Moody’s says R.I. free college proposal could boost public school credit ratings

GOV. GINA M. RAIMONDO’S proposal for free college tuition could improve Rhode Island public higher education institutions’ credit ratings, but negatively impact revenue at some of the state’s private schools, according to Moody’s Investors Service.  / PBN PHOTO/MIKE SKORSKI
GOV. GINA M. RAIMONDO’S proposal for free college tuition could improve Rhode Island public higher education institutions’ credit ratings, but negatively impact revenue at some of the state’s private schools, according to Moody’s Investors Service. / PBN PHOTO/MIKE SKORSKI

NEW YORK – Gov. Gina M. Raimondo’s proposal for free college tuition could improve Rhode Island public higher education institutions’ credit ratings, but negatively impact revenue at some of the state’s private schools.

That’s according to Moody’s Investors Service, which on Friday published new research examining four free college tuition proposals, including Raimondo’s plan to cover two years of tuition costs for qualifying Rhode Island students. The researched proposals, including others in New York, Tennessee and San Francisco, are all slightly different. But the global rating agency expects each one should – at the very least – expand public higher education enrollment at a relatively modest cost to taxpayers.

“[The proposals] tend to be relatively cost-effective for sponsoring governments because each of the programs use a ‘last-dollar’ model whereby the state subsidizes tuition costs after the student has exhausted all other available state and federal financial aid,” according to Moody’s.

Raimondo’s proposal is a “last-dollar” model, and at scale would cost about $30 million. The funds would cover tuition costs for two years at any of the three state schools: the Community College of Rhode Island, Rhode Island College and the University of Rhode Island. Raimondo is actively trying to drum up public support and convince the R.I. General Assembly – which must approve it – that her plan is viable and worth the cost.

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Moody’s research suggests Raimondo’s type of proposal – as opposed to others that cover tuition costs for two-years of tuition at only community colleges – could have “more material credit implications” should it cover a larger proportion of the student population. If there’s a sudden influx of students, the costs associated with accommodating new students – building new facilities, for instance – could offset new revenue realized from increased enrollment.

“Enrollment growth driven by program expansion in and of itself would not necessarily be credit positive,” Moody’s wrote.

Likewise, the public subsidies for public institutions could adversely impact private colleges with more limited regional brands, according to the credit rating agency.

“These colleges are usually highly tuition dependent, with tuitions comprising 75-90 [percent] of their total budgets. Many have had little net tuition revenue growth in recent years. Those regional private colleges with already thin operations would face further credit challenges should proposed free tuition programs even modestly shift enrollment to the public sector from the private sector or put further constraints on the ability to raise net tuition,” according to the research.

Rhode Island’s private institutions include Brown University, Johnson & Wales University, Naval War College, New England Institute of Technology, Providence College, Rhode Island School of Design, Roger Williams University and Salve Regina University.

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