Half of all universities and colleges may close within 15 years.
Harvard Business School professor Clayton Christensen has predicted that as many as half of the more than 4,000 universities and colleges in the U.S. may fail in the next 15 years. The growing acceptance of online learning means higher education is ripe for technological upheaval, he has said.
With budget problems “particularly acute at small, mid-tier private’ colleges“, Moody’s anticipates a “death spiral” in failing institutions.
“What we’re concerned about is the death spiral — this continuing downward momentum for some institutions,” said Susan Fitzgerald, an analyst at Moody’s Investors Service in New York. “We will see more closures than in the past.”
Moody’s, which rates more than 500 public and private nonprofit colleges and universities, downgraded an average of 28 institutions annually in the five years through 2013, more than double the average of 12 in the prior five-year period.
Falling enrollments are a problem.
Dozens of schools have seen drops of more than 10 percent in enrollment, according to Moody’s. As faculty and staff have been cut and programs closed, some students have faced a choice between transferring or finishing degrees that may have diminished value.
At Dowling College in New York a “dormitory is shuttered, as are a cafeteria, bookstore and some classrooms in the main academic building”.
Dowling, which got a failing grade for its financial resources from accreditors last month, epitomizes the growing plight of many small private colleges that depend almost entirely on tuition for revenue. It’s been five years since the recession ended and yet their finances are worsening. Soaring student debt, competition from online programs and poor job prospects for graduates are shrinking their applicant pools.
Franklin Pierce University in New Hampshire will drop six majors.
Net tuition revenue fell 14 percent to $30.3 million last year from 2009 as Franklin Pierce boosted financial aid to attract freshmen and keep students from transferring. Standard & Poor’s cut the Rindge, New Hampshire-based school’s credit rating last year to B, five steps below investment grade, from BB. Moody’s reduced its rating to B3 from B1 the year prior.
Ashland University in Ohio cut its tuition.
Ashland University, a 136-year-old college in Ohio, reduced tuition by about $11,000 — and direct aid commensurately — for the coming school year, with the goal that a lower-tuition/lower-discount model will eliminate sticker shock and lure students. In November, Moody’s downgraded Ashland’s rating to Caa2, eight levels below investment grade, saying the probability it will default has increased after three years of enrollment declines.
As a strategy for survival, diversifying takes on a new meaning.
Some colleges are looking beyond belt-tightening for more permanent solutions. Morgan State University in Baltimore, a historically black college, is targeting more Hispanic applicants and those of other ethnicities, according to Moody’s. Chatham University in Pittsburgh, whose undergraduate program is women-only, said in February it was considering going co-ed to boost enrollment.
This just in:
Mid-Continent University, a private institution in Kentucky, will close June 30, KFVS 12 News reported….
Related: Private colleges see declining enrollment (Cost of College)
Michael McDonald, “Small U.S. Colleges Battle Death Spiral as Enrollment Drops”, Yahoo Finance, April 14, 2014.