strong operating performance, until the 1990s and
2000s, when performance was more strained. Thus,
most medical schools have a higher degree of unre-
stricted equity than most colleges and universities.
The chief focus of the income statement is operat-
ing performance and revenue diversity, as well as an
underlying Profit and Loss analysis of the various
components of the income statement.
While the analytical approach is similar, some of
the financial characteristics of medical schools are
very different from other colleges and universities.
For example, revenues from faculty practice plans,
research grants, and state capitalization programs
can result in much greater revenue diversity for small
medical schools than for similarly-sized colleges and
universities. Medical schools affiliated with hospitals,
or those classified as state institutions, often derive
an especially small portion of their revenues from
students and tuition. Tuition discounting is usually
not a concern for medical schools.
While these other revenue sources help to insu-
late medical colleges from fluctuations in student
enrollment, they may be vulnerable to change them-
selves. For example, financially strapped state gov-
ernments can reduce state support, forcing
potentially large increases in tuition rates.
Faculty practice revenues, mirroring reimburse-
ment pressures on other health care providers and
institutions, are often strained, with costs exceeding
revenues. Payments for graduate medical education
or residency programs can also come under pressure
if the affiliated hospitals, with which the medical
schools partner, face weak operating results. When
payments under affiliation agreements decrease,
often it is reimbursement for graduate medical edu-
cation that suffers the most. Most payments under
affiliated contracts are multi-year in nature, provid-
ing some revenue stability, but renegotiations can
prove difficult in a weak environment. Most stand-
alone medical schools are not heavily leveraged, but
few also have the large endowments seen at other
colleges and universities.■Private Elementary and Secondary Schools ......................................................................
http://www.standardandpoors.com 191T
he universe of rated private primary and sec-
ondary schools, although still relatively small,
encompasses a diverse group of educational insti-
tutions whose operations and characteristics
resemble colleges and universities more closely
than traditional elementary and high schools. As a
result, in rating private primary and secondary
schools, Standard & Poor’s Ratings Services
assesses operational indicators similar to those
used in rating colleges and universities.
A key element in the rating is demand, measured
by such factors as enrollment, the number of appli-
cants, the percentage accepted, matriculation rate
(percentage of students offered admission who
attend the school), and student quality. Institutional
characteristics, such as the curriculum offered and
whether a particular institution is a boarding or
day school, also are important considerations.
Financial factors, management, and legal provisions
generally, but not always, modify the rating. A high
endowment can considerably offset weaker
demand. Most debt sold by private schools is
secured by a GO pledge, so legal provisions bear
less weight for debt ratings in this area.
Independent schools, while facing many of the
same challenges as colleges and universities, operate
in an environment vastly different from that of high-
er education institutions. For example, independent
primary and secondary schools generally draw from
a smaller, more regional market—particularly if they
only offer day school programs—than do colleges,
which may receive enrollment applications from
across the country. In addition, independent schools
typically are smaller than their public school counter-
parts, which receive local support and property tax
revenues. Given the high tuition levels, a significant
number of students attending such schools are afflu-
ent, which further limits the potential applicant pool.
Tuition is an important element in the financial
profile of independent schools, and in general, pri-
vate primary and secondary schools have consider-
ably less revenue diversity than colleges and
universities. However, with student charges already
rivaling those of colleges and universities, the
potential for additional increases may be limited.
More and more tuition increases are being matched
by rising financial aid costs. Although most of the
schools make significant amounts of financial aid
available to help offset the high tuition cost,
Standard & Poor’s believes that local economic
fluctuations may be more likely to affect parents’
decisions to send their children to private primary