• September 16, 2014

Surging Enrollments Put Community Colleges in a Good Credit Position

With enrollments surging and their role in the nation's higher-education system expanding, community colleges are going to need more capital and operating resources, and more of them are expected to seek to raise that money by issuing bonds, Moody's Investors Service says in a report released Wednesday.

Despite weakened state and local tax bases, which generally provide a significant share of community colleges' budgets, the institutions' credit quality over all is largely stable, the bond-rating agency says in the report, "Community Colleges Face Challenge of Strong Growth." In fact, Moody's predicts that the sector will weather its current economic challenges and emerge from the recession with its credit quality largely intact.

That's good news for community colleges, considering the elevated role they are expected to play to achieve President Obama's goal that the United States have the highest proportion of college graduates in the world by 2020.

The president has called on community colleges to produce five million more graduates by 2020 and proposed billions of dollars to help them meet that goal. Mr. Obama has also proposed a $2.5-billion College Access and Completion Fund that two-year institutions could tap into to raise graduation rates and close achievement gaps.

Other factors, such as continuing high unemployment rates and affordable tuition, are also expected to contribute to higher enrollment at two-year institutions, says the report.

The surge, it says, will result in increased student-fee revenue, helping to strengthen community colleges' credit position and provide protection against further cuts in tax revenue or government appropriations.

The report points to several characteristics that have historically led to strong credit quality and should provide a basis for continued credit strength among community colleges, compared with four-year institutions.

Those include large service areas, leading to diversified tax bases for community colleges, and low debt burdens, which give community colleges the ability to issue both general-obligation bonds, backed by taxes, and revenue bonds, backed by tuition, fees, and other sources of income generated by the colleges.

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