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(Reuters) - The financial conditions of many U.S. colleges and universities will likely not improve much this year, as states continue cutting funding for public schools, students become more price sensitive, and areas for other revenue remain stretched, a lead rating agency said on Monday.
"During the past year, public and political scrutiny of colleges and universities, both not-for-profit and for-profit, has escalated and we expect that the sector will remain under the microscope in 2012 and beyond," said Moody's Investors Services in a report outlining why it is maintaining a "mixed outlook for U.S. not-for-profit private and public colleges and universities, mirroring our 2011 outlook."
While undergraduates continue to enroll, "demand for some graduate programs and professional schools ... is softening," Moody's said, noting that "evolving demand trends for undergraduate and graduate programs highlight flight to quality and affordability."
Worries about affordability and unmanageable student debt levels are currently sweeping the country, as public schools push up tuition charges to compensate for fewer dollars coming from states.
"While state funding has been declining as a share of public university revenue for three decades, the declines of the last few years have been the sharpest ever," Moody's said, noting that 35 states expect to cut appropriations for four-year public universities this year.
Private and public colleges and universities are also under pressure from fewer donations and smaller research grants and contracts, especially from the federal government, Moody's found.
Many institutions are expecting their endowments to grow mildly this year, as well.
"For private colleges and universities that have weaker market positions and are less selective, we are observing clear signs of deterioration of net tuition revenue and growth of tuition discounting," Moody's said.
Reporting By Lisa Lambert; Editing by James Dalgleish