American University is facing a severe financial squeeze this fall with enrollment down 5 percent despite an aggressive advertising campaign, including television commercials, and major efforts to raise academic quality.

Because of the unexpected drop in students the university probably will receive about $2 million less in tuition revenue than planned in the $65 million budget adopted last March, according to Richard Berendzen, AU's president.

He said the number of part-time faculty is being cut, some vacant positions left unfilled, renovations delayed, and travel and entertainment limited. But Berendzen said all planned programs and pay raises are being carried out.

"It's extraordinarily tight," Berendzen said. "We're so tuition dependent that with the shortfall in students there'll be a shortfall in funds. We'll just have to tighten up on our current operating budget and we may have to use some reserves."

Last year tuition accounted for about 95 percent of AU's teaching and research budget, compared to a national average of 65 percent for all private universities. Its endowment was slightly below $6 million and ranked 175th among all universities in the country.

University officials have extended late registration two extra days next week in an effort to get more part-time students for AU's night school and off-campus programs to offset the drop in regular undergraduates.

Berendzen said he thought the decline occurred partly because the slowdown in the national economy and cuts in federal student aid made it more difficult for students to pay the $11,000 a year needed to attend AU.

But he said the university also had lost students by raising its admissions standards and degree requirements at a time when the college-age population is declining.

Since 1978, Berendzen said the average combined score on the Scholastic Aptitude Test (SAT) for incoming freshmen has risen from 941 to 1040 for the verbal and mathematics parts of the exam. The proportion of applicants accepted by AU has dropped in that time from 83 to 64 percent.

"We're raising admissions standards in the face of all the problems," Berendzen said. "We are doing it. But now we're playing in a different league of colleges than we were a few years ago, and it's tougher."

To attract students the university embarked on a $100,000 advertising campaign this summer that featured a series of television commercials. AU officials believe these are the first ever run by a university in the Washington area. They said similar commercials have been broadcast by colleges elsewhere in the country.

In addition, the university hired a New York advertising agency, Trout and Ries, which developed a 16-page "positioning" statement with color photos that appears at the front of the AU catalogue and in booklets for potential students and benefactors.

In contrast to George Washington University, the catalogue says AU "is not an urban institution" but "has the ambience of a New England liberal arts college." Georgetown, it notes, "shares the rich academic and religious traditions of all great Jesuit institutions." It says AU is not "a religious institution in the same sense," although founded in 1893 by the Methodist Church.

"It's an attempt to make American University to America what the Sorbonne is to France," said Al Ries, the ad agency chairman in a letter distributed last spring. "While Howard and Catholic universities do not compete directly with AU because they appeal to 'specific constituencies,' " Ries continued, "George Washington and Georgetown universities do, but the former suffers from its inferior downtown campus location and the latter's appeal is limited by its Jesuit connection."

Georgetown's admissions director Charles Deacon responded, "Listen, you can't have hard liquor on their campus because of the Methodist Church. It sounds like they're going to the edge with this, and that's a shame."

AU's Berendzen explained, "We don't want to denigrate fine institutions that we respect. It's just that different institutions fit different students in different ways."

Berendzen said AU had planned on keeping its freshman class at about the 800 students who attended last fall and expected a drop of only 75 in its full-time equivalent enrollment, which was 8,770 last year. Instead, the freshman class is down by about 100, he said, with the overall decline about 430.

Although final figures are not in, Georgetown officials said its enrollment would be virtually unchanged from a year ago. Officials at George Washington said they are planning on a slight decline after enrolling their largest class ever last year.