How Illinois universities’ credit ratings compare to other states’ schools

May 17, 2017

illinois universities

Last week, ICPR compiled public university enrollment statistics in Illinois and other highly populated U.S. states in an effort to better understand the potential ongoing impacts of the Illinois budget impasse on higher education. Credit ratings, given by institutions such as Moody’s and S&P, offer additional data related to the health of public universities. These ratings determine the interest rates the universities must pay for revenue-raising bonds, and they serve as an important indicator of financial stability.

This week, the ICPR research team looked into credit ratings for public universities, how they are determined, and how four-year state universities in Illinois compare to those in other states.

How Credit Ratings Work

Private and public institutions that borrow money, including public universities, are assigned credit ratings based on past loan history and future economic outlook. When assigning these ratings, S&P, a major ratings company, includes analysis of:

  • any history of defaults
  • the impact of changes in higher education delivery patterns over time
  • view of the industry’s sensitivity to economic and demographic cycles
  • the credit strength of the not-for-profit higher education sector compared with other sectors

The primary factor that affects creditworthiness, according to S&P, is likelihood of default, which includes capacity and willingness to pay obligations related to loans or bonds.ILLINOIS UNIVERSITIES MOODYS


Similarly, Moody’s, another major credit rating agencies, provides ratings for many state universities. When assessing the credit of a university, Moody’s measures market profile, operating performance, wealth and liquidity, and leverage. They do so by looking at revenue, enrollment, budgetary flexibility, and outstanding debts.

Within the major factors listed above, sub-factors like reputation, budgetary flexibility, and government support play a significant role in determining Moody’s scores.

Illinois universities comparison chart

University Credit Ratings in Illinois

Moody’s has listed three Illinois universities at or below “junk bond” status, or lower than what is considered “good” investment quality. This makes it more difficult to borrow money, because financial institutions view them as “high risk,” resulting in a much higher interest rate. S&P also recently downgraded ratings for six Illinois public universities, five of which are now rated at or below “junk bond” status.

The five public Illinois universities rated at or below “junk bond” status by S&P are: Southern Illinois University, Northeastern Illinois University, Eastern Illinois University, Western Illinois University, and Governors State University. Moody’s also recently placed seven Illinois universities on review for possible downgrades. Chicago State University has not been rated by Moody’s or S&P since 2014.

According to ratings agencies, these credit downgrades occurred specifically because the state does not have a budget, and has not provided a funding plan for institutions of higher learning. In their report, S&P stated, “Given the budget impasse of fiscal [year] 2016, the ongoing fiscal [year] 2017 budget impasse, and the absence of an agreement among elected leaders, it is our opinion that state appropriations to public universities in Illinois will remain uncertain in the intermediate term.”

University Credit Ratings in Other States

Public universities in other highly populated states have, on average, much better credit ratings than their Illinois counterparts. Moody’s reports that the median credit rating for public universities across the United States is A1, which is considered upper-medium-grade and is subject to low credit risk. This is much higher than Illinois’ median rating of Baa3.

Moody’s attributes this high average rating to strong long-term demand for higher education, ongoing governmental support for public universities, accumulation of endowment assets to support operations, and donor support. When compared to public universities in the other five most populated states (California, Florida, New York, Ohio, and Texas), Illinois’ public universities have the lowest credit ratings.

Out of all the public universities in those states, only three are rated below the “A” level by Moody’s. These schools are Shawnee State University and Wright State University in Ohio, and Florida A&M. All three have “Baa” level ratings, which are considered medium-grade and are subject to moderate credit risk. Moody’s cites enrollment declines, unbalanced operations, and operating deficits as reasons for the below-average credit ratings at these schools. However, Moody’s also reports that state government support is favorably incorporated into these ratings and acts as a stabilizer against even lower ratings.

All other public universities in these states have credit ratings at or above the “A” level, while Illinois only has one above this level—the University of Illinois system. It should be noted that Illinois differs from states such as California and New York, which have more centralized state university systems, while most of Illinois’ universities are independent from one another.

Illinois universities compare 2


When compared to other state schools, state universities in Illinois have lower credit ratings, on average. This may be due to poor financial health of universities throughout Illinois, especially in light of the budget impasse. As long as Illinois continues to go without a budget, the state’s universities are in danger of further credit rating downgrades, which only makes it more difficult for them to operate efficiently and provide quality education to their students.

Illinois universities 3

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