Columbia has been pushed into non-investment grade after S&P Global Ratings cut its credit rating from BBB- to BB+, a move that will raise borrowing costs and follows roughly $400m in federal grants being cancelled. The downgrade came as the US Department of Education warned the university's accreditor that Columbia had failed to comply with Title VI and acted with "deliberate indifference" to harassment of Jewish students, a regulatory twin hit that tightens financial strain on an institution reliant on tuition and federal aid.

Two pressures converge

S&P Global Ratings lowered Columbia’s rating from BBB- to BB+, the agency said, citing falling enrolment and weak student success metrics. The move put Columbia into what the ratings industry calls non-investment grade or "junk" status. A junk rating makes borrowing more expensive. But a downgrade doesn't mean the school is about to default or close.

At the same time, the US Department of Education escalated action against Columbia. The department formally warned the university’s accreditor, saying the school violated federal anti-discrimination law. Education Secretary Linda McMahon said the university’s leadership had shown "deliberate indifference" to harassment of Jewish students. The accreditor, the Middle States Commission on Higher Education, confirmed it received a formal notice.

How accreditation and credit ratings differ

Accreditation and credit ratings affect universities in different ways. Accreditation controls access to federal student loans and Pell Grants. Only accredited institutions can receive that federal aid. The Department of Education’s formal warning therefore carries financial risk beyond reputational damage.

Credit ratings track a borrower’s ability to repay debt. S&P’s downgrade points to immediate borrowing costs and market access. If the university needs to issue bonds, the interest it pays will be higher after a downgrade. That raises the price of capital for buildings, refinancing and other projects.

Numbers and people behind the stress

The Department of Education noted that a sizeable share of students rely on federal support. The university has said 21% of undergraduates in Columbia College and Columbia Engineering receive Pell Grants.

Losing accreditation or facing sanctions could threaten that access.

S&P’s report flagged falling enrolment and limited student success as core factors. It also pointed to shrinking financial resources and tighter cash reserves. The rating agency listed the university’s outlook as "negative," a designation meant to indicate a higher risk of further downgrades.

Mastheads

Leadership churn hasn't helped. S&P and campus communications both noted recent turnover in senior roles. Kwang-Wu Kim stepped down in July 2024 after 11 years. Jerry Tarrer, the senior vice-president and CFO, took over as interim president and CEO the next day. In June, Provost Marcella David left and Suzanne McBride became interim provost. The board later named Shantay Bolton as president, who began on July 1. In a campus email on July 25, Tarrer, McBride and Emmanuel Lalande, the new senior vice-president of enrolment strategy and student success, called the downgrade serious but said leadership was working with trustees and advisors on sustainability.

Political pressure and financial policy

The downgrade comes amid sustained political pressure from the federal government. Earlier this year the administration cancelled roughly $400m in federal grants and contracts linked to Columbia. The Education Department followed that with the formal accreditation notice. The administration has argued elite universities are failing to protect Jewish students amid campus protests over Israel’s war in Gaza. President Donald Trump singled out Columbia during campaign events and criticised other universities as well.

That political element makes the financial picture. Federal action over civil rights compliance isn't primarily about balance sheets. Still, it can produce direct fiscal consequences. An accreditation sanction can cut off federal student aid that many students depend on. A loss of federal funds can reduce revenue and deepen liquidity pressures that rating agencies already watch closely.

Credit downgrades carry both market and signalling effects. Practically, a lower rating raises borrowing costs for new debt. It can force higher yields on bonds that refinance existing obligations. It can also narrow the pool of investors willing to buy the debt.

Reputational effects matter too. S&P warned that the downgrade could hurt reputation among prospective students and donors. That feeds back into the core problem. Lower enrolment reduces tuition revenue. Lower donations constrain fundraising. Both make budgets tighter and reserves thinner.

For students the immediate concern is access to federal aid. The Department of Education has control over which institutions can receive federal student loans and Pell Grants. If an accreditor places the university on probation or withdraws recognition, federal funding could be limited or cut off for current and future students.

S&P noted the university depends heavily on tuition to generate revenue. Where enrolment falls, the effect shows up quickly in operating results. And when leadership is in flux, executing a recovery plan takes longer. That delay can worsen cash flow and make it harder to reassure bondholders and donors.

Linda McMahon framed the education department’s action as a compliance matter. She said the school had not met federal protections against discrimination in federally funded programmes. The department emphasised the role of accreditors as gatekeepers of federal aid and said they determine eligibility for student loans and Pell Grants.

Columbia’s interim leaders acknowledged the seriousness of the downgrade in an email to the campus community. They said they were working with trustees and financial advisers to address the institution’s finances and to position the college for long-term sustainability. That wording mirrors a common response from institutions facing rating pressure: accept the assessment and promise a stabilisation plan.

The problems S&P flagged aren't unique to Columbia. Credit agencies have warned for years that private colleges and midsize institutions face strains from rising costs and flat or falling enrolment. The higher education sector has seen several downgrades as demographic shifts and policy changes bite. That broad context helps explain why rating agencies reacted sharply when enrolment and student outcomes fell at a large, tuition-dependent school.

Still, the combination of political intervention and a ratings downgrade is unusual. The political actions removed federal grant revenue and added regulatory risk. The downgrade made capital markets more expensive. Together they amplify the near-term pressure on cash and planning.

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S&P has assigned Columbia a "negative" outlook, a designation that signals an elevated risk of further downgrades and makes the university's ability to secure cheaper financing.

This article was created with AI assistance.