouse College A- Stable Hawaii Hawaii Pacific University BB+ Stable Iowa Buena Vista University A Stable Grinnell College AAA Stable St. Ambrose University A- Stable University of Dubuque BBB- Stable Illinois Benedictine University BBB Stable Bradley University A Stable Columbia College BBB+ Stable DePaul University A Stable Illinois College A- Stable Illinois Wesleyan University A- Stable Lake Forest College BBB- Stable Loyola University of Chicago A Stable Midwestern University A- Stable Northwestern University AAA Stable Olivet Nazarene University BBB Stable University of Chicago AA Negative Indiana Butler University BBB+ Stable Marian University BBB- Stable St. Mary's College A- Stable University of Indianapolis A- Stable Kentucky Centre College of Kentucky A- Stable Lindsey Wilson College BBB- Negative Transylvania University A+ Stable Louisiana Loyola University of New Orleans A Stable Tulane University A Stable JULY 8,

31 Table 4 Ratings On Private Colleges And Universities By State (cont.) Massachusetts Amherst College AA+ Stable Assumption College A- Stable Babson College A- Positive Berklee College of Music A Stable Boston College AA- Stable Boston University A Stable Brandeis University A+ Stable Clark University A+ Stable Curry College BBB Stable Eastern Nazarene College BB+ Stable Emerson College BBB+ Stable Fisher College BBB- Stable Harvard University AAA Stable Holy Cross College AA- Stable Lasell College BBB Stable Lesley University A- Stable Massachusetts Institute of Technology AAA Stable MCPHS University A+ Positive Merrimack College BBB- Stable Mount Holyoke College AA- Stable Olin College of Engineering A+ Stable Simmons College BBB+ Stable Smith College AA+ Stable Springfield College BBB Stable Suffolk University BBB Stable Tufts University AA- Stable Wellesley College AA+ Stable Western New England University BBB Stable Wheelock College BBB Stable Williams College AA+ Stable Worcester Polytechnic Institute A+ Stable Maryland Goucher College A- Stable Johns Hopkins University AA Stable Loyola University in Maryland A Stable McDaniel College BBB+ Negative Mount St. Mary's University BB+ Stable Notre Dame of Maryland University BBB+ Stable St John's College BBB+ Stable JULY 8,

32 Table 4 Ratings On Private Colleges And Universities By State (cont.) Maine Bates College A+ Stable Colby College AA+ Stable Michigan Hope College BBB+ Stable Lawrence Technological University BBB- Stable Thomas M Cooley Law School BBB Negative Missouri A T Still University (KCOM) A- Stable Ranken Technical College A- Stable Rockhurst University BBB- Stable Saint Louis University AA- Stable Southwest Baptist University BBB- Stable St. Louis College of Pharmacy BBB+ Negative Washington University AAA Stable North Carolina Davidson College AA+ Stable Duke University AA+ Stable High Point University BBB+ Stable Meredith College BBB Negative Methodist University BBB Stable Wake Forest University AA Stable Nebraska Bellevue University A- Stable Doane College A Stable Nebraska Wesleyan University A- Stable New Hampshire Dartmouth College AA+ Stable Franklin Pierce University B Stable Rivier University BBB Stable Southern New Hampshire University BBB Stable New Jersey Georgian Court University BBB Negative Princeton Theological Seminary AAA Stable Princeton University AAA Stable Rider University BBB+ Stable Seton Hall University A Stable Stevens Institute of Technology BBB+ Stable JULY 8,

33 Table 4 Ratings On Private Colleges And Universities By State (cont.) Nevada Roseman University BB+ Stable New York Adelphi University A Stable Albany College of Pharmacy BBB Stable Albany Law School BBB Stable Brooklyn Law School BBB+ Negative Colgate University AA Stable Columbia University AAA Stable Cornell University AA Stable Dowling College B Negative Fordham University A Stable Hobart and William Smith Colleges A Stable Hodges University BBB- Stable Hofstra University A Stable Iona College BBB Negative Lebanese American University AA- Stable Long Island University BBB- Stable Medaille College BB+ Negative Mercy College A Stable Molloy College BBB+ Stable Mount Sinai School of Medicine A- Stable Nazareth College of Rochester BBB+ Stable New York Chiropractic College BBB Positive New York Institute of Technology BBB+ Negative New York Law School A- Negative New York University AA- Stable Niagara University BBB+ Stable Pace University BB+ Stable Rensselaer Polytechnic Institute A- Stable Rockefeller University AA+ Stable Saint John Fisher College BBB+ Stable Sarah Lawrence College BBB Stable St. Bonaventure University BBB- Stable St. Francis College A- Stable St. John's University A- Stable St. Lawrence University A Stable Syracuse University AA- Stable Teachers College at Columbia University A+ Stable The Juilliard School AA Stable The New School, A University A- Stable JULY 8,

34 Table 4 Ratings On Private Colleges And Universities By State (cont.) University of Rochester AA- Stable Vassar College AA- Stable Vaughn College of Aeronautics and Technology BB Stable Yeshiva University A Stable Ohio Baldwin-Wallace College A- Stable Case Western Reserve University AA- Stable Denison University AA Stable Kenyon College A+ Stable Marietta College BBB+ Stable Oberlin College AA Stable University of Dayton A Stable Xavier University A- Negative Oregon Concordia University BB+ Stable Lewis & Clark College A- Stable Pacific University BBB Stable Reed College AA- Stable University of Portland BBB+ Stable Willamette University A Stable Pennsylvania Allegheny College A- Stable Arcadia University BBB Stable Bryn Mawr College AA Stable Carlow University BBB- Stable Carnegie Mellon University AA- Stable Cedar Crest College BB+ Stable Chatham University BBB Negative Dickinson College A+ Stable Drexel University A Stable Duquesne University A- Stable Eastern University BBB- Stable Elizabethtown College BBB+ Stable Franklin & Marshall College AA- Stable Gannon University BBB Stable Gettysburg College A Stable Gwynedd-Mercy College BBB Stable Haverford College AA Stable Immaculata University BB+ Stable Juniata College A- Stable La Salle University BBB Stable JULY 8,