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Further private college closures predicted in US

Short on time? Here are the highlights:

  • The number of small US colleges forced to close each year has continued to climb from 2015 levels
  • In 2015, five institutions closed their doors; this grew to 11 colleges in 2017 and the closure rate is projected to continue to increase through 2019
  • The growing number of closures reflects a persistent challenge for many small institutions where tuition revenues are declining even as costs continue to increase

In 2015, Moody’s Investors Service famously predicted that the number of small US colleges that would close annually would triple by 2017. In the analysts’ frame of reference, “small” describes a private institution with annual revenues of under US$100 million, or a public institution with revenues below US$200 million.

At the time that it published this earlier analysis in 2015, about five small US colleges were closing each year. The expectation, therefore, was that that number would spike up to roughly 15 colleges per year as of about a year ago.

An updated analysis published this week (subscription required) reveals that this dramatic increase in closures has not yet come to pass, with an emphasis on the “yet”. The number of college closures in the US, however, continues to trend upward and Moody’s still expects that the number of institutions forced to wind up operations will reach up to 15 per year as of 2019 or 2020.

As the following chart reflects, the number of closures will hover between 10 and 12 institutions per year for 2017 and 2018, and is expected to continue climbing through 2019.

Number of small US colleges closed per year and closure rate as a percentage of the total number of private, not-for-profit colleges in the US, 2002–2019. Source: Moody’s

At issue are the prevailing demographic and labour market trends in the US that have left many smaller colleges grappling with rising costs, declining public funding, and lower enrolments and tuition revenues.

“The recession may be over, but with middle-class incomes remaining stagnant and politicians talking endlessly about the needs of the work force, liberal-arts colleges find themselves operating in a marketplace much different from that of 10 years ago,” said The Chronicle of Higher Education in 2016. “Their small size, their comparatively high cost, and sometimes even their traditional pitches about the lifelong value of a liberal-arts education work against them now, making their situation even more precarious than that of many larger institutions. Small colleges are discovering — some faster than others — that they have to be acutely sensitive to the evolving whims of students and the concerns of parents, as well as nimble enough to meet the marketplace on its terms.”

Confidence falling among finance executives

In a related development, Inside Higher Ed’s 2018 Survey of College and University Business Officers finds a growing financial pressure facing private colleges in particular, and a corresponding decline in the confidence of the executive financial admin staff at US institutions.

Responding to this year’s survey, just under half (44%) of the chief financial officers at four-year undergraduate colleges say they are confident of their institution’s financial stability over the next ten years. This is down from 52% in 2017, and 54% in 2016.

Reflecting a growing gap between costs and tuition revenues that was also observed by Moody’s, more than two-thirds of the 2018 survey respondents (68%) acknowledged that their tuition discount rates are no longer sustainable. This compares to the 59% of responding financial officers who said the same in 2017’s survey.

In response, most US colleges are indicating that they will reduce tuition discount rates, expand enrolment, and introduce new “revenue-generating programmes” – as opposed to eliminating underperforming programmes or other cost-cutting measures. For many colleges, any such initiatives to build enrolment will largely focus on full fee-paying students, including those from overseas.

Even so, the resilience and adaptability of smaller US colleges will continue to be tested in the years ahead. The overall context for US higher education is one of declining total enrolment with a net decrease (from a recent-year high in 2012) of more than 800,000 students through 2016.

For additional background, please see:

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