PHOENIX, AZ -- (Marketwire) -- 08/07/08 -- Not only is the weakening U.S. economy creating challenges for students and parents trying to pay for college this year, it's also forcing colleges and universities to find new tactics to maintain their enrollment numbers and accommodate students' growing need for student loans and other forms of financial aid.

Amid speculation about the effect of the current economy on the financial stability of higher education institutions, Moody's Investors Service, an international bond-rating company, had issued a stable financial outlook six months ago for the nation's colleges and universities. But now, a recent updated report from Moody's shows that in the worsening economy, certain schools could be headed for financial trouble.

Institutions of higher education have typically been insulated from economic downturns, thanks to their resilient, diversified business models that draw on revenue from multiple sources, including the income from tuition and fees that families have continued to pay year after year, regardless of the state of the economy, even as those attendance costs have spiraled upward, far outpacing inflation.

This year, however, almost all the financial resources that parents and students normally rely on to help pay for college -- private student loans, home equity loans, stock values, lines of credit -- have become increasingly unavailable as a sagging economy limps along hand in hand with swelling unemployment and an ongoing credit crunch that grew out of the spectacular collapse of the subprime mortgage market.

And although the government eased credit restrictions on federal parent loans and raised college loan limits on certain federal student loans in emergency legislation in May, in an attempt to counter college financing obstacles arising out of the disruptions in the credit and student loan markets, private providers of federal parent and student loans continue to drop their unprofitable and loss-heavy federal college loan programs, leaving families with fewer lender options for their federal parent and student lo ans.

With student loan providers and home equity disappearing, lenders in every sector tightening credit restrictions, salaries stagnant, and the price of gas and food at all-time highs and still on the rise, the severity and persistence of the current economic downturn increase the likelihood that schools will begin to see more students who are no longer able to afford to go to college.

The updated Moody's report indicates that high-tuition institutions may be particularly affected by prevailing economic conditions as students who are dealing with their own financial struggles opt for less expensive schools. Those institutions that rely on large fundraising ventures or generous endowments may see a decline in their number of donors and in the amount of their donors' contributions. State-supported institutions, for their part, may see a decrease in government funding.

Institutions that are anticipating financial shortcomings this year are working to find new ways both to attract prospective students and to retain current students who are struggling to cover their college costs and stay in school. While some colleges may not be able to award their students additional grants or student loans, these schools are finding more creative ways to help their students afford to remain enrolled.

In an effort to help students cut their gas costs, for example, some schools have shortened their weekly class schedule to four days, while others have begun to provide more online courses and more blended courses, which combine on-campus classes with online sessions. While online courses aren't necessarily less expensive than brick-and-mortar classes, the money students can save on gas by attending classes from home may explain why enrollment in online courses is up across the country.

This summer in particular, colleges and universities nationwide have reported spikes in their online enrollment, with administrators generally attributing the upsurge to record-breaking gas prices. At the University of Houston, for example, enrollment in online courses is up 40 percent compared to last summer, and enrollment in blended classes has risen by 50 percent. Applications to Drexel University's online programs submitted between April and June this year jumped a staggering 86 percent compared with application numbers for January through March.

Those students looking to attend classes exclusively online and cut their commuter gas costs altogether can enroll in any of a growing number of online universities such as DeVry or the University of Phoenix. Students who qualify for federal financial aid are generally able to use their federal grants and college loans, along with private student loans, to pay for their accredited online studies, just as they would for a degree program at a physical campus.

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