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Dropping enrollment squeezes universities' revenues: Moody's

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Add one more strain to the finances of U.S. universities: a decline in enrollment.

Last week the U.S. Census reported college enrollment declined for the first time in six years in the fall of 2012. That, in turn, threatens higher education revenue, said Moody's Investors Service in a special report on Monday.

Already, "precipitous enrollment declines for fall 2013" have hurt the credit quality of two private colleges—Loyola University in Louisiana and Central College in Iowa—and a public one, St. Mary's College in Maryland.

(Read more: The student loan bubble is starting to burst)

"Enrollment declines in higher education are credit negative because they heighten competitive pressure for all universities. This limits opportunity to grow tuition revenue, now the primary revenue for the majority of public and private universities," said Moody's.

Enrollment challenges will persist for several years, and those institutions likely to suffer the biggest squeeze have lower credit ratings, are especially dependent on tuition for revenue, or lack a strong brand name or market position, Moody's added.

Public universities and colleges have fought a losing financial battle since the start of the 2007-09 recession. States have slashed higher education spending, costs have risen, and students are becoming more reluctant to borrow.

According to the liberal-leaning Center on Budget and Policy Priorities, state governments now spend 28 percent less per student than they did in 2008. Meanwhile parents and political leaders are pushing to make both private and public colleges more affordable in the face of ever-rising tuition.

Graduate enrollment has declined for the past two years as high unemployment creates doubts about the value of paying for another degree, but the fall of 2012 also saw a dip in the number of undergraduates.

(Read more: A quarter of recent college graduates lack jobs)

Moody's said graduate programs typically generate more revenue per student than undergraduate ones. It added that the lower demand for graduate education will likely continue for some time, given that applications for law, education and business schools have all declined dramatically.

—By Reuters.

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