Date of Award


Document Type

Honors Thesis (Colby Access Only)


Colby College. Economics Dept.


David W. Findlay

Second Advisor

Guillermo Vuletin


The recession caused many private colleges and universities to suffer credit rating downgrades. These downgrades are significant because credit ratings represent the default risk of a bond issuance. By affecting the interest rate bondholders require to be compensated for the risk of lending, bond ratings significantly impact the borrowing costs of colleges and universities. Furthermore, the higher education sector is dependent on debt issuance because schools lack the capacity to raise funds through issuing equity, making increases in the cost of debt a non-trivial burden. Moody (2008) has been the only scholar to investigate the determinants of credit ratings with respect to the higher education sector. His analysis, however, focused solely on public universities. This study will extend the analysis of Moody (2008) to private higher education institutions, and will take advantage of a newly established data source to conduct a more thorough analysis. The ordered probit analysis reveals that the model predicts the actual rating for schools rated by Moody’s Investors Service (MIS) 52.4 percent of the time, while the model predicts the actual rating for schools rated by Standard & Poor’s Rating Agency (S&P) 41.7 percent of the time. The approximately 10 percent difference in the model’s success rate for predicting MIS ratings in comparison to S&P ratings suggests there is a difference in rating methodology between the two rating agencies. For both MIS and S&P, the ordered probit analysis reveals there is statistical support for the hypothesis that the freshman selectivity, total students, trend total students, primary reserve ratio, viability ratio, endowment per student, and bond issuance to outstanding debt ratio variables have nonzero effects on an institution’s credit rating. Additionally, for MIS the analysis shows there is statistical support that the tuition fee, trend tuition fee, Ph. D. highest degree offered, and net tuition reliance variables have nonzero effects on an institution’s credit rating. To our knowledge this will be the first study that investigates the credit rating determinants of private higher education institutions.


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Private Higher Education, Credit Ratings

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Daley 2010 Supplement.pdf (1074 kB)
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