Weekly Market Update
WATCH OUT FOR 2018
Thursday, January 4, 2018
Following passage of the tax bill, higher education may soon face additional pressures from Washington. For its part, the House has proposed an overhaul to the Higher Education Act of 1965, limiting loans to students and parents, and ending the loan forgiveness program for public sector workers. The Senate is planning on releasing its version for debate early this year.
The U.S. Department of Education has begun rewriting the gainful employment and borrower defense rules. The rules currently withhold student aid from for-profit colleges when their graduates' debt-to-earnings ratios are too high and forgives federal loans for students whose institutions engaged in illegal borrowing practices. The Department is currently being sued by states for trying to rewrite both rules.
The Pell Grant award size was slated to increase this year, but lawmakers drained funds from the program's reserves, and some fear that this practice will continue.
In addition to such changes in federal programs, states hard hit by tax changes may reduce higher education funding in response to falling revenues.
In Other News
- The maximum federal corporate income tax rate has been reduced from 35% to 21%, and this may lead to reissuance of some privately placed tax-exempt debt. Unfortunately, federal tax exemption of interest may be lost in some cases.
- Private institutions with more than 500 students and net assets of at least $500,000 per student are looking for ways to minimize their endowments' tax burdens. Many ideas are being discussed, such as split-interest agreements and gifts which do not generate investment income.
- Some universities have been forced to cut budgets and programs due to decreasing international student enrollment. The decline may be partially attributable to President Trump's immigration policies as well as competition from schools in other countries.
- With gifts exceeding $1 billion dollars from Bill Gates, Mark Zuckerberg, and Michael Dell, 2017 was a strong year for philanthropy. The top 10 donations in 2017 totaled $10.2 billion, more than twice the amount in 2016.
- The Federal Open Market Committee's December meeting minutes were released on Wednesday. The committee raised its GDP growth rate forecast and voted to increase its benchmark interest rate.
Rating Agency Update
- Moody's assigned Aa2 to University of Arizona's System Revenue Bonds Series 2018A and 2018B, and Aa3 to University of Arizona's Refunding Certificates of Participation. The outlook is stable.
- Moody's affirmed Texas Christian University's Aa2 rating. The outlook is stable.
- S&P assigned AA- to University of Arizona's System Revenue Bonds Series 2018A and 2018B, and A+ to University of Arizona's Refunding Certificates of Participation. The outlook is stable.