Moody's downgrades American University

The American University, a private federally-chartered school in Northwest Washington D.C., has been downgraded by Moody's Ratings while its outlook has moved to stable from negative.

"The downgrade of American's issuer rating to A2 (from A1) is driven primarily by further weakening of operating performance amid persistent student market pressure," said Moody's.

"Operating deficits are expected to continue through fiscal 2028 as the university undertakes a comprehensive financial and operational review, with significant reserve usage budgeted in fiscal 2027 to bridge the revenue and expense gap."

Moody's notes that operating revenue for fiscal year 2025 rose modestly to $718 million, while total cash and investments increased to $1.5 billion.

The good news is countered by the university's market position being "pressured by intense competition, weaker demographic trends and graduate demand challenges, with fall 2025 full time equivalent enrollment declining to 10,556, down 21% since fall 2021."

As of the close of fiscal 2025, the university had $804 million in outstanding debt.

In March the school's Board of Trustees approved a 4% tuition increase for undergraduate, graduate, and law school tuition for the 2026?27 academic year.

Also in March, S&P Global Ratings affirmed its A-plus issuer credit rating on AU and its A-plus long-term rating on various series of bonds.

"The outlook, where applicable, is negative," said S&P.

"The negative outlook reflects our expectation that enrollment and demand challenges could persist over the next two years, hampering management's ongoing efforts to return AU to positive operating results."

American University was created via an act of Congress in 1892, an effort led by Methodist John Fletcher. Its mission was to train future public servants.

Higher education frequently relies on tax-exempt and taxable bond sales for capital improvement projects despite large endowment levels.

The cost of issuance weighed against the returns on endowment investment usually favors issuing debt.

According to data from investment firm Janney Montgomery Scott, 99 colleges and universities issued $20.8 billion in public debt in 2025, up from $17 billion by 71 institutions at the same time last year.

AU is not the only institute of higher learning taking a ratings hit. Last month Fitch Ratings downgraded the University of Chicago to AA from AA-plus with a stable outlook.

Moody's outlook for Aaa-rated Columbia University dropped to negative from stable in May prior to a $487 million bond sale.

In April Moody's downgraded Northern Illinois University issuer and revenue bond rating into the junk pile with a move to Ba1 from Baa3.

The spate of downgrades is being attributed to a combination of factors including increased operating costs and changes in federal funding levels.

The Trump administration began an onslaught on higher education soon after taking office by cutting $400 million in funding to Columbia and freezing over $2 billion in grants to Harvard. Several other Ivy League schools were targeted.

In March Harvard went to market with a $675 million sale of unsecured general obligation revenue bonds, issued through the Massachusetts Development Finance Agency.