by Michael K. Townsley | Jun 9, 2026 | Private Colleges & Universities in Crisis
Many presidents of private colleges and universities recognize that the demographic cliff, changes in student preferences for degree programs, shrinking donations, and closer auditing by the government could severely damage their institution. However, it seems that a large number of presidents sincerely believe that they can meet the challenges by growing enrollment and increasing donations. This is a massive non sequitur, and therefore is not a rational response to imminent and destructive events that will place unbearable financial stresses on most private colleges and universities.
Unfortunately, impartial observers can only wait and hope that these presidents will see that they are living on the edge of a calamity and have the time to respond. Time is everything as known events unfold and push private colleges into deep financial distress.
by Michael K. Townsley | Jun 9, 2026 | Private Colleges & Universities in Crisis
There are two different aspects to: gaming the system and incentives, one involves straight out playing gives with rules and goals and the other is to dissemble. As a sidenote, usually, a harsher word like lying is use instead of describing the behavior as dissembling. As softer word describes lying because higher education exists in a regulatory environment that as a result, it cannot afford the truth.
Gaming the system is when a procedure that involves money is easily fooled. For example, if enrollment management is measured by applications and not actual enrollment and attending class for one semester Or, coaches are not required to turn in travel receipts, or when departments are not required to have purchases pre-approved. This list could have hundreds of examples. Gaming happens when results are either not audited or poorly defined and can be easily manipulated.
Another aspect of gamin involves incentives to dissemble. Typically, this happens with government regulations or laws. The dissembling takes place when honesty would lead to federal regulatory sanctions or lawsuits. The first example involves what on its face would be a simple matter, asking for a reference and only getting dates on employment, or calling a previous employer for a recommendation and receiving the same basic information. Why does this happen? Anyone involved in reviewing applications, knows why. If a previous employer provides an honest review of their former employee’s work, they could open the possibility of a law suit for violating employment privacy information. This can lead to a carousel of short-term employees, who are released after a few weeks because they refuse to do the work, or do not accept employment expectations like showing up on time for work, leaving work early, taking long lunches, dressing in a slovenly manner, or arguing over trivial matters. The employer is unable to discover these problems beforehand because the prior employer is trying to avoid the possibility of a lawsuit. Of course, some candidates dissemble because they do not want to reveal shortcomings in their employment history.
An employer can take some control of the system gamer by rewriting goals as precise statements that directly relate to outcomes so that incentive benefit the institution. Unfortunately, in today’s labor market, there is no easy solution for finding the facts about a candidate’s capabilities, short of hiring a private investigator, which encompasses another pack of problems.
by Michael K. Townsley | Jun 9, 2026 | Private Colleges & Universities in Crisis
Private colleges setting on the brink of deep financial distress need to be very careful when the build their budgets. The traditional way of budgeting will not work under those circumstances, especially when faced by the demographic cliff. Rather, the college needs to take the following precautionary recommendations seriously.
- The major focus of the budget has to be cash. Net income in secondary. Therefore, the cash budget for operations, investing and financing should be estimated.
- Do not use marketing forecasts that project increases in enrollment. Market managers want to push higher enrollments, but colleges on the brink of financial distress cannot afford overestimating budgets that typically lead to larger expenditures.
- The budget should be constructed around two enrollment forecasts:
- Stable forecast that assumes that enrollment for the next fiscal year will be the same as the current year.
- Demographic cliff forecasts that take into account the estimated decline in enrollment in the college’s student market.
- A single year budget is inadequate given the compounding dangers of the demographic crash It is too risky to assume that budget decisions in the coming year will not adversely affect the budget in the following year.
- The budget should become a major part of a strategic turnaround. There is mounting evidence that financial distress cannot be solved in a single year. Therefore, the college should turn to the Cyert Model to compute scale of its financial disequilibrium. The Data sources are data in the audits.
Computing the Cyert Disequilibrium Gap
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Gap Category
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Gap
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Operational Deficit
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$
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Credit Line (total amount borrowed)
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$
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Accumulated Deferred Maintenance Infrastructure
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$
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Accumulated Deferred Maintenance Buildings
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$
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Accumulated Deferred Maintenance IT
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$
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Total Disequilibrium Gap
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$
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by Michael K. Townsley | Jun 9, 2026 | Private Colleges & Universities in Crisis
Inside Higher Ed recently offered a webcast on mergers, acquisitions, and partnerships because private colleges can no longer afford to wait until they are in deep financial trouble to look for solutions.
Emily Wadhwani, the senior director for higher education at Fitch, a bond rating agency, believes that the “weak [are] getting weaker.” [1] Anthony P. Carnevale, director of the Center for Higher Education and the Workforce at Georgetown University, puts the condition of higher education more starkly “There really is an arithmetic problem here. There aren’t going to be enough students to go around.” [2] Moreover, as Susan Butrymowicz observed in a 2020 Hechinger Report few agencies will step into the fray to help an institution which is in danger of closing.[3] The question for private colleges and universities facing the full force of shrinking student markets, aggressive price-competition, inflationary increases to their labor costs, and the uncertainties of AI technology is – how can my college or university survive?
Given the many chasing the fewer, private colleges and universities should take immediate steps regarding a merger; an acquisition, defined as being taken over by another entity; or a partnership. Frankly, the cascade of bad news about private institutions of higher education shows that even at the very edge of the demographic cliff is that they cannot find enough students for 2027. As a result, many private colleges will not make good candidates for a merger or a partnership. Their best hope is to be acquired by another institution whose finances are stable and have better penetration into the student market. The waiting till tomorrow game is over for private institution that see severe financial distress in the near future. They need to prepare themselves as a candidate for acquisition, before their finances erode to a state that they are no longer an attractive candidate for acquisition.
If a college wants to be acquired by another entity, it needs to do the following.
- Contract with a skilled acquisition specialist who would estimate the value of the college and conduct a comparison financial analysis of interested entities.
- Collect all legal documents, such as, corporation papers, employment contracts, construction contracts, service contracts, faculty handbooks, employee handbooks, property deeds, loan documents with covenants, and the location of corporate minutes.
- Prepare an organization chart.
- Collect copies of most recent catalogues that include all curricular descriptions and student requirements for admission and graduation.
- Copy of a course load matrix.
- Copy of most recent accreditation reports with contacts and next scheduled reviews.
- Unduplicated list of all students by earned credits.
- Copy of all audits for past three years with management reports and related federal reports, such as the federal financial test for financial aid, and any accreditor or federal issues.
- Copy of all I 990 reports.
- Full list of benefits with description of the benefits and contacts.
- List of all insurance contracts including: D&O, liability, property, umbrella, automotive, and any other insurance. List should include against and contacts.
- List of any outstanding law suits with a description of the suit and the status of the suit.
- Description of any zoning or compliance issues with the local government.
- Description of the IT and communication systems and networks, employees and duties, service contracts, and any major issues with the systems.
- List of all buildings with specifications, years of construction and renovations, HVAC systems, communication links, and deferred maintenance.
- Dimensions and layout of the campus.
- Underground networks, water, sewage, communication networks, and any other buried systems.
- List of all automobiles, buses and any other means of transportation with dates of purchase, mileage, latest maintenance, and any other relevant information.
- Description of all major issues that affect the capacity of the college to survive and achieve its goals.
This list may not include everything that is needed when another entity conducts its due diligence. The college should also insist on similar information from the acquiring entity so that is can ensure its students, the community, and governmental offices that the acquisition will serve their needs.
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Fischer, Karin (August 12,2022); “The Shrinking of Higher Ed”; (Retrieved September 30, 2022); The Shrinking of Higher Ed ; Chronicle of Higher Education; Washington, D.C. ↑
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Ibid.; Fisher, Karin; ↑
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Butrymowicz, Sarah (August 4, 2020); “Dozens of colleges closed abruptly in recent years — and efforts to protect students have failed”; Hechinger Report; Dozens of colleges closed abruptly in recent years — and efforts to protect students have failed (nbcnews.com). ↑
by Michael K. Townsley | Jun 9, 2026 | Private Colleges & Universities in Crisis
The simple answer for private colleges and universities is No! At least not for the next ten to fifteen years as the slide down the demographic cliff continues, normalcy will not be evident. Besides the impending drop over the cliff, technology will take a sizeable toll of private colleges and universities. While technology promises great cost savings and new ways to teach student, the full nature of these changes is unknown.
What could a technologically-driven educational enterprises (AI) look like in the near future.
- We are now in the stage where AI technology is providing a sophisticated editing function for administrators, faculty, and students.
- Starting the stage where AI is taking over administrative functions and teaching courses.
- Next stage, AI will replace faculty.
- Future stage, AI will become the college.
Technology could lead to these destructive outcomes for non-elite private colleges and universities:
- These colleges will struggle to compete against AI entities assuming that students remain price sensitive and AI can produce a degree faster than a college with a traditional campus.
- Will be unable to compete against massive technologically-driven educational enterprises, as a result, they will fall by the wayside.
- Will not be able to afford the technology to enter the massive technologically-driven enterprises, as a result, they will fall by the wayside
- Since they are not first entries into the technologically-driven educational market, they will be too late and will fall by the wayside.
- They will have to find unique niche academic and on-campus programs to attract students, and there may not be enough students who can afford traditional colleges offering a niche campus.
Dealing with AI as a Competitor
When AI becomes your main competitor, everything will change, and it will happen quickly and be costly to the college. First, the marketing department will need a very large budget to continuously inundate prospective students with messages, which will cost multimillions Second, the college will have to narrow its academic programs to directly fit its niches. Third, it will need to redesign services and programs to reduce costs to a minimum. Fourth, it will need to evaluate the productivity of tuition discounts. Fifth, the college’s advancement program needs to produce millions in donations and minimize endowed donations because they reduce the flexibility of the college, when it needs to quickly respond to sudden and massive changes in their competitive market.