The University of Alaska's credit rating was downgraded sharply Wednesday, July 17, in the face of drastic state funding cuts.

It was the latest sign of the impact Alaska's roiling politics are having on the state's universities, with funding so sharply reduced that school officials have sought to reassure students that classes will convene this fall, even as administrators consider measures as extreme as shuttering campuses.

The multinotch drop in the credit rating, and a negative outlook, reflects "the severity and magnitude of the financial challenges" the public university system is facing, Moody's Investors Service announced.

Moody's downgraded some of the University of Alaska's bonds from A1 to Baa1 and another type of bonds from A2 to Baa3.

Last week, legislators failed to overturn vetoes by Gov. Mike Dunleavy, a Republican, that deeply cut education and other services. With considerable uncertainty, including a nascent legislative effort to restore funding, the University of Alaska Board of Regents on Monday postponed a decision to declare financial exigency, which would allow the school to swiftly shutter programs and remove faculty.

According to the university, this the first time Moody's has made a one-time drop of three points in an institutional rating.

"This is a direct result of the state's budget cut and demonstrates what we have been saying - the 41 percent [$136 million] budget cut to the university continues to harm us every day," University of Alaska President James Johnsen said in a statement.

The downgrade harms the university's ability to issue bonds or borrow money at a favorable interest rate, he said, and to be viewed as financially stable.

State-funded scholarships have also been cut, leaving many students unsure of whether they can pay for school, said Bernard Aoto, student government president at the University of Alaska at Fairbanks. He said some students told him they will have to drop their fall classes if financial aid is not restored.

"People are really upset," Aoto said.

Moody's predicted that enrollment, which had already been declining, would take a hit over several years.

"The university is confronting both an immediate operational and liquidity challenge as well as a multi-year period of redefinition," the credit rating agency concluded.

This article was written by Susan Svrluga, a reporter for The Washington Post.