Nonprofit Resources

The Changing Private Higher Education Risk Landscape

The higher education landscape has undergone significant changes over the past year. While the risk environment for private higher education institutions followed familiar patterns as recently as summer 2024, a series of subsequent developments has disrupted that stability, ushering in new uncertainties and challenges.

Below, we discuss the top risks identified by institutions and credit rating agencies, recent and pending policy and funding changes, and other key factors affecting the current risk environment for private nonprofit higher education institutions.

 

Top Risks Identified by Institutions

United Educators, a member-owned insurance company, surveyed its higher education members between August and December 2024, with 194 respondents sharing insights into the most pressing risks facing their campuses. The top 10 risks identified were:

1. Enrollment
2. Data security
3. Operational pressures
4. Recruitment and hiring
5. Regulatory and legal compliance
6. Facilities and deferred maintenance
7. Student mental health
8. Funding
9. Public safety
10. Title IX, political and societal pressures, and general premises safety (tied)

The respondents also ranked adversarial regulation and the political climate and instability as the two most significant emerging risks, “reflecting public and governmental skepticism over higher education,” United Educators noted.^[i]

 

2025 Credit Rating Outlooks

The three credit rating agencies that private colleges, universities, and seminaries generally engage when issuing tax-exempt bonds published their 2025 outlooks in December 2024.

Moody’s Investors Service rated the 2025 higher education sector as stable for the second year in a row, following a negative rating in 2023. Moody’s pointed to the following two factors:

• Revenue gains from tuition and donations
• Slowing inflation

The agency also warned of “lurking” financial risks such as climate events, cyber risks, legal issues, and shifts in governmental policy.^[ii]

Fitch Ratings described a deteriorating credit environment for the second consecutive year due to:

• Modest net tuition growth
• Irregular enrollment
• Growing competition and ongoing margin pressures

Fitch noted that “this revenue trajectory is unlikely to be sufficient to fully offset still-elevated labor and wage costs, rising capital needs and a sharply uncertain legislative landscape.”^[iii]

S&P Global Ratings ranked the sector as bifurcated, observing that:

• Strong institutions hold their market position, excel at fundraising, and have healthy balance sheets while working to improve operating margins.
• Struggling institutions face enrollment declines, leading to strained operations and often, liquidity issues.

S&P identified several additional obstacles, including a “new federal administration with changing priorities.”^[iv]

Other risks noted by industry analysts include:

• An estimated $950 billion in deferred maintenance and the highest average age of plant in years
• Technology, AI, and cybersecurity
• Climate events^[v]

 

Federal Policy Shifts and Legislative Changes Under the New Administration

Within days of the January 2025 presidential inauguration, the new administration issued executive orders suspending federal financial assistance. Although quickly rescinded, the brief disruption caused consternation in the sector.

On March 20, President Trump signed an executive order instructing the Secretary of Education to take steps to close the Department of Education (ED) and transfer authority over education to the states. Shortly after, Moody’s revised its 2025 outlook from stable to negative, observing that factors such as federal research cuts, enforcement actions related to diversity, equity, and inclusion programs, staff reductions at ED, and uncertainty around federal student aid (FSA) were “causing institutions to pause capital investments, freeze hiring, and cut spending.”^[vi]

During the spring and early summer of 2025, Congress worked on the budget reconciliation bill that was signed into law on July 4, 2025. Known as the One Big Beautiful Bill Act (OBBBA), the legislation brings sweeping changes to higher education finances, operations, and compliance, including revisions to:

• Pell Grants
• National Direct Student Loans (NDSL)
• 529 plan and education tax credits
• Excise tax on endowments
• Accountability measures

Some of the OBBBA higher education provisions take effect in 2025, with others effective in 2026 and beyond. You can learn more about the changes and timelines with our articles for higher education institutions and nonprofit organizations. Higher education leaders should approach the changes proactively and strategically to assess the financial impacts, update their compliance protocols, and modify their planning to remain both compliant and competitive in a rapidly evolving landscape.

Also in July 2025, the Supreme Court allowed the Trump Administration to proceed with a major reduction in force (RIF) at ED. The RIF and anticipated reassignment of ED programs like NDSL to the Small Business Administration and Federal Work Study (FWS) to state governments will stretch a reduced ED staff. Institutions should prepare for possible FSA processing delays and communication breakdowns.

 

Potential Impact of the Proposed Fiscal Year 2026 Budget

The administration’s proposed fiscal year 2026 budget includes significant changes and reductions to higher education funding and programs, including:

• A $12 billion reduction in ED funding
• Maximum Pell Grants of $5,710 for the 2026-2027 award year, down $1,685
• The elimination of the Federal Supplemental Educational Opportunity Grant (FSEOG) program
• A $980 million reduction in FWS funding, to $250 million, requiring employers to fund 75% of student wages (currently 25%)
• The elimination of the Federal TRIO Program, Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP), and Graduate Assistance in Areas of National Need (GAANN) Program for low-income and disadvantaged students

Funding for minority-serving and HBCU institutions would remain at current levels under the proposed budget, and there would be no new student loan proposals.

 

Risks to Consider

In addition to the factors above, private nonprofit higher education institutions are affected by risks in the following areas:

1. Geopolitical – Heightened scrutiny, funding disruptions, investigations
2. Regulatory and compliance – Gainful employment, Pell, Grad PLUS
3. Operational pressures – Enrollment, financial stability, operating margins, athletics, deferred maintenance, data security
4. State funding – Adjustments in response to federal changes
5. Demographics – Declining traditional student populations

 

Strategic Recommendations

To proactively and strategically manage these changes, higher education leaders can:

• Identify additional sources of liquidity, including those discussed here
• Scenario plan for potential disruptions to FSA G5
• Develop business models to leverage changes to Pell, NDSL, FWS, and other funding sources
• Allocate resources to programs supported by student success
• Determine who their constituents will be and focus on strategic marketing and program development

• Bonus: Develop a multi-year financial model aligned with their strategic plan

 

Christian Higher Education Perspective

Faith-based institutions are not exempt from the pressures we’ve outlined above, and they face unique vulnerabilities, including:

• Changes to Pell, FWS, FSEOG, NDSL, TRIO, and GAANN may disproportionately affect faith-based institutions, many of which are affordable and accessible, making them attractive to first-generation students.
• Disruptions in access to FSA would particularly affect faith-based institutions, many of which are undercapitalized and lack liquidity.
• Faith-based institutions may see some relief from pressures to compromise their biblical positions, but they may need to redefine diversity, equity, and inclusion in a Christ-centered environment.
• Faith-based institutions are particularly vulnerable to financial pressure as many are nonselective, undercapitalized, and under-endowed.
• Faith-based employment and graduate outcomes often result in a public service focus, putting stress on gainful employment expectations.

See the appendix below for an inventory of risk items.

 

Taking an Innovative Approach

The convergence of political shifts, regulatory changes, economic pressures, and demographic trends has created a risk environment that requires agility, foresight, and strategic leadership.

As change and uncertainty continue, institutions that take a strategic and innovative approach will be better equipped to serve their students, sustain their missions, and thrive in an increasingly complex environment.

Please contact us with questions or if you’d like to discuss how we can help your institution assess these changes and considerations.

  

Appendix: Risk Inventory

General risks facing private nonprofit higher education institutions nationally:

• New federal administration with changing priorities
  • Return control of education to the states
  • RIF at ED, which could lead to disruptions in FSA distribution
  • Reduction in foreign student visas
  • Gainful employment
• Political and societal pressures
  • Uncertain legislative landscape
  • Cost of a college education
  • Student debt and completion rates
  • Career preparation and life readiness
• Enrollment and demographic trends
  • Demographic shifts
  • Growing competition for fewer students
  • Retention and graduation rates
  • Completer percentages
• Technology, cybersecurity, and artificial intelligence (AI)
  • Aging ERP systems that may not meet constituency’s expectations
  • Data security
  • Gramm-Leach-Bliley Act (GLBA) compliance
  • AI on campus and in the business office
• Operational pressures
  • Liquidity – financial resources and funding
  • Operating margins – revenue and expense pressures
  • Strategic use of debt
  • Facilities and deferred maintenance
• Recruitment and hiring
  • C-suite
  • Faculty
  • Enrollment management and student financial aid
  • Employee benefits
• Regulatory and legal compliance
  • Religious liberty versus anti-discrimination laws
  • Title IX and religious exemptions
  • Accreditation and non-discrimination standards
  • Admissions monitoring
• Student mental health
  • Increase in mental health needs
  • Integration of faith and coping strategies
  • Moral expectations
  • Peer expectations
• Public safety
  • Sexual assault and violence
  • Mental health
  • Campus police
  • Transparency and Cleary Act compliance
• Athletics
  • House vs. NCAA settlement (NCA Division I institutions)
  • NCAA student athlete transfer portal (NCAA Divisions I, II, and III)
  • Name, image and likeness (NIL)
  • Employment status of student athletes

 

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^[i] “Top Risks Report: Insights for Higher Education,” United Educators, accessed August 12, 2025, https://www.ue.org/4aff10/globalassets/risk-management/reports/top-risks-report-2024.pdf.

^[ii] “Higher Education Outlook 2025,” Moody’s Investors Service, available at https://www.moodys.com/research/Higher-Education-US-2025-Outlook-Stable-as-revenue-and-Outlook–PBC_1425013?cid=web-ntrnlbnnr-18294.

^[iii] “U.S. Higher Education Outlook 2025,” Fitch Ratings, accessed August 12, 2025, https://www.fitchratings.com/research/us-public-finance/us-higher-education-outlook-2025-03-12-2024.

^[iv] “U.S. Not-For-Profit Higher Education Outlook 2025: The Credit Quality Divide Widens,” S&P Global, accessed August 12, 2025, https://www.spglobal.com/ratings/en/regulatory/article/241205-u-s-not-for-profit-higher-education-outlook-2025-the-credit-quality-divide-widens-s13345815.

^[v] Natalie Schwartz, Laura Spitalniak, and Ben Unglesbee, “6 higher education trends to watch in 2025,” Higher Ed Dive, accessed August 12, 2025, https://www.highereddive.com/news/6-higher-education-trends-to-watch-in-2025/736866/.

^[vi] Josh Moody, “Moody’s Downgrades Sector Outlook to Negative,” Inside Higher Ed, accessed August 18, 2025, https://www.insidehighered.com/news/business/financial-health/2025/03/19/moodys-downgrades-sector-outlook-negative.

 

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