Dive Snapshot:
- Moody’s Ratings lowered the credit outlook for Brown University to negative on Thursday, primarily citing “already thin operating performance” that could continue for several years.
- The credit ratings agency pointed to the Rhode Island university’s high debt levels and to large lump sum payments it owes in the future. Together, these could throttle Brown’s future borrowing ability if it doesn’t see “significantly improved operating performance,” Moody’s said.
- Brown’s outlook hinges on the ability of its leaders to improve the Ivy League institution’s operating performance, according to the credit ratings agency. Although Moody’s reaffirmed Brown’s high credit rating, it said an inability to improve its margins by fiscal 2028 could result in “downward rating pressure.”
Higher ed impact: Brown is in a much better financial position than many other private universities, with Moody’s pointing to its “stellar student demand” and “exceptional fundraising.” And not all credit ratings agencies agree on Brown; just last month, S&P Global Ratings kept the university’s outlook as stable.
However, Brown’s negative outlook from Moody’s reflects broader struggles across the higher education sector. For instance, the credit ratings agency pointed to Brown’s thin margins being challenged by rising expenses — a difficulty likely familiar to other colleges.
Just last month, Fitch Ratings said the private nonprofit college sector faces a deteriorating outlook as their expenses rise faster than their tuition revenue. Overall, the private nonprofit colleges that Fitch rates had a median operating margin of -0.5% in fiscal 2025.
The context: In fiscal year 2025, Brown had an operating surplus of nearly $2.6 million off of $1.5 billion in revenue. That represented a large improvement from the year before, when Brown had an operating deficit of $41.9 million. Overall, Brown had $2.3 billion in liabilities in fiscal 2025, including nearly $1.7 billion in debt.
Brown also took out a $500 million term loan in July 2025, with a 4.44% annual interest rate, regulatory filings show. According to the terms, the university will pay interest monthly and the principal in full in 2030.
Like other universities, Brown has had to adjust its budget in response to turbulent federal research funding. In September, officials laid off 48 employees and eliminated several dozen vacant roles as part of a broader effort to eliminate $30 million in expenses beyond the $29 million deficit the board had budgeted for fiscal 2026.
At the time, however, officials said the impact of federal policy shifts weren’t as large as they originally feared. They initially estimated the resulting budget hit could have exceeded $100 million.
University leaders revised their estimate in part because of the deal they struck with the Trump administration. To have the university's federal research grants restored, Brown agreed to give $50 million to workforce development initiatives in Rhode Island, along with several policy changes.
What we’re watching: Moody’s said Brown’s ratings could be upgraded if it experiences “consistently stronger operating performance” or significant growth in its cash or investments. However, the university could see a downgrade if it doesn’t improve its margin, it needs to borrow more, or it has slower wealth growth compared to its peers.
