Small college's downgrade underscores headwinds facing smaller schools

Mount Saint Mary College, a small liberal arts school in New York state, saw its bond rating downgraded to BBB from BBB-plus by Fitch Ratings, after persistent declines in student enrollment pressured the school's finances. 

The college on the bank of the Hudson River about 70 miles from New York City enrolled just 1,383 full time students last fall, a 30% decline from pre-pandemic levels in 2019, according to the Fitch report. That's especially noteworthy because 85% of the college's operating revenues are derived from student fees. 

The college is contending with a "very narrow geographic draw in a competitive and demographically challenged market" with multiple options, some at a lower cost, according to Fitch analysts led by Akiko Mitsui. Nearly all of the student body comes from New York. 

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"While we are taking significant steps to reduce expenses on the way towards balance, the rating's only impact would be on interest rates if we needed to finance a major capital improvement, but there are none planned," said the college's director of media relations, Matt Frey.

The school has a negative outlook, which means its bond rating is at risk of being downgraded further. Mount Saint Mary has roughly $40 million of municipal debt outstanding, issued through The Orange County Funding Corp. according to data compiled by Bloomberg. 

It's the latest example of a trend playing out across higher education. Many small, private liberal-arts schools are struggling to stay competitive in a landscape with fewer students going to college. Among schools that are most vulnerable to financial challenges are those overly dependent on tuition revenue and ones that draw their students from a regional cohort. At least 23 institutions have closed or merged so far this year, according to data compiled by BestColleges. 

One bright spot is Mount Saint Mary's "high-demand" nursing programs that mitigate the "weak" overall demand profile, according to Fitch. "Nursing is consistently the most popular undergraduate major," the ratings analysts said. "The college also enjoys a relatively stable headcount of about 600 nontraditional, mostly high-school dual-enrollment students."

The college's nursing program is one of the top programs nationally and had a 100% pass rate on the National Council Licensure Examination this year, according to Frey. 

The college was founded in 1959 and offers undergraduate and graduate programs from a 57-acre campus in Newburgh, New York. It also owns and operates a kindergarten through eighth-grade school on campus that has about 200 students.