UPDATE 1-Moody's now has negative outlook for U.S. universities

Wed Jan 16, 2013 10:52am EST

Jan 16 (Reuters) - Moody's Investors Service now has a negative outlook for the entire U.S. higher education sector, the rating agency said on Wednesday, citing "mounting fiscal pressure on all key university revenue sources."

Since 2009, Moody's had a stable outlook for market-leading, research-driven colleges and universities and a negative outlook for the rest of the higher education sector.

"The U.S. higher education sector has hit a critical juncture in the evolution of its business model," said Eva Bogaty, Moody's assistant vice president, in a statement. "Even market-leading universities with diversified revenue streams are facing diminished prospects for revenue growth."

Most universities will have to slash spending and costs in the near future, even after years of restraining costs during the recession, the agency said.

Moody's said one critical factor for the expansion of its negative outlook was that students' price sensitivity is keeping tuition payments low.

" A ll but the most elite universities" are confronting shrinking student demand and, because of years of shrinking household income, an inability to pay for school, it added. Stu dents are growing more resistant to taking out loans, as well.

States attempted to leave primary education untouched during the 2007-09 recession and focused on cutting higher education as they balanced their budgets in the face of collapsing revenues.

Now, Moody's is warning that public universities should continue to expect the money they receive from states to stagnate or decline, and the research funding they receive from the federal government could be cut in budget negotiations.

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