Graduates who can’t find jobs can’t repay their student loans but the government just keeps dishing out more student loan cash. What could go wrong?

Douglas Belkin of the Wall Street Journal reports.

Financial Outlook For Colleges Remains Negative

Credit-rating firm Moody’s Investors Service Inc. kept its negative outlook for the U.S. higher-education sector Monday, citing slow revenue growth, a stagnant labor market and an uncertain regulatory environment.

It is the second year in a row that Moody’s has issued a negative outlook for the sector. The report comes as both public and private colleges and universities are struggling with declining net tuition revenue as they compete for a smaller pool of students by offering larger aid packages. After years of holding the line on raises and maintenance, schools are facing a difficult time cutting expenses further.

The report also cites rising default rates on student loans, a relatively high unemployment rate and stagnant family income.

“Affordability remains a key issue as the weak economic environment continues to affect families’ ability to pay for higher education and reduces institutions’ discretionary spending capacity,” Moody’s Vice President Eva Bogaty said in a statement.

Federal budget pressures could limit Pell grants and other financial aid, while state funding is likely to remain stagnant, according to the report. In addition, federal research funding next year is expected to be trimmed beyond the 5% cut prompted this year by the across-the-board government spending reductions known as the sequester.