This is good news for students at private universities and their parents, who have had to bear the burden of cost for higher education for years and often find themselves mired in debt. The recent Moody’s report indicates that the cost burden could be slowly shifting towards universities, at least for private schools. One factor in this shift could be that private universities have the extra funds to take on the cost, as opposed to public schools that seem perpetually squeezed.
Eva Bogaty, a Moody’s vice president and senior analyst, commented in a recent statement: “Moody’s-rated private universities have lower debt per student than the national average because they have greater financial resources to support financial aid. Nonetheless, we expect continued financial pressure for universities with more limited resources that need to discount tuition to stay competitive.”
In other words, private universities have the funds to provide more financial aid to their students, including need-blind admissions policies and other means of support. These schools are also able to reduce the cost burden on students and parents by discounting (or by not increasing) annual tuition.
This does not mean that students who choose private universities graduate with lower levels of debt than their peers at public schools. Students leaving public universities still have slightly lower levels of debt than their peers graduating from private schools. Moody’s reported that students leaving a 4-year public university in May of 2014 with debt had an average burden of $27,056. Students leaving a 4-year private university with debt in the same year saw an average of $27,806.
That said, the gap seems to be narrowing, and the Moody’s report predicts that the growth rate of public university debt will continue to slow. This can be attributed to several factors including a limit on tuition increases and greater operating support from individual states. This also means, though, that this growth rate is subject to fluctuation based on policy changes at the state level that will impact public schools.
The Moody’s report called student loan debt a modest credit risk for the universities it rates, but it also noted that default and/or delinquency levels are lower at the schools it rates than the national average. There are also higher default and delinquency rates found at institutions where graduation and degree completion rates are lower – for example, at some for-profit universities or community colleges. Keep in mind that this report analyzed federal student debt, not private loans.
The Moody’s report released last week found that, while student debt is still quite high, it is not deterring demand for higher education.
In fact, student debt and higher education have been hotly debated topics for many years, coming into the public spotlight most recently during the 2016 U.S. Presidential campaign. Many of the candidates spoke out about the high levels of debt that students are saddled with coming out of university. Despite recognizing that a solution was needed, their plans to address the problem varied quite dramatically from one candidate to the next. President-elect Donald Trump’s most recent comments on the issue, as of October of this year, indicated support for a single repayment program based on 12.5% of income and capped after some years. Other Democratic voices champion the needs to implement a federal consolidation program (separate from the programs that student loan consolidation companies offer) that actually offers lower rates while Hillary Clinton specifically wants to extend the deferment period for entrepreneurs.
Indeed, both sides of the aisle have expressed interest in tackling the problem of student debt, though it remains to be seen what policies will actually make it through. Student loans and debt repayment are issues that will affect millions of Americans – and they will definitely stay at the forefront of the national conversation for quite some time.