There has been a lot going on in bond markets in recent days. The corporate bond market ground to a halt after the President announced his new tariffs, as we reported yesterday.

But there's another part of the bond market that doesn’t always get a lot of attention: higher education. These are bonds issued by small colleges and big universities meant to fund capital projects, research and other expenses.

The amount of bonds issued by colleges nearly doubled between 2023 and 2024, according to Bloomberg. And this year, universities are on track to issue even more.

One of the reasons colleges have been issuing new bonds over the last few years is to address a growing challenge: Declining enrollment.

“Some of the schools are trying to re-tool themselves and change their academic offering,” said Pat Luby, senior municipal strategist at CreditSights.

He said schools are borrowing money to create new academic programs, update their facilities and build new ones.

“These are capital intensive endeavors, and it takes multiple years to not only get the facilities up and running, but also to get students in there, to attract students,” Luby said.

But this year, colleges are facing a new challenge: the Trump administration. It’s already halted — or threatened to halt — federal funding to several universities, including Cornell University, Northwestern University and Columbia University.

Luby said universities rely on those funds for research.

“So especially the schools that have large medical programs, teaching hospitals, even post-graduate programs where they’re providing medical degrees and fellowships,” he said.

That’s why many big universities, including Harvard University and Princeton University, are issuing more bonds as a buffer, said Liz Clark, vice president for policy and research at the National Association of College and University Business Officers.

“They’re going to issue them so that they can pull together the resources they need to provide the experience that students are looking for, and that scientists need,” she said.

Last month, the ratings agency Moody’s lowered its outlook for the higher education sector from stable to negative.

Moody’s pointed to those federal cutbacks, uncertainty over student aid and the shaky economy.

But Ryan Henry, municipal strategist at FHN Financial, said those factors don’t threaten every college equally. 

“There’s a bifurcation between the haves and the have-nots. And it’s usually due to size,” he said.

Big research universities that issue bonds have plenty of resources, Henry said, including multi-billion dollar endowments.

That makes their bonds less risky, which keeps a lid on interest rates. But smaller universities don’t have that cushion, which means they’ll have to pay more interest on their bonds.

“Just like anything, where if someone with a credit score of 800 goes to get a loan, versus someone with a credit score of 600, there’s access to credit, it’s just at a different price,” Henry said.

As a result, many smaller colleges might decide that those higher borrowing costs aren’t worth it.