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Sunday 17 July 2022

What’s Driving Colleges Out of Business

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What’s Driving Colleges Out of Business

More than 100 colleges have shut down or merged with other schools in the past 5 years. Undergraduate enrollment has fallen 8% in the past 2 years, leading to over a million fewer students enrolled. The pandemic is an easy culprit to blame, seeing as half a million undergraduates dropped out of school in fall 2021, but the truth is that colleges were closing before COVID-19 ever existed.

Why is Enrollment Falling?

Rising college costs have outpaced family income growth for years, making college unaffordable to millions of Americans. At the same time, people see a lower return on investment than they did in years past; 73% of college graduates have a job unrelated to their field of study, causing them to question why they went to college in the first place. Take these facts together, and it’s easy to see why fewer high school students are interested in college. Just 48% want to attend a 4-year college today, down from 71% in 2019. It doesn’t help that there are simply fewer college-age Americans in the country going forward. Simple demographics are going to shrink enrollment further by the end of the decade.

These factors put colleges in a tough position. Many already lost a great deal due to the pandemic. The University of Arizona alone lost $250 million in tuition revenue thanks to COVID-19. 74% of higher education professionals say their institution is facing significant financial constraints. Most aren’t likely to improve in the near future. Not every college is affected in the same way; smaller candidate pools mean colleges compete for students. Smaller schools (defined as having fewer than 5,000 students) are 27% more likely to struggle than their larger peers.

Selectivity is Also a Factor

From 2019 to 2021, community college enrollment fell by 15%, but highly selective colleges equaled pre-pandemic levels. Sought-after degrees are considered higher value than public and community colleges. Moreover, highly selective schools have large endowments that allow them to offer generous financial aid to attract desirable students. Endowments are permanent pools of investments colleges can use to fund service missions, student aid programs, and more.

Schools that spend 5% or less of their endowment each year assume less risk for the future market value of their investments. 106 universities have endowments over $1 billion, giving them a competitive advantage over schools with smaller endowments.

In Conclusion

Higher education is a big investment. Potential students need to make sure their institution is financially viable before enrolling. Look for news reports showing frequent changes in leadership or accreditation issues. Ask for the college’s discount rate; if it’s above the national average of 52.2%, there may be trouble brewing. Endowment reports tend to be public information, so potential students can see if the college is spending over 5% of their endowment to stay afloat.

Another useful place to check is the US Department of Education. All schools accepting federal aid have a Financial Responsibility Composite Score released every few years laying out their financial health.