Moody's Investors Service has downgraded its outlook for U.S. universities to negative as top institutions are experiencing enrollment declines and government spending cuts.
"The U.S. higher education sector has hit a critical juncture in the evolution of its business model," Eva Bogaty, Moody's assistant vice president, said. "Even market-leading universities with diversified revenue streams are facing diminished prospects for revenue growth," Reuters reports.
Since 2009, the company's outlook for top market research institutions, those that offer business and law programs, was stable and negative for the rest. However, colleges offering business and law programs are also experiencing sharp decline in their admissions, which have been, previously, key revenue sources for institutions.
The negative outlook on almost all universities is characterized by stagnant family income, state funding cuts for public universities, decline in new high school graduates and a federal budget standoff.
"Most universities will have to lower their cost structures to achieve long-term financial sustainability and fund future initiatives," Bogaty said, Bloomberg reports.
The annual tuitions are increasing every year for the past four decades, going up to $60,000 a year. Despite fiscal pressure looming on all universities, the institutions haven't come up with any disaster management plans.
"The actions that have been taken right now are fairly reactionary - cutting expense in order to align with the revenue declines, but not looking at the structural changes to how universities do business," Moody's vice president and senior analyst Karen Kedem said, Associated Press reports.
Moody's report also revealed that an average American family's net worth declined 39 percent in the three years, dropping to its lowest level since 1992.
Last week, a survey conducted by the company showed that around one-third of the colleges will not be able to generate enough profits as they are expecting stagnant tuition rates.
"It's been such a massive outcry that has caught the public's attention, and it has just intensified the stress on colleges and their ability to grow net tuition revenue," Bogaty said. "The public discourse and the scrutiny have attracted so much attention, that's not going to just fall away in the next year or two."
