Closure rates of small colleges and universities will triple in the coming years, and mergers will double.
Those are the predictions of a Moody’s Investor Service report released Friday that highlights a persistent inability among small colleges to increase revenue, which could lead as many as 15 institutions a year to shut their doors for good by 2017.
The 10-year average for college closures is five annually. So far this year two colleges have closed, and in 2014 six closed. Moody’s cautions that even as closures are predicted to rise, the number will remain less than 1 percent of some 2,300 existing nonprofit colleges. Meanwhile, the number of mergers is predicted to double, reaching four to six a year, up from the 10-year average of two to three a year.
The main struggle for many small colleges — which are defined by Moody’s as private colleges with operating revenue below $100 million and public colleges below $200 million — is declining enrollment.
Small colleges are often tuition dependent, meaning they face financial struggle when enrollment declines or even remains flat. Revenue softness leads to “a reduced ability to invest in academic programs, student life and facilities,” which in turn negatively affects colleges’ ability to meet the desires of prospective students, Moody’s notes. And softer demand means that struggling colleges either lose students to other institutions or aren’t able to charge enough tuition to fully cover expenses. A recent report from the National Association of College and University Business Officers found that private colleges offered freshmen an average discount rate of 48 percent last year — an all-time high. <Read more.>
Professor Van Ry 