(Bloomberg) — The borrowing boom that America’s colleges and universities went on last year is likely to continue in 2025 as they upgrade campuses to compete for a shrinking pool of potential students and race against threats to their tax breaks.
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Less than two weeks into the new year, already the University of Pennsylvania and Clemson University in South Carolina have made plans to sell almost $400 million of debt in the municipal bond market. Schools are likely to borrow between $25 billion and $30 billion in 2025, according to FHN Financial. That would be about on par with nearly $27 billion in 2024, according to data compiled by Bloomberg.
The additional borrowing comes as schools face a change in demographics that’s producing fewer high school graduates at the same time that rising costs are making college more difficult to afford. That’s put pressure on institutions to try and stand out against their competitors with glitzy new facilities and robust academic programs. Schools also are looking to take advantage of the tax-exempt bond market as much as they can in case Congressional Republicans roll back the exemption for certain colleges and universities.
“Higher education institutions have really been a target,” said Abigail Urtz, a strategist at FHN Financial. “We could see a pull-forward of issuance as they try to get ahead of potential policy changes that put their lower cost financing at risk.”
Republicans have threatened the tax break that lets schools sell tax-exempt bonds for infrastructure as one way to help pay for the cost of extending the tax cuts that President-elect Donald Trump passed in 2017. His vice president-elect, JD Vance, in 2023 proposed legislation that would raise the tax on endowments of wealthy colleges. House Ways and Means Chair Jason Smith of Montana also floated the idea earlier this month.
Colleges can save money by borrowing money in the muni market to finance campus improvement projects. The $26.7 billion of municipal debt sold in 2024 was up 84.8% from 2023 and was the most since 2020 when colleges flooded the market after borrowing costs fell to near historic lows, according to data compiled by Bloomberg. US colleges and universities have about $245 billion of municipal debt outstanding, the data show.
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The University of Pennsylvania plans to issue $270 million of debt next week, in part to renovate and expand research facilities at its West Philadelphia campus, according to preliminary offering documents. Clemson University is also expected to sell $120 million of bonds to upgrade athletic facilities that house its volleyball, track and field, basketball and gymnastic programs.
Institutions like Cornell University and the University of Maryland were among the schools that issued debt last year to upgrade classrooms, build dorms and construct student centers. Several colleges sold large deals in 2024, including a $1 billion offering from the University of Chicago and a $862 million deal by the University of Miami.
“The race for students is at an all-time high, and they’re demanding certain amenities,” Jessica Wood, managing director of education at S&P Global Ratings, said. “Upgrading old residence halls and keeping up with technology is really necessary for schools to remain competitive.”
Arkansas State University sold more than $30 million of debt in December to build facilities for a new college of veterinary medicine, which the university says will be the state’s only public vet school.
The bonds sold quickly, according to Julie Bates, the executive vice president and chief financial officer for the Arkansas State University system. Investors were likely encouraged by ASU’s growing enrollment numbers – audited financial documents from 2024 show its student body at its flagship campus ticking up over 13% since 2020.
Bates said tapping the bond market again is a possibility for ASU in the new year.
“We’re keeping an eye on interest rates and I have some more refundings that I’d like to do this year,” she said. “I think we’ll probably be back in the market.”
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