Rocky financial times for U.S. universities

(MoneyWatch) A new report by Moody’s Investors Service highlights the growing dysfunction among U.S. universities, with revenue falling at many schools even as tuition costs continuing to climb.

The credit rating agency estimates that net revenue is expected to decline at 28 percent of public universities in fiscal year 2104 and at 19 percent of private institutions. Moody’s also expects net tuition revenue to grow in 2014 at less than inflation for 44 percent of public universities and 42 percent of private ones.

“Public universities have not experienced such poor prospects for tuition revenue growth in more than two decades,” the report concluded.

As financial support from states has declined, meanwhile, students are expected to cover more of their education costs. In fiscal year 2012, for instance, student charges covered 44 percent of public university revenue, which is up from less than one third a decade ago.

While schools are generating less revenue, Moody's expects enrollment at nearly half of public and private universities also to decline during the same period.

Despite these challenges, the schools with the strongest brand reputations and broadest academic offerings have been able to mitigate the revenue strain. These schools are expected to experience net tuition revenue growth of six percent. Enrollment grew modestly at the largest and most highly rated universities, while smaller and lower-rated colleges experienced median declines.

Regional public universities and smaller private schools without a well-defined niche will be most at risk, the report suggested.

While the Moody’s report doesn’t offer solutions for colleges' financial woes, it’s clear that change is necessary. Salary freezes, deferred maintenance and other band-aid approaches that schools implemented after the recession hit in 2008 aren’t sustainable and will not be enough to stop the financial slide schools are experiencing.

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