Revenue alarm as US downturn hits home

An international bond-rating agency has reported that the recession and concerns about terrorism will cut revenues from tuition, private contributions and income from investments at American universities.

Moody's Investors Service lowered its outlook for private universities from "positive" to "cautiously stable" and for public universities to "stable". The downgrades could drive up future borrowing costs.

"The economic slowdown... has really put the brakes on the more positive credit momentum these sectors were experiencing," said Naomi Richman, Moody's senior vice-president.

Ms Richman said the recession would make it harder for many students to afford the cost of tuition, which continues to rise. Meanwhile, universities have seen declines in the returns on their endowments and in private contributions as donors divert their philanthropy to the post-September 11 relief funds.

The crunch comes at a time when many schools have borrowed heavily to beef up on-campus technology and distance learning. Some small institutions could be forced to close, the agency said.

At the same time, cutbacks in government subsidies because of the economic downturn have forced public universities to increase tuition and reduce services and staffing.

"Many public institutions will have to... implement double-digit tuition increases to compensate for the decline in state support," Ms Richman said.

She said problems were expected to continue for at least the next year, but the long-term outlook was more positive, thanks to a continuing increase in the supply of university-age students.