Moody's Predicted 2026 Would Break More Private Colleges. Nine Months In, Here's the Scorecard

Moody’s Predicted 2026 Would Break More Private Colleges. Nine Months In, Here’s the Scorecard

October 5, 2026October 5, 2026By Dominick Bianco, Editor-in-Chief
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Illustration of private college campuses at dusk with a declining red chart line, a one-in-six pie chart, and financial reports on a desk, with the headline Moody's: one in six private colleges projected to run operating losses in 2026
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Introduction

In November 2025, Moody’s Ratings warned that 2026 would be the year one in six private colleges could no longer cover day-to-day costs with the cash their operations bring in. Nine months into that year, most of the evidence points the same way, though not everywhere.

The agency projected that 16% of private institutions would post negative EBIDA margins in fiscal 2026, up from an estimated 12.2% in fiscal 2025 and 7.2% in fiscal 2024. It paired that forecast with a negative outlook for the entire U.S. higher education sector.

Since then, colleges have closed at an elevated pace, Fitch has reported negative median margins for the private colleges it rates, and public confidence in higher education has fallen again. At the same time, some small private colleges enrolled record freshman classes this fall. The final number will not be known until fiscal 2026 audits are filed, but the year’s record so far can be scored.

The Scorecard

What the rating agencies predictedWhat 2026 has shownVerdict
Private college finances would weakenFitch reported a -0.5% median operating margin for its rated private colleges in fiscal 2025; Moody’s moved Brown University’s outlook to negative in JulyConsistent
Closures and mergers would continue at an elevated paceAt least eight nonprofit closures announced by April; Siena Heights followed in June; Anna Maria College filed Chapter 11Consistent
A shrinking pool of high school graduates would squeeze private enrollmentPrivate nonprofit undergraduate enrollment fell 1.6% in fall 2025; early fall 2026 reports are mixed, with some small privates posting record classesMixed
Graduate loan limits would hit master’s-heavy schoolsLimits took effect July 2026; fall 2026 graduate enrollment data not yet publishedToo early
16% of private colleges would post negative EBIDA marginsFiscal 2026 audited statements not yet filedNot yet measurable

Background

Moody’s had rated the sector’s outlook stable from late 2023 into early 2025. It shifted to negative in March 2025, less than two months into the second Trump administration, citing how colleges were reacting to federal policy uncertainty with hiring freezes and spending cuts.

The agency kept that negative view when it issued its 2026 outlook in late 2025. The core arithmetic is a gap between revenue and costs. Moody’s projected sector-wide revenue growth of 3.5% in 2026, down from 3.8% in 2025, against expense growth of 4.4%.

Smaller schools face a tighter squeeze. Moody’s forecast revenue growth of just 2.7% for small private institutions and 2.5% for small publics.

What the 16% Figure Actually Measures

The Moody’s metric is the EBIDA margin: earnings before interest, depreciation and amortization, divided by operating revenue. It is the agency’s standard gauge of how much cash a college’s day-to-day operations generate.

In simple terms, a negative EBIDA margin means tuition, fees, gifts, grants and the regular endowment draw do not cover payroll, utilities and other running costs. That shortfall exists before the school pays a dollar of interest on its debt.

That makes it a tougher test than an ordinary accounting deficit, which also counts non-cash charges like building depreciation. A college can post an accounting loss and still generate cash. A college with negative EBIDA is not generating cash from operations at all.

Three limits apply. First, a negative margin is not insolvency; many of these schools are covering the gap from reserves or endowment. Second, the 16% figure is a forecast, not a measured result. Third, it covers the private institutions Moody’s rates, a group that leaves out many of the smallest colleges that carry no rating.

What Is Driving the Squeeze

Moody’s pointed to four main pressures.

Demographics. The number of U.S. high school graduates was projected to begin declining in 2026. For tuition-dependent private colleges, fewer 18-year-olds means fewer paying students.

Student loan changes. Moody’s analysts singled out federal lending changes as potentially the most damaging policy shift. New limits on federal borrowing push graduate students toward private loans, and Moody’s analyst Patrick Ronk noted that private lenders may balk at programs whose graduates earn less. Schools that lean on master’s degree enrollment are the most exposed.

Federal policy broadly. The agency also cited research funding cuts, visa processing slowdowns and an expanded endowment tax that now reaches more private institutions.

Costs. Expenses are still growing faster than revenue, even as inflation cools. Wages, benefits, insurance and deferred maintenance do not shrink when enrollment does.

The Value Question: Jobs, AI and Public Confidence

Moody’s did not list the job market or artificial intelligence among its drivers. But enrollment depends on what families believe a degree is worth, and that calculation has shifted.

The entry-level market is weaker. The Federal Reserve Bank of New York reported that unemployment for recent graduates, defined as 22- to 27-year-olds with a bachelor’s degree, held near 5.6% in the second quarter of 2026. Underemployment, meaning graduates working in jobs that do not require a degree, rose to 42%. That is the highest level since 2020.

Majors once seen as safe bets are not immune. In the Fed’s most recent data by major, computer engineering graduates posted 7.8% unemployment and computer science 7.0%, among the highest of 73 majors tracked.

Public confidence has fallen. In the June 2026 Lumina Foundation-Gallup survey, 38% of U.S. adults expressed a great deal or quite a lot of confidence in higher education, down from 42% in 2025 and 57% in 2015. Among those lacking confidence, the leading reasons were campus politics (31%), cost (30%) and poor workforce preparation (25%). Of that same group, 64% said they expect AI to make degrees less important.

The AI link is not proven. The New York Fed’s own analysis of job postings found that AI is not the main driver of the hiring slowdown. Its researchers instead estimated that the spread of remote work accounts for 64% of the rise in young-graduate unemployment, because employers are reluctant to train new hires from a distance.

A degree still beats no degree. Recent graduates’ unemployment remains below the 7.8% rate for young workers without a degree. Enrolled students and graduates also report far more positive views of their education than the general public does.

In simple terms, the degree still pays, but the payoff is less certain and the first job is harder to land. That doubt matters most at the schools in Moody’s 16%: small, tuition-dependent colleges selling a high sticker price without a national brand. When families hesitate, those schools lose the tuition revenue they depend on. This connection is NexfinityNews analysis; Moody’s has not quantified it.

Examples: What Financial Stress Looked Like in 2026

The most visible outcome has been closures, concentrated among small private colleges in the Northeast and Midwest. By late April, at least eight nonprofit colleges had announced they would shut down in 2026.

InstitutionStateWhat happened
Siena Heights UniversityMIAnnounced June 30, 2026 that it will close
Anna Maria CollegeMAAnnounced closure April 23; ceased operations May 10; filed Chapter 11 June 27
Hampshire CollegeMAClosing after the fall 2026 semester; unable to refinance its bonds
Sterling CollegeVTEnded degree programs after spring 2026
Trinity Christian CollegeILClosed after the 2025-26 academic year

Stress is not limited to small schools. In July, Moody’s revised Brown University’s outlook to negative, citing thin operating margins, even while affirming its high rating. Syracuse University cut 84 academic programs this spring and began offering faculty buyouts.

Impact

Students. When a college closes mid-degree, students must transfer, often losing credits and time. A Huron Consulting estimate reported by NPR found 442 of the nation’s roughly 1,700 private nonprofit four-year colleges, enrolling about 670,000 students, could close or merge within a decade.

Employees. Hampshire College sent layoff notices to 203 faculty and staff, and Anna Maria College filed notice to lay off 150, according to Inside Higher Ed.

Bondholders. Colleges borrow through the municipal bond market. A college that cannot generate cash from operations has less capacity to service that debt, which is why rating agencies track the EBIDA margin closely. Hampshire’s failure to refinance its bonds was a deciding factor in its closure.

Communities. In small towns, a college is often a top employer and a major customer for local businesses. Its closure removes payroll, student spending and, in some cases, a large property from the tax base or local economy.

Analysis

The three major rating agencies agree on direction. S&P Global Ratings also issued a negative outlook for nonprofit colleges in 2026, warning that closures would continue at elevated rates. Fitch Ratings reported that the private nonprofit colleges it rates had a median operating margin of -0.5% in fiscal 2025.

The sector is splitting, not sinking as a whole. Moody’s reported that 92% of its Aaa-rated universities hold more than $1 million in wealth per student. Large comprehensive universities were projected to capture most revenue gains. The 16% figure describes a distinct tier: smaller, tuition-dependent schools with weaker brands, often in regions where the student-age population is shrinking.

Fall 2026 enrollment shows the split in real time. Last fall, private nonprofit four-year colleges lost 1.6% of their undergraduates while community colleges and public universities grew. This fall, small schools in shrinking markets are not uniformly losing. Lebanon Valley College, with about 1,600 undergraduates in a state projected to lose 17% of its high school graduates by 2041, expects its largest incoming class ever. Nearby Elizabethtown College enrolled one of its biggest classes in more than 15 years. Demographics set the pressure; individual schools still decide who absorbs it.

The forecast has not yet been tested. Most private colleges close their fiscal year on June 30, and audited statements typically follow months later. That means the actual fiscal 2026 share will not be known until those results are filed. The 7.2% figure for 2024 is the only one in the series built entirely on completed years.

A negative margin is a warning, not a verdict. Schools with large reserves can run cash deficits for years while they cut costs or restructure. The schools at real risk are those that combine negative margins with thin reserves and heavy debt, the combination that closed Hampshire.

What to Watch Next

The next three months will fill in most of the blank rows on the scorecard.

  • The 2027 rating agency outlooks. Moody’s, S&P and Fitch issued their 2026 outlooks in late November and early December 2025. Their 2027 reports are expected on a similar schedule and should include Moody’s updated share of private colleges with negative margins.
  • Fall 2026 enrollment data. National totals from the National Student Clearinghouse will show whether private nonprofit enrollment fell for a second year, and how graduate enrollment fared in the first fall under the new federal loan limits.
  • Fiscal 2026 audits. Most private colleges close their books June 30. As audited statements are filed, they will show whether the 16% forecast held.
  • Research funding. Moody’s forecast modest declines in federal research funding in fiscals 2026 and 2027, a pressure that falls mostly on large research universities rather than small colleges.
  • Scheduled mergers. Rosemont College’s merger with Villanova and Albany College of Pharmacy and Health Sciences’ merger with Russell Sage College are slated for 2027.

Conclusion

Nine months in, Moody’s warning has held up where it can be checked. Closures continued, rated private colleges posted negative median margins, and confidence in higher education fell again. The headline 16% figure itself cannot be confirmed until fiscal 2026 audits are filed.

The year has also shown that the pressure is not uniform. Some small private colleges in shrinking markets just enrolled record classes while others announced they would close. The rating agencies’ 2027 outlooks, due in the coming weeks, will show whether they see that divide widening. NexfinityNews will report on those outlooks when they are released.

Key Takeaways

  • In November 2025, Moody’s projected 16% of private colleges would post negative EBIDA margins in fiscal 2026, up from an estimated 12.2% in 2025 and 7.2% in 2024.
  • Nine months in, the forecast is consistent with the evidence that can be checked: elevated closures, Fitch’s -0.5% median margin for rated private colleges and Moody’s negative outlook on Brown.
  • A negative EBIDA margin means operations consume more cash than they generate, before debt payments. It is not the same as insolvency.
  • Enrollment is mixed: private nonprofit undergraduate enrollment fell 1.6% in fall 2025, but some small privates posted record classes in fall 2026.
  • The perceived value of a degree is under pressure: recent-graduate underemployment hit 42% and public confidence fell to 38%. The New York Fed found AI is not the main cause of weaker graduate hiring.
  • The 2027 rating agency outlooks, due in late fall, and fiscal 2026 audits will show whether the 16% forecast held.

Sources

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