In an October 8 news article, the Wall Street Journal highlighted the tendency of universities to go to the bond markets, even with weak credit ratings. Low interest rates have a Siren-song attraction. But the Journal also warned that the borrowing option may be disappearing. The article said:

Spooked by bad news out of the higher-education sector in recent months, including unexpected campus closures, potential mergers and poor enrollment projections, some prospective buyers are steering clear of bonds being sold by small, private colleges that don’t have national reputations, schools that rely heavily on tuition revenue, and those in regions facing population declines.

How important is this development? Moody’s Investor Service recently predicted that the number of college closures will triple in the next few years. That would bring the number up only to 15 schools per year. But some are worried.

Joseph P. Lindsley, Sr., a Charlotte, North Carolina, investment adviser and an observer of higher education as a member of several boards, said in an email:

I have been becoming increasingly concerned with the expansion of debt and the deteriorating credit quality (particularly the credit problems with emerging market countries). It is interesting, but certainly not surprising, that the troubled industry of higher ed is fully embracing the private sector debt strategies….
There needs to be reduction in the number of higher ed institutions so as to maintain an overall ‘health’ in that industry, and the Fed’s easy money policy is interfering with the natural process of supply and demand—just as it has in industries all around the world.

Easy money, overexpansion, and an uncertain future—that’s not a good mix.