Continued enrollment declines at the University of New Mexico have led Standard and Poor’s Global Ratings to lower the long-term bond rating for the state’s flagship institution.
But the financial analysts said the university stands to benefit from a recent proposal by the governor to create a scholarship making college free for state residents.
UNM’s S&P long-term rating went from AA to AA-, according to an S&P ratings report on UNM published Oct. 25. In the same report, the agency improved UNM’s ratings outlook from negative to stable.
“While a downgrade of any kind is never welcome, the university still has the highest rating of any higher education institution in New Mexico” said Teresa Costantinidis, senior vice president for finance and administration. “The stable outlook along with the potential of the Opportunity Scholarship, if passed, bode well for the university to reverse the enrollment trend.”
In the last two years, UNM has seen significant enrollment drops that were bigger than expected, which created budget shortfalls at the university. At the start of the last two fall semesters, UNM’s student count dropped 7% and 6.5%, respectively. UNM has 20,245 “full-time equivalent” students this year, which is down from 23,173 students in 2015, according to the S&P report.
“The downgrade reflects the continued trend of enrollment declines, with fall 2018 seeing the biggest drop in full-time-equivalents of the past five years, and management’s expectation of another full-time-equivalent enrollment decrease for fall 2019,” S&P Global Ratings credit analyst Phillip Pena said in a written statement.
Other offsetting credit factors for UNM include the history of operating deficits and the school’s high dependence on health care revenue, according to the report.
But S&P analysts said in the report that they believe the university has taken steps to address enrollment declines. It said over the next two years, financial analysts expect the university’s resources to remain stable or grow, operating margins not to deteriorate and fundraising to remain robust. The analysts specifically mentioned Gov. Michelle Lujan Grisham’s proposal to create an Opportunity Scholarship, which would pay remaining tuition and fees for all state residents, and predicted it would increase the demand for a UNM education.
Even with the decline, UNM’s credit rating of AA- is considered “very strong,” according to S&P’s website.
New Mexico State University has an A+ rating, which is one notch lower than AA-, according to NMSU’s S&P ratings report.
An institution’s bond rating is an indicator of the quality and stability of its bond debt and can influence pricing and interest rates for future projects. UNM said in a news release that while the lower rating may cause UNM to pay a slightly higher interest rate the next time it issues bonds to fund projects, the impact will be minimal because UNM still has a high rating.