NEW YORK - For 2012, Moody's Investors Service retains the mixed sector outlook for U.S. not-for-profit private and public colleges and universities that was established last year. The rating agency expects slower revenue growth, greater student resistance to tuition increases, and heightened public scrutiny requiring universities to operate more efficiently and to keep costs down.

Moody's has a stable outlook for the diversified market-leading colleges and universities with strong market positions and balance sheets and multiple revenue-generating business lines. A negative outlook is in place for the bulk of rated colleges and universities, which are far more dependent on state appropriations, student tuition, or both.

"The market leaders are typically rated in the Aaa and Aa categories, though not exclusively, and represent a minority (about one third) of our rated higher education portfolio," said Kim Tuby, author of the report. "The majority segment with a negative outlook attracts students more regionally, retains less pricing power, and maintains thinner balance sheets."

During the past year, Tuby said, public and political scrutiny of colleges and universities, both not-for-profit and for-profit, have escalated and that "the sector will remain under the microscope in 2012 and beyond."

Prospective students and their families are increasingly price-sensitive, discerning consumers, and donors, research-granting organizations, and state governments have more limited resources to invest in higher education, according to Moody's.

"Colleges and universities are under rising pressure to improve disclosure and limit tuition increases," said Tuby. "They must work harder to distinguish themselves and clearly articulate their unique product values in a more competitive environment."

Despite stiffer headwinds, the Moody's report concludes, the large majority of rated colleges and universities have fared well since the start of the 2008-09 financial crisis, demonstrating organizational nimbleness during a prolonged period of economic stress.

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