{"id":1312,"date":"2024-05-26T15:16:47","date_gmt":"2024-05-26T15:16:47","guid":{"rendered":"https:\/\/knowacademia.com\/?p=1312"},"modified":"2024-09-26T02:55:25","modified_gmt":"2024-09-26T02:55:25","slug":"financial-stress-at-private-colleges-and-universities","status":"publish","type":"post","link":"https:\/\/knowacademia.com\/?p=1312","title":{"rendered":"Financial Stress at Private Colleges and Universities"},"content":{"rendered":"\n\n

Michael Townsley, Ph.D.\u00a0 Senior Associate Stevens Strategy<\/h4>\n

Private colleges and universities are encountering unprecedented levels of financial stress that may even exceed the financial problems caused by the Great Depression in the 1930s. According to the Hechinger Report article in April 2024, \u201ccolleges are closing at a pace of one a week. [1<\/a>] Sustainability for many colleges means whether they can survive the immediate financial stresses. \u201cFitch ratings estimated that 20-25 schools will close annually going forward.\u201d[2<\/a>] The curve in Chart I shows the exponential acceleration of closings by private colleges in the first four months of 2024. If this pace continues through this year, there is a possibility that sixty private colleges could close.<\/p>\n

Chart 1<\/h1>\n

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PRIVATE COLLEGES and UNIVERSITIES CLOSED<\/strong><\/p>\n

(Trend Line a Second Order Polynomial Line)<\/strong><\/p>\n

Colleges in two enrollment group in Chart 2 reported outflows of funds from unrestricted assets between 2018 and 2021. The middle FTE group of colleges with enrollments between 1,000 and 2,000 FTE students had the largest number of average unrestricted asset outflows (2018, 2019, and 2021) over the five years of the chart. These colleges in 2020, also, had the largest average inflow of pandemic funds. Nevertheless, as noted these colleges returned to negative outflows in 2021. It is interesting that private colleges in the smallest enrollment group (less than 1,000 FTE students) only dipped into unrestricted assets in 2019. On the other hand, only colleges in the largest enrollment group (greater than 2,000 FTE students) did not have fund outflows from unrestricted net assets. As Bloomberg reported in 2023, \u201c\u2026government aid during the pandemic helped as a Band-Aid on the long-simmering issue of dwindling enrollments, the expiration of relief [in (2024] is likely to expose \u2026reckoning [for] dozens of colleges.\u201d [3<\/a>] Sad to say, the chickens appear to be coming home to roost.<\/p>\n

Percentage Change<\/strong><\/p>\n

Chart 2<\/h1>\n

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In order to answer why colleges are closing and exhibiting greater financial instability, this study used a Vulnerability Gauge\u00a9 to predict risk, which was defined as the probability that a private college or university will or will not fail in the near future. A series of logit tests of the Vulnerability Gauge found that the most robust and parsimonious model had an 86.3% prediction rate of financial risk when these two factors were used:<\/p>\n