We recently reported that college credit downgrades outnumber upgrades according to Moody’s. The Chronicle of Higher Education is now reporting more bad news from the agency.

Don Troop has the story.

Moody’s Issues Negative Outlook for Higher Education

On the heels of a similarly downcast assessment by Standard & Poor’s, Moody’s Investors Service has issued a negative outlook for the higher-education sector in the United States. The credit-rating agency also issued individual reports on median benchmarks for the finances of public and nonprofit private colleges, noting significant tuition-revenue declines at both types of institutions.

While American higher education faces limited growth prospects over the next 12 to 18 months, Moody’s says, positive trends like strong long-term demand for higher education and reduced household debt could help create conditions for colleges to stabilize over the next year. But Moody’s cautions that the institutions will face continued financial pressures in the near term.

Among those pressures:

• Growth in tuition revenue remains stifled by affordability concerns, legislative ceilings on tuition levels, and steep competition for students.
• State financing of higher education will increase, on average, just 3 to 4 percent—not enough to meet the growth in expenses.
• Already stiff competition for sponsored-research dollars is getting stiffer, with success rates for proposals dropping from 19 percent in 2008 to below 15 percent last year.
• One in 10 public and private colleges is suffering “acute financial distress” because of falling revenues and weak operating performance.
• Public colleges will begin to feel the impact of underfunded pensions and health benefits for retirees.
• Most public colleges and many private ones will be unable to achieve a 3-percent annual growth rate in operating revenue, Moody’s benchmark for sustainable financing at a time of low inflation.