Federal financial pressure, demographic decline, and increased political risk could push U.S. colleges and universities into a rough stretch in 2026, according to a recent Moody’s Ratings sector report. The agency projects slower revenue growth, rising expenses, and increasing competition over a shrinking pool of students — especially at smaller and mid-size institutions.
The report describes a “negative outlook” for the higher education sector, driven by a mix of long-term demographic trends and new federal policy headwinds. Revenue growth is forecast at 3.5% in 2026, down from 3.8% in 2025.
Smaller and mid-sized private colleges face the steepest challenges, with revenue growth expected as low as 2.5–2.7%. Meanwhile, expenses could rise by 4.4%, which would squeeze operating margins and push a growing share of private colleges into negative earnings territory.
Special concern arises over federal research and grant funding. The report forecasts stagnant or declining federal research support in 2026–2027, especially from the National Institutes of Health (NIH).
Other pressures include prospective caps on graduate-student loans, tightening of international student policies, increased regulatory scrutiny, and expanded taxes on endowments — measures associated with the Trump Administration’s higher-education agenda.
The report warns that many institutions — particularly smaller, less-wealthy ones — may respond with cost-cutting measures: staff reductions, early retirements, benefit reductions, shared services, or even mergers.
This negative outlook comes as a reminder: scholarly institutions are not immune from macroeconomic and demographic shifts. For families and students, the expected tightening may prompt serious rethinking about the long-term value, affordability, and stability of traditional college education.
