Public University Credit Downgrades Likely to Cost Students More

State Representative Bob Pritchard (R-Hinckley) reacted with disappointment this week in response to recent credit rating downgrades at seven of Illinois’ public universities.  Moody’s Investors Service took action on August 9 to downgrade debt ratings for all but two of Illinois’ public universities, and warned that further downgrades are coming if the state doesn’t address its pension crisis.
“I was disappointed to learn of these downgrades and that Moody’s seemed to ignore efforts our public universities are making to adjust to state funding, needed pension reform and stimulating our economy,” said Pritchard, who sits on both the Higher Education and the Appropriations- Higher Education Committees in Springfield.  “Moody’s attributed the downgrade to the universities’ reliance on state funding and lack of pension reform so let’s look at the facts.” 
Pritchard explained “The legislature’s pension conference committee is making progress toward a pension reform solution, and I believe that solution will be coming to legislators for ratification soon.  The public universities presented a reform plan that appears to be part of the committee’s   recommendations. This action by Moody’s does nothing to reward these people for their willingness to accept necessary reforms.”
In addition, universities have been operating on less state funding for over a decade.  Pritchard pointed to the declining state investment in higher education, and said he was confused by a Moody’s statement that the downgrades were tied to reliance on state funding. “With the exception of Chicago State University, which receives 29.1 percent of its funding from the State, all of Illinois’ public universities only receive between 14.8 percent and 25.6 percent of their funding from the State of Illinois,” Pritchard said. “I wouldn’t exactly call that an overly-large dependence upon State funding.”
The August 9 downgrades by Moody’s affected the debt ratings for the University of Illinois, Eastern Illinois University, Governors State University, Illinois State University, Northeastern Illinois University, Southern Illinois University and Western Illinois University. While not included in last week’s downgrade, the debt rating for Northern Illinois University was downgraded in March, at the same time that Moody’s decreased the credit rating for the State of Illinois.
“Because of this action, any time our universities seek to borrow money most likely they will have to pay a higher interest rate,” said Pritchard. “Moody’s action just made college more expensive for students since the universities will most likely have to pass these costs along through tuition hikes.”  The recent downgrade of the state’s credit rating added nearly $180 million to the interest costs of a recent bond sale.
Overall, the Moody’s downgrade affects a combined total of $2.24 billion in university debt, with the majority of the debt belonging to the University of Illinois, which currently has $1.56 billion in debt. “Those higher interest rates most likely will have a profound impact on the U of I, as it prepares to borrow $77 million in an upcoming bond sale to pay for renovations at the hospital on their Chicago campus,” said Pritchard.
The Hinckley legislator is a co-sponsor of a package of bills that were unveiled this spring, which aim to make college more affordable for Illinois families. One of the bills would create a $1,000 tax credit to help families making less than $150,000 per year pay for college expenses at an Illinois accredited college or university.  Another bill in the college affordability package would encourage families to save for college expenses by offering an “up front” tax deduction when they invest up to $10,000 in a “529” college savings plan.  “These credit downgrades are counterintuitive to what our state and nation are trying to do to hold down college costs,” said Pritchard.

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