Universities Get Bad Credit Grades: Will It Affect Students?

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NEW YORK (MainStreet) — When the U.S. had its credit rating downgraded by Standard & Poor’s earlier this month, consumers were quick with questions about how it would affect them. Will it change my credit card rate? What happens with my mortgage? Can I still get a car loan? What will my retirement plan look like?

And though many colleges and universities also receive credit ratings from agencies like S&P and Moody’s, a downgrade isn’t likely to impact students.

“There’s no one-to-one correlation between a credit rating downgrade and a cut or decrease to the level of services offered by an educational institution,” Douglas Kilcommons, a senior director with Fitch Ratings, tells MainStreet. He adds that student loans would not be impacted by the downgrade either.

That being said, a downgrade could indicate that a school is experiencing financial stress and, as such, students might expect to see cutbacks in services, amenities or the number of classes offered each semester.

Some of these cutbacks could affect students indirectly. For instance, Kilcommons says, if a college were to cut back on the number of classes it offered, a student “could find it more difficult to graduate on time.”

But, he reiterates, going from an AA- to an A+, for instance, isn’t going to force the university “to make draconian cuts” as those would only result from a more significant drop in the rating or if an actual default took place.

“The greater impact would be on capital programs and could affect plans for new campus facilities,” agrees Mark Lieberman, a private economic consultant and former senior economist for Fox Business Network.

So while current students will likely not feel any pinch, future students will no doubt hope that affected schools can get their grades up.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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