UPDATE 3-Moody's reviews Pennsylvania higher ed system for downgrade

July 17 (Reuters) - Moody's Investors Service put Pennsylvania's higher education system on review for a possible downgrade on Tuesday over concerns about enrollment challenges and the state's own credit rating.

About $942 million of outstanding debt from the Pennsylvania State System of Higher Education is affected. Privatized student housing is not included in the review.

Moody's currently rates the system Aa2. The system is the largest provider of higher education in the state, with nearly 120,000 students in 14 universities.

It is one of the largest public university systems in the United States, Moody's said.

The system was put on review in part because of expectations that Pennsylvania will reduce funding. State funds comprise 27 percent of the system's operating revenues, Moody's said.

On Monday, Moody's cut the state's credit rating to Aa2 from Aa1.

The higher education system's largest source of revenue -- tuition -- is also under pressure from enrollment challenges due to declining numbers of high school graduates in Pennsylvania, Moody's said.

Kenn Marshall, a spokesman for the system, said the review was expected with the downgrade of Pennsylvania's general obligation bond rating. The higher education system has always been a notch below the state, he said.

Moody's raised concerns about decreasing enrollment last year when it put the system on watch, but the system is "not anticipating a significant decline," Marshall said.

Also on Monday, Moody's downgraded by one notch the enhanced ratings of Pennsylvania public school districts that benefit from three state aid intercept programs, which allow local government entities to boost their credit ratings by using the state as a kind of guarantor.