Dive Brief:
- Moody’s Ratings on Tuesday dropped its outlook for higher education in 2025 to negative from stable amid the Trump administration’s financial attacks on the sector.
- In a report, analysts with the credit rating agency said recent or looming federal policy changes could pose wide-ranging risks to colleges, with several being of medium to high severity and potentially affecting all institutions in the sector.
- Those risks include the potential for heavy research funding cuts, higher endowment taxes, interruptions in student aid, visa restrictions slowing international student enrollment, and pulling funding for institutions that run afoul of the Trump administration’s directives.
Dive Insight:
In December, credit analysts with both Moody’s and S&P Global Ratings predicted potential financial challenges and bright spots for colleges in the coming year.
On the positive side, inflation was slowing, state funding was ticking up, and expenses and revenue were beginning to align for many institutions after years of cuts. But two months into President Donald Trump’s second term, the environment for colleges is far more uncertain and potentially punishing.
For one, the National Institutes of Health’s move to cut billions in funds by capping reimbursements for indirect research costs at 15% could mean tens of millions of dollars lost each for top research universities. Those hit hardest will be universities with large medical centers that conduct health research, according to Moody’s.
A federal judge has blocked NIH from imposing its funding cap as legal challenges to the policy play out. But the ultimate outcome and levels of funding from the agency remain uncertain. Major universities have frozen hiring and budgets as they hedge against uncertainty.
Stalled and delayed grant reviews under the Trump administration have already disrupted research at NIH.
“The administrative suspension of the NIH grant review process has already halted research at laboratories across the country,” analysts said in their report. “The downstream impact of halting or reducing research will impede new discoveries in medical treatments and technological development across the wider economy,.” the analysts said
The analysts also pointed to massive staff cuts at the U.S. Department of Education as a potential threat to student aid programs, noting that the largest share of employees in the agency are housed in the student aid office.
“Since the bulk of institutions rely on revenue from student charges that is provided by federal student loans and Pell Grants, any disruption in the administration of those funds will cause financial stress across the entire sector,” the analysts said.
They added that the potential financial impact of “even a temporary cessation in federal student loan origination or Pell Grant disbursement” would be greater than that caused by last year’s troubled rollout of the new Free Application for Federal Student Aid form.
And then there are the Trump administration’s attacks on individual institutions. Multiple agencies slashed a combined $400 million of Columbia University’s federal grants and contracts for not taking a harder line against pro-Palestinian protesters on its campus.
Since then, the Education Department put a total of 60 institutions on notice that they could face sanctions if the agency determines they are not doing enough to protect Jewish students from harassment.
The department has also launched investigations into 50 colleges over allegations that their programs and scholarships have race-based restrictions amid Trump’s crackdown on diversity, equity and inclusion initiatives.
Those probes follow guidance from the Education Department ordering education programs to eliminate race-based practices for admissions, hiring and other programming or face loss of federal funding.
“Many institutions have eliminated their DEI offices and downsized similar diversity initiatives to avoid sanction,” Moody’s analysts noted. “Selective high-profile enforcement actions against individual institutions have left leaders across the sector in a state of uncertainty.”
