by Michael K. Townsley | Jun 28, 2025 | News 2025
Clark Universities announced on June 3 that they were cutting 30% of their faculty because of a ‘financial challenges and a dramatically reduced incoming [first year] class.” This is a startling turn of events for a university with a strong academic reputation and financial reserves. If Clark feels the pain of the demographic cliff in 2025, which was supposed to be a safe year, then all private colleges, especially tuition-dependent colleges, need to take notice.
Private colleges in states with student markets that are forecast to encounter the full effects of the demographic cliff within the next two years, cannot wait to take action. They need to immediately develop a strategic plan They cannot wait until they are over the side of the demographic cliff because their financial reserves will quickly shrink to zero.
Regrettably, too many private colleges tend to operate within a bubble with their focus only on the current year and the next budget year. The demographic shift will be so calamitous that delay will be a trap as they lose their financial flexibility.
Clark University to lay off up to 30% of faculty, significantly restructure degree tracks amid financial strain | Worcester Business Journal
by Michael K. Townsley | Jun 28, 2025 | Financial Strategy and Operations
Colleges chief financial officers may be facing the greatest budget uncertainty in their lives. Here is a partial list of these uncertainties are:
- Demographic Cliff – student markets will start to shrink dramatically in 2026;
- Pell Grants – could see a potential loss of $1,655 per student;
- SEOG – elimination of this grant;
- College Work Study – large cuts in the grants with the amount undetermined at this time.
- Student Loans – colleges would be partially responsible for students who failed to repay their loan; predicted large growth in the number of defaulters will provide further justification for Congress to approve requiring colleges to partially pay for defaulted balances;
- Indirect Cost –indirect costs from federal grants would be cut to 15% of grants;
Budget Planning Under These Uncertainties
Unfortunately, there is no simple answer to resolve the potential and unknown losses caused by the uncertainties in the preceding list. However, there are several ways to reduce risks flowing from these uncertainties:
- Containing Enrollment Risks by Banding Enrollment
- Budget enrollment forecast should use current enrollment; do not increase enrollment for the budget forecast.
- Compute the standard deviation for enrollment for the prior five years;
- Compute for the prior five years including the current fiscal year; the first and second standard deviation;
- Only use the first and second negative standard deviation to band the current enrollment; this will capture 34% and 49% of the downside;
- Compute the enrollment budget using the current enrollment with the first and second negative standard deviations as lower continent bands;
- Plan enrollment and tuition revenue for all three bands;
- Design contingent expenses for each band;
- As the enrollment picture becomes clearer, move from the lowest band to the current enrollment band.
- If possible, do not increase the tuition discount because enrollment is not increasing for colleges with less than 2,000 students.
- Indirect Cost Risks consider additional endowment draws to support programs supported by federal grants; this will require board approval and if the withdrawals are large, it may require approval by the state of the attorney general’s office.
- Further Downside Protection: during the coming fiscal year, until the college has a better understanding of a) the impact of the demographic cliff and b) the effect of federal action on grants, loans, and indirect costs:
- Freeze Hiring
- Contingent Reduction-in-Force;
- Freezing Discretionary Expenditures;
- Reducing Debt Risk by renegotiating debt subject to interest rates;
- Increasing the liquidity of endowments;
- Constantly monitoring cash reserves.