According to the Higher Ed Dive report of July 17, 2025, Fitch, one of the leading bond rating agencies, sees major operating margin declines in three of its A bond ratings for fifty-six of their rated private colleges. Their report found:
- Triple A rated colleges, their operating margins declined to 8.4% from prior double-digit margins.[2]
- Double A rated colleges, their operating margin was 2.3%, which continued a trend of declining margins.[3]
- Single A rated colleges, their operating margins were negative that also followed trend of declining margins.[4]
As the Fitch report noted, less selective colleges face the greatest threat to financial stability[5]. They did say that tuition revenue increased for the double and single A rated colleges, while it declined for the triple A rated colleges.[6] However, they did not report the effect of larger tuition discount rates that lowers the amount of cash flowing from tuition revenue.
The Fitch findings are confirmed by IPEDS data for a broad spectrum of private colleges and universities. Contracting and negative operating margins mean that the underlying financial resources of these colleges are being eroded to the point where their current expense structure is untenable.
The major implication of the continuing slide of enrollment down the demographic cliff coupled with lost indirect cost recovery funds and fewer opportunities for federal grants is that bond rankings will fall down the credit ratings scale. As that happens, colleges and universities will discover that the cost of new long-term debt will be more expensive, covenants will become more stringent, and short-term debt will be more difficult to arrange.
In order to forestall ever greater financial distress, private colleges and universities must immediately take strategic steps by cutting their expense structure that puts the college at risk and find new sources of revenue or prepare to merge with institutions with better prospects.