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Online classes could raise colleges’ borrowing costs

Moody’s Investors Service said last week that colleges and universities that rely too heavily on online enrollment could raise their borrowing costs. One factor driving the sector-wide downgrade is cyberattacks that target educational institutions. Currently, recovery from successful cyberattacks cost affected institutions nearly $4M on average. Institutions with substantial online course offerings are preferred hacking targets.

Schools that vastly increase their online enrollment (like WCC) will find themselves paying more for their bonds soon.

Another factor that could increase the interest rate for bond debts is the steady decline in enrollment. According to the ratings service, the dip in enrollment is likely to continue for several years. This puts colleges and universities in a bad borrowing position. While some colleges and universities borrow cash in the short term to improve their flexibility, others seek investor cash to start (or finish) building projects. In either case, the new downgraded sector ratings mean that borrowing (for any reason) has just become more expensive for colleges and universities.

Borrowing expenses are another reason to seek out tax-backed bonds as a matter of policy. The dedicated tax stream that supports tax-backed bonds lowers the interest rate WCC pays. This, in turn, lowers the costs for both the students and the taxpayers. It also stabilizes the College’s revenues. In the current debt financing environment, using revenue backed bonds could raise an institution’s borrowing costs for decades.

Increasing borrowing costs should change online strategy

The rise in borrowing costs introduces new risk in WCC’s overall strategy of offering online-only versions of certain classes. The Board of Trustees should require the College to offer in-person versions of all courses. This will ensure that Washtenaw County students are not unnecessarily burdened by the additional expense of taking online classes simply because the College has no in-person options available. Alternately, the Board could require that WCC charge residents its in-person tuition rate for online courses when the College does not offer in-person sections of a class.

Beyond online courses, WCC’s online degree programs may place an unfair burden on Washtenaw County taxpayers and resident students if they increase the school’s borrowing costs. This is especially true if WCC’s online degree programs predominantly attract students from outside Washtenaw County. The added financial risk of online-only degree programs should be borne solely by their enrollees.

Why should Washtenaw County taxpayers underwrite costly online educational programs designed to attract non-resident students? Especially when those higher borrowing costs destabilize WCC’s operating revenues and guarantee in-district tuition increases?

Photo Credit: Bhautik Joshi, via Flickr