MONTREAL — A major credit rating agency is warning that Ontario's universities will come under financial pressure from the changes to tuition fees announced last week by the provincial government — and they won't have much wiggle room to balance their books.
"The tuition reduction and ability to opt out of other fees are credit negative for Ontario universities because it will decrease revenue and pressure efforts to balance their budgets," Moody's Investors Service said in a report issued Monday.
The province's Progressive Conservative government last week announced a 10 per cent cut to tuitions for the school year starting this September, which so far has not been offset by any announcements of additional government funding.
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As a result, universities will lose some $360 million annually, or about two to four per cent of revenue for most schools.
Additionally, the province is making student assistance less generous, converting some non-repayable grants to repayable loans and reducing the maximum household income to qualify for help. Low-income students will no longer be able to get grants that cover their entire tuition.
It's also making some previously mandatory student fees optional, which Moody's says will also impact universities' ability to operate.
Because the changes are being done on relatively short notice — they come into effect in September — schools won't be able to adjust their salaries and benefits in time, and these costs "account for two-thirds of total expenses," said Michael Yake, a senior credit officer with Moody's in Toronto.
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Schools will likely be forced to cut back on discretionary spending, such as by cutting travel budgets or delaying maintenance work, Yake said. They could also postpone capital spending, delaying the construction of new facilities.
Those universities that rely least on international students will feel the impact of the changes most, Moody's predicted. It named Lakehead University in Thunder Bay and Orillia, and the University of Ontario Institute of Technology in Oshawa as two schools that will be particularly impacted.
Even schools that could close the gap by raising international student fees and taking in more foreign students may not be able to, Moody's said. For one, Canadian universities have already raised foreign student fees steeply in recent years.
There are also "capacity constraints" holding back an increase of international students, such as a lack of student housing, Moody's wrote.
For the time being, Moody's isn't downgrading its credit scores for any of the six universities it tracks in Ontario, but the agency will be watching school budgets closely this spring, Yake said.