Financial Woes May Shut Down Some Colleges Report Says

Written by  //  09/16/2013  //  College News  //  Comments Off

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Higher education may soon face a dramatic change with some colleges and universities shutting down due to funding issues. That’s the contention of The Hechinger Report, an independent and nonprofit education news service.

Hechinger noted that financial analysts, regulators and bond-rating agencies are expecting some colleges and universities to close, with as many as one-third of the thousands of institutions serving the United States affected. The report citied findings from Bain & Company, the financial services consulting firm. Bain noted that operating costs at many colleges and universities “are rising faster than revenues and investment returns can cover them.”

Peak Enrollment Numbers

Enrollment has peaked at many institutions and, indeed, has begun to fall. At the same time, schools are offering more discounts to attract students. In effect, these institutions are plundering their resources to lower their sticker prices in a bid to remain competitive. That competition, however, has come at a price — particularly the financial viability of many institutions.

The report gave an example of Hampshire College in Massachusetts. At the rate its tuition is rising, its annual price tag will likely top $75,000. At present, 46 percent of its students receive a discounted price, lost money that drains the college’s resources. As prices continue to rise, price sensitive families will simply look elsewhere.

Financially Challenged Institutions

A few colleges and universities are currently in bankruptcy and some have closed in recent years including Lon Morris College in Texas and Saint Paul’s College in Virginia. The U.S. Department of Education tracks the financial health of institutions of higher education, by providing an annual test of their financial stability. Some 150 colleges and universities got failing scores.

Bain noted the urgency needed to bring about the changes affected institutions must make to survive. They also noted that such schools are slow to react with many administrators believing that things will return to the way that they used to be. Bain contends that they will not.

Affected institutions may be hampered by faculty that isn’t seeing or acknowledging the problems that their schools are facing. Some colleges are simply too small to make the required changes and will likely fail regardless of what steps they take.

Falling Enrollment Patterns

Enrollment levels are finally dropping after years of steady year-over-year increases. Last May, the National Student Clearinghouse reported that spring college enrollment fell by 2.3 percent over the Spring 2012 semester. That trend follows a similar drop noted in Fall 2012 versus Fall 2011. One important contributor is that as the economy improves, students are returning to the workforce. More significant drops were noted at for-profit universities and for older students, aged 25 and up.

Families are paying about 13 percent less for college education in 2013 than they were in 2009. However, college costs are still rising. The discount tuition rate has risen from 37 percent in 2000 to 45 percent today, further depleting scant resources. That trend, if continued unabated, could hasten the closure of hundreds of colleges and universities over the next few years, what families should keep in mind as they weight their college choices.

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