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November 26, 2013

Facing stagnant enrollment and increasingly price-conscious consumers, already cash-strapped universities will continue to see their revenues fail to keep up with inflation, the bond-rating agency Moody’s Investment Service says.

Nearly 30 percent of public and one out of five private universities will suffer declines in revenue—more than the proportion that experienced this last year, and a sign that the problem is getting worse and not better, according to Moody’s, which annually reviews the financial condition of higher-education institutions whose bonds it rates.

Nearly half of universities expect to see declines in their enrollments.

Second-tier public universities and small private universities that are having trouble persuading families and students that they’re worth the price of their tuition are in the most danger, Moody’s says—and will have to take dramatic steps to win back business.

“At this pace, tuition-dependent colleges and universities will be challenged to make necessary investments in personnel, programs, and facilities to remain competitive over the longer term,” says Karen Kedem, a Moody’s senior analyst, who authored the report.

Forty-four percent of public and 42 percent of private universities and colleges will see their revenues fall behind the 2 percent inflation rate, Moody’s says.

That’s largely because private universities are being forced to give higher and higher discounts to keep students coming.

Public universities, meanwhile, are being squeezed between cuts in their allocations from state legislatures and resistance to shifting their costs onto students and their families in the form of higher and higher tuition.

The proportion of public universities with expected revenue declines this year is twice what is was last year.

Moody’s warns that cuts in federal financial aid during an era of austerity would push universities onto even shakier ground.

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