What 3 Ratings Agencies Project for Higher Ed in 2025

What will 2025 bring for higher education?

With a new year on the horizon, a trio of financial organizations has released outlooks for the higher education sector that provide a varied view for 2025, ranging from stable to mixed—to deteriorating.

Recent reports from Moody’s Ratings, S&P Global and Fitch Ratings all note similar pressures on the sector, particularly enrollment challenges and political uncertainty following the presidential election.

Moody’s and S&P Global also touch on the growing integration of artificial intelligence into higher education operations. Both reports cite AI’s potential for research and other functions but also argue that the increasing use of such technology poses mounting cybersecurity risks and raises thorny questions about ethics and data privacy for colleges.

Meanwhile, S&P Global and Fitch Ratings both predict more closures and mergers in 2025.

Moody’s Sees Stability

Arguably the most optimistic outlook among the three comes from Moody’s, which projects a stable year as revenue growth is expected to rebound and inflation likely to cool.

On the revenue front, Moody’s expects growth to be around 4 percent. The organization points to “modest growth in net tuition” and other factors such as “favorable philanthropy and still supportive state funding,” which it says “will further stabilize the revenue landscape.”

Declining interest rates will also be a positive for colleges seeking loans next year, the report finds.

While Moody’s also expects steady federal funding for research grants and contracts, it notes that “potential changes at the federal level introduce uncertainty”—a reference to incoming president Donald Trump, who has promised sweeping changes, including eliminating the Department of Education. (One Trump nominee—Dr. Jay Bhattacharya, who was tapped to lead the National Institutes of Health—has already proposed a major change to how federal research dollars are doled out, recommending tying disbursement of funds to campus speech ratings.)

The report says, “If research funding is held up or cut, universities will face difficult decisions on whether to use their own funds to fill gaps or to reduce research expenses accordingly.”

Moody’s also notes that some colleges, particularly those with enrollment challenges, can expect to struggle.

“While the outlook for overall sector credit conditions is stable, about a third of private colleges and a fifth of public universities will face more considerable headwinds,” Susan Fitzgerald, managing director at Moody’s Ratings, wrote in a LinkedIn post about the report’s findings.

Moody’s also points to a number of other potential issues that could arise in 2025. Specifically, analysts cite cybersecurity threats, climate change, geopolitical tensions, governance concerns, legal issues and changing government policies, which could be costly for the sector.

Other factors at the institutional level, such as leadership turnover, student activism and compliance with federal and state regulations, might also “result in additional operational and legal costs that quickly escalate,” the report notes. Such issues may carry “reputational costs” that can lead to financial stress.

Last year, Moody’s also projected a stable outlook for 2024.

S&P Global Expects Mixed Results

S&P Global Ratings offers a “bifurcated/mixed” outlook for 2025, anticipating that well-positioned institutions will be fine while colleges with enrollment and financial challenges will struggle.

For “highly regional, less-selective institutions that lack financial flexibility,” S&P Global projects a negative outlook, while those with “broad geographic reach, steady demand, and sufficient liquidity and financial resources to navigate operating pressures” should be stable.

Though enrollment declines and financial stress will continue, those issues “are not affecting all schools equally,” the report finds. But S&P Global experts also note that “industry headwinds and a new federal administration with different priorities could create additional obstacles.”

Many private institutions emerged from fiscal year 2023 in a difficult position, S&P Global noted. Half of the colleges the organization rates are running an operating deficit, with “weaker” operating margins for fiscal year 2024 than for 2023—a trend the organization expects to continue in FY25. S&P Global also reports that “as budgetary pressures have persisted, more and more schools are taking extraordinary endowment draws or loans to bridge operating gaps,” thereby reducing liquidity.

S&P also warns that more cash-strapped colleges will run into issues paying down debt in 2025.

Additionally, college closures and mergers are expected to rise. The report notes that such “closures average about a dozen a year, but were more pronounced during 2024.” (At least 16 nonprofit institutions announced plans to close in 2024, according to Inside Higher Ed’s count.)

“In the next year, we expect to see further consolidations, and also closures, as operational struggles escalate for small, regional private institutions. We also anticipate seeing more partnerships, particularly in areas that might not be core to a school’s mission (for example, utilities, student parking, faculty housing, etc.),” researchers conclude in the report.

S&P Global also predicted a “bifurcated outlook” for 2024 and 2023.

Fitch Projects a Sector Slide

In projecting a “deteriorating” outlook for 2025, Fitch Ratings cites a number of concerns for the sector, including enrollment challenges, tight margins and an “uncertain legislative landscape.”

Such risks, the report finds, are “likely to erode budgetary flexibility” for many institutions.

“Variable enrollment, rising capital needs and continued operating pressures will continue to chip away at more vulnerable higher education institutions in 2025, even if inflationary pressures ease and interest rates fall,” Fitch Ratings senior director Emily Wadhwani notes in the report. “A widening credit gap continues to prompt an elevated level of consolidation, thus far concentrated among smaller, less selective and more tuition-dependent institutions.”

Additionally, “pent-up deferred maintenance needs” are likely to increase capital expenditures.

Higher education could also see “less favorable tax treatment,” the report notes, an apparent reference to potential endowment taxes, which President-elect Trump has threatened to impose. And, like S&P Global, the Fitch Ratings report anticipates more closures and mergers.

Last year, Fitch also rated the sector as “deteriorating” and predicted that pressures would “intensify” in 2024.