UBS Predicts College Shakeout With Weak Schools Doomed to Fail

(Bloomberg) -- UBS Global Wealth Management has a Darwinian outlook on the future of America’s colleges and universities.

Schools with ample financial resources, strong endowments and national reputations will continue to prosper, while the remainder will find themselves scrounging to keep their doors open, Thomas McLoughlin, Kathleen McNamara, Sangeeta Marfatia and other municipal-bond strategists at UBS said in a report published Friday.

“Put another way, the strong will get stronger and the weak will not survive,” they wrote, adding that a “shakeout” is coming as schools are forced to reconcile with the fallouts of limited on-campus education caused by the coronavirus pandemic.

Many schools are switching to virtual learning and limiting the number of students who can move back to campus. The Ivy League and the Patriot League scrapped sports competitions for the fall semester. Even the richest schools are preparing for big revenue hits as students decide to take the year off or postpone enrollment.

“Institutions will need a national reputation, an ample endowment, or an ideal location to prosper. Preferably at least two of the three,” the strategists wrote.

Even before the pandemic, rising tuition costs and declining enrollment was pressuring higher education institutions. Central Washington University declared financial exigency in March and the College of New Rochelle in New York filed for Chapter 11 bankruptcy in 2019.

UBS says that the riskiest credits within the municipal-bond market fall into two categories: smaller liberal arts colleges whose selectivity and matriculation rates have fallen in recent years and bonds secured by narrow revenue pledges like student housing securities. The group recommend investors with a “moderate to conservative risk appetite focus their portfolio investments in the flagship campuses of major public universities and in highly selective private colleges.”

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