Moody’s Investors Service, the bond credit rating agency, assigned an “Aa3” rating to the University of Connecticut’s $342 million General Obligation bonds on March 21. An “Aa3” is usually the lowest “A” investment-grade rating an institution can receive, although it is also typically intrinsically low-risk and the issuer fairly stable.
Unfortunately, the future of the university and its body is not looking stable.
UConn plans to sell the bonds on April 4, but the main takeaway from Moody’s is this: the firm has a negative outlook on the state of the university and Connecticut at large, “[reflecting] the recent weakening state demographics that have led to budgetary strain.” Moody’s sees an unsound economic future for Connecticut at the hand of said weakening demographics, believing they will “continue and place negative pressure on the state’s economy and finances in the next few years, while the very high fixed costs reduce flexibility and present additional challenges.”
Connecticut is an expensive state to live in with what many are now seeing as an irresponsible, profligate government. According to the CT Post, it is one of the top-10 most expensive places to raise a family, and that doesn’t even factor in the overwhelming cost of higher education. Now, amid years of deficits and a slashed budget to compensate, government agencies reliant on state funding like UConn are severely bearing the brunt, and in turn suffering deficits of their own.
This is leading to the exorbitant tuition increase that current and prospective students are observing. Regarding Moody’s credit rating, it’s not that the university is insolvent and incapable of paying back the bonds, it’s that its plan for doing so involves digging deeper into the pockets of parents (or, realistically, those of banks willing to gouge those of the students whose parents cannot pay) to protect their assets.
What this situation creates is a climate wherein only wealthy families can legitimately afford to send their children to a state school – a facility operating under the assumption of comparative affordability when juxtaposed with private universities. Therefore, less endowed families stick their children with loans, in order to avoid the occupational stigma of not having a college degree.
Higher education in 2016 is a utility for the rich or the floundering, and nowhere is this becoming better epitomized than at the University of Connecticut. Hopefully, upon the state resolving its budgetary shortfalls over the next handful of years, we will see changes in our state affordability, but that seems naïve to assume.