Why Are Colleges Going Out Of Business?

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From 2016 to 2019, 86 colleges shut down or merged with other schools – 53 colleges closed permanently during the 2019-2020 school year

Falling Enrollment & Failing School

  • From  2019 to 2021, undergraduate enrollment fell by 7.8% — The largest 2-year drop in the last 50 years
  • In 2022, more than 1 million fewer students are enrolled in college than before the pandemic began
  • Why Is Enrollment Falling?
    • Rising education costs: Rising college costs outpaced both inflation and family income growth until the pandemic halted tuition increases
    • Lower return on investment: 99.5 million Americans have a bachelor’s degree or higher – 73% have a job unrelated to their major 
    • Smaller candidate pool: From 2025 to 2029, college enrollments are predicted to fall by more than 15% due to smaller college-age population
    • Lack of interest: Just 48% of high schoolers want to go to a 4 year college – down from 71% in 2019
  • Pandemic Accelerates Declining Enrollment
    • In 2020, 56% of US college students said they could no longer afford their tuition
      • Half said they needed to figure out a new way to pay because of the impact of COVID-19
      • Nearly 7% had already decided to unenroll in favor of full-time employment or alternative education options
    • In fall 2021, 70% of college students say affordability affected their education plans
      • Nearly 500,000 undergraduates dropped out in the fall of 2021
    • Financial strain impacts plans after graduation
      • 36% of parents tapped into their child’s college fund to weather the financial impact of the pandemic
      • High schoolers are now more likely to choose a less expensive option
        • Community college: 36% – Up from 28% before the pandemic
        • 15% will go to a public rather than private college
        • 27% will take a gap year to save for college
        • 36% will attend a community college – up from 28% before the pandemic
    • “I think US college education is nearer to collapsing than it appears . . . it’s clearly a bad deal for many students” — Sam Altman, CEO of OpenAI

74% of higher education professionals say their institution is facing significant financial constraints

The University of Arizona projected $250 million in lost tuition revenue due to COVID-19

Colleges Compete For Business

  • From 2019 to 2021
    • Community college enrollment fell 15% 
    • Highly selective colleges increased enrollment by 3.1% — equaling pre-pandemic levels
  • Smaller schools are more likely to struggle
    • 79% of schools with fewer than 5,000
    • 52% of schools with more than 30,000
  • In 2019, 419 college were still accepting applications after the traditional May 1 deadline
    • With declining enrollment, schools must compete for students in order to maintain their tuition revenue
      • Despite rising costs, many universities operate with a tiny margin
        • La Salle
          • More than 5000 students
          • Several Division I sports programs
          • Operating with just 2.6% margin
  • Ivy Leagues and other highly selective schools have a competitive advantage
    • Sought-after degrees consider higher value than public and community colleges
    • Large endowments allow schools to offer generous financial aid to attract students
      • Yale: 64% of attendees receive tuition assistance 
        • Tuition, fees, books, room & board: $77,750
          • Average needs-based scholarship: $59,000
          • Total out-of-pocket cost: $22,000
      • Public, in-state, 4-year college
        • Average tuition, fees, room & board: $21,950 average
  • How Endowments Work
    • Endowments are financial assets created from charitable donations
    • Designed to create a permanent pool of investments without too much risk
    • Universities use endowments to fund
      • General operations
      • Student aid programs
      • Research and fellowships
      • Public service missions
    • Schools that spend 5% or less of their endowment each year assume less risk for the future market value of their investments
    • Just 106 universities have endowments of more than $1 billion

Higher education is a big investment — Make sure your choice is financially viable

Is Your College At Risk?

  • Determine the financial health of your college before you enroll
    • Endowment Reports
      • May be published online or available upon request
      • Look for college spending less than 5% of their endowment
    • Tuition Discount
      • Ask for the college’s tuition discount rate
      • Above-average discounts may signal poor financial health
      • In 2018-19, the average nationwide discount for incoming freshmen was 52.2%
    • Financial Responsibility Composite Score
      • Published by US Department of Education 
      • Available for all schools accepting federal aid
    • News reports
      • Look for indicators of trouble ahead
        • Frequent changes in leadership
        • Declining enrollment
        • Potential mergers
        • Accreditation issues
  • Be prepared for the chance your college could close
    • Sometimes colleges close slowly over months or years, others shutdown nearly immediately
    • Keep record of course syllabi, transcripts, and important conversations of with school officials
  • If Your College Closes
    • Colleges that shutdown may sign transfer agreements with nearby universities to help students finish their degrees
      • Be wary of high pressure tactics to accept transfer agreements
      • Get the details of how credits will transfer before making a decision
    • Reach out to local legal aid office for help and advice
    • Research federal loan discharge options
      • If your college closes while you’re enrolled or soon after you withdraw, you may qualify for a full refund of payments and even garnished wages

Invest wisely when choosing a college

Sources: 

https://www.jamesgmartin.center/2019/09/did-you-know-86-colleges-have-closed-merged-since-2016/ 

https://www.usnews.com/education/best-colleges/articles/what-to-do-if-your-college-is-closing

https://www.cnbc.com/2021/11/27/more-colleges-face-bankruptcy-but-top-schools-experience-record-wealth.html

https://www.npr.org/2022/01/13/1072529477/more-than-1-million-fewer-students-are-in-college-the-lowest-enrollment-numbers—

https://www.cnbc.com/2021/11/05/interest-in-four-year-college-sinks-post-covid-as-costs-concerns-rise.html

https://fee.org/articles/why-college-degrees-are-losing-their-value/

https://hechingerreport.org/college-students-predicted-to-fall-by-more-than-15-after-the-year-2025/

https://www.cnbc.com/2020/06/04/more-than-half-of-students-probably-cant-afford-college-due-to-covid-19.html

https://www.cnbc.com/2021/08/06/70percent-of-college-students-say-affordability-impacted-their-fall-2021-plans.html

https://www.cnbc.com/2021/08/25/74percent-of-colleges-face-financial-challenges-according-to-survey-of-higher-ed-workers.html

https://www.nytimes.com/2020/05/26/upshot/virus-colleges-risky-strategy.html

https://finaid.yale.edu/costs-affordability/affordability

https://www.investopedia.com/ask/answers/how-do-university-endowments-work/

https://www.cnbc.com/2020/05/27/a-growing-number-of-colleges-could-close-for-good-post-pandemic.html

https://nationalinterest.org/blog/buzz/going-out-business-many-colleges-hide-dirty-secret-102137

https://www.usnews.com/education/best-colleges/articles/what-to-do-if-your-college-is-closing

https://twitter.com/sama/status/1505597901011005442