Moody's Negative Outlook Highlights Disruption on the Horizon
On November 25 the Wall Street Journal reported that credit-rating firm Moody's Investors Service Inc. had kept its negative outlook for the U.S. higher-education sector, citing slow revenue growth, a stagnant labor market and an uncertain regulatory environment. The story went on to note that this was the second year in a row for Moody’s negative view on the higher education sector and that this news came as both public and private colleges and universities are struggling with declining net tuition revenue as they compete for a smaller pool of students by offering larger aid packages.
In my view private K-12 schools are impacted by many of the same forces affecting colleges, especially the smaller pool of students driven by declining birth rates in much of the U.S. The competition for fewer students and stagnate inflation-adjusted incomes drive similar growth in school financial aid budgets and puts pressure on other expenses, such as raises and maintenance. Moreover for us, additional disrupters to the K-12 business model include some excellent new curriculum available online, the growth of innovative charter schools, and a broader interest in home schooling options. "Affordability remains a key issue as the weak economic environment continues to affect families' ability to pay for higher education and reduces institutions' discretionary spending capacity," according to Moody's Vice President Eva Bogaty. While Moody's didn't directly address private K-12 schools, it certainly speaks to some shared concerns.