The Economics of Small US Colleges Are Faltering
There are a handful of tell-tale signs a school is facing stress. Rider University, a landmark in central New Jersey for the past 158 years, has been grappling with most of them.
The school is losing money. Over the past decade, it has lost about a fifth of its student body. And this month, the outlook for its credit rating, already below investment grade, was cut to negative.
Gregory Dell’Omo, Rider’s president, has been working hard to stabilize the university’s finances. He’s laid off staff, cut programs, even put a crown jewel, the school’s Princeton campus, on the auction block. He’s optimistic as this year’s enrollment figures have shown early signs of growth. But he’s under no illusions. The economic and demographic forces stacked against small colleges — soaring costs and a dwindling pool of applicants — are altering the American higher-education landscape before his eyes.
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“We’re all vying for a shrinking pool,” Dell’Omo said in an interview on Rider’s main campus, just outside of Trenton. “We live and die by demographics.’’
The school is one of about 170 small, nonprofit colleges and universities that met three or more of the five metrics Bloomberg News used to identify increasing pressures on higher-ed institutions through 2021. That number marked the highest point in at least 15 years and was more than five times the amount a decade earlier, according to Bloomberg’s review of over 100,000 data points from about 1,000 US schools with fewer than 5,000 students.
The period of analysis — which runs through 2021, the most recent year with a comprehensive dataset available — captures a particularly challenging time for schools. The outbreak of Covid-19 forced many students to pause or delay their educational plans. Still, the trends captured in the data started years before the pandemic hit and some analysts say they aren’t changing any time soon.
A THREE-YEAR AVERAGE YIELD
RATE BELOW 20%
DECLINING ENROLLMENT
A THREE-YEAR AVERAGE
ACCEPTANCE RATE OVER 80%
Three straight years of falling
full-time students, losing at
least 10%.
The share of students who
accept offers of
admission.
The share of applicants a school
admits.
PERSISTENT OPERATING LOSSES
RISING INSTITUTIONAL AID
RISING INSTITUTIONAL AID
Three consecutive years of
operating losses, excluding
gains or losses
from investments
or endowments.
Three straight years of
increased school aid to
students, rising at least
10%.
Three straight years of
increased school aid to
students, rising at least
10%
A THREE-YEAR AVERAGE YIELD
RATE BELOW 20%
A THREE-YEAR AVERAGE
ACCEPTANCE RATE OVER 80%
The share of students who
accept offers of
admission.
The share of applicants a school
admits.
RISING INSTITUTIONAL AID
DECLINING ENROLLMENT
Three straight years of
increased school aid to
students, rising at least
10%.
Three straight years of falling
full-time students, losing at
least 10%.
PERSISTENT OPERATING LOSSES
Three consecutive years of
operating losses, excluding
gains or losses
from investments
or endowments.
Three consecutive years of
operating losses, excluding
gains or losses
from investments
or endowments.
A THREE-YEAR
AVERAGE YIELD
RATE BELOW 20%
A THREE-YEAR
AVERAGE ACCEPTANCE
RATE OVER 80%
The share of students
who accept offers
of admission.
The share of applicants
a school admits.
RISING
INSTITUTIONAL AID
DECLINING
ENROLLMENT
Three straight years of
increased school aid
to students, rising
at least 10%.
Three straight years of
falling full-time students,
losing at least
10%.
PERSISTENT OPERATING
LOSSES
Three consecutive years
of operating losses,
excluding gains or
losses from
investments or
endowments.
Higher Ed Has Seen Pressure Rise
- Number of small schools with
- no stress signal
- at least 1
- 2
- 3
- 4
- 5
- closed or merged
1,000 schools
A total of at least 46 schools closed from 2008 to 2021
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600
400
200
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2008
2012
2016
2020
A total of at least 46 schools closed
from 2008 to 2021
1,000 schools
In 2008, 1% of the schools
had at least three, four or five
stress signals. In 2021, 18% did.
800
600
400
In 2008, 44% of the
schools had no stress
signal. In 2021, only 20% did not.
200
0
2008
2012
2016
2020
A total of at least 46 schools closed
from 2008 to 2021
In 2008, 1% of the
schools had at least three, four
or five stress signals. In 2021, 18% did.
1,000
schools
800
600
400
200
In 2008, 44% of the
schools had no stress
signal. In 2021, only 20% did not.
0
2008
2012
2016
2020
Experts have long said small colleges would bear the brunt of a massive shift in demographics that will see fewer high-school graduates flood into college campuses. It’s a change that’s forcing schools – especially less prestigious ones — to rethink the economics of higher education.
Some schools have pushed back on Bloomberg’s analysis, saying it relies on years that are outliers in the higher-ed landscape. There is a roughly two-year lag in data that the federal government publishes on higher-education institutions. Several schools have noted headcount, for example, has shown improvement since 2021. Still, longer-term forecasts suggest pressures on enrollment will continue. And while government aid during the pandemic helped put a Band-Aid on the long-simmering issue of dwindling enrollments, the expiration of relief next year is likely to expose that a reckoning is already playing out at dozens of colleges.
More Schools Met Stress Flags In 2021
About 10 four-year institutions have closed or announced plans to close their doors this year, including Iowa Wesleyan University and Holy Names University in California. Others such as Salus University in Pennsylvania are merging with nearby schools, and some, like Massachusetts’ Assumption University, are adding programs and targeting new groups of students.
“You have an industry with falling demand and overcapacity. We would be foolish to expect anything other than consolidation and shakeout,” said Michael Frandsen, president of Wittenberg University in Springfield, Ohio, which met five of the flags in Bloomberg’s analysis.
Fitch Ratings predicts 20 to 25 schools will close annually going forward, which is roughly double the annual average of closures at private, nonprofit four-year institutions over the last decade.
The implications of all of this are manifold. Closures threaten to disrupt the educational path of thousands of students. They also ripple through local economies as students disappear from campuses and staff and faculty lose jobs. The impact even extends to the financial system where investors hold some of the $238 billion of higher-education debt in the municipal bond market. Roughly $650 million of that is distressed or defaulted, meaning borrowers experienced an adverse event, like a missed payment or a draw on a reserve fund.
Demographics are largely to blame, as full-time undergraduate enrollment has slid from 11.5 million in 2010 to 9.5 million in 2021, according to NCES data.
At the root of the problem is a declining US birth rate in the wake of the financial crisis. From 1980 to 2007, US birth rates were largely stable, but they have since plummeted about 20%, according to national statistics.
Fewer students mean shrinking revenue streams — and colleges without investments or an endowment to fall back on will need to make changes to appeal to different kinds of students or build out new sources of income, like graduate schools.
The trend has also pushed some to offer discounts in the form of institutional aid, which can cut into their finances. The average institutional discount rate for first-time undergraduates has risen about 10 percentage points since 2013, according to an April report by the National Association of College and University Business Officers.
To be sure, waves of stress have plagued universities before. An unprecedented period of growth to accommodate the baby-boomer generation preceded a series of shutdowns, with a peak of 13 in 1974, according to published data in the Review of Industrial Organization.
But this time, the potential cliff is steeper.
What’s more, the value proposition of a degree has changed. The sticker price to attend a private, four-year school is now about $41,000 a year. Students are going into debt at higher rates. And when they graduate, the wage premium their education fetches, or the pay gap between those with and without degrees, is shrinking. These issues have shaken the public’s perception of college and universities: In fact, confidence in higher-ed has fallen across all ages, education levels and political groups since 2015, according to a June Gallup poll.
Add in rising costs from elevated inflation, tumult from a global pandemic and unbridled spending trends on everything from dorms to stadiums, and the outlook appears increasingly dire for some schools.
To uncover which colleges have been facing growing stress, Bloomberg’s analysis screened for a higher admission rate; a low yield rate, or the percent of students who accept offers; declining enrollment; increasing tuition subsidies, which effectively discount sticker tuition prices to attract students; and negative operating margins, as measured by the amount of money gained or lost from core functions, excluding the impact of investments or endowments.
Tallying which schools met these thresholds, it’s clear the share of schools under pressure has risen. In 2021, about 50 schools met at least four of these five metrics for stress, roughly triple the amount five years prior. Seven met all five.
A partial release of the 2022-2023 collection period showed more schools gaining than losing flags on acceptance rates and yield. Meanwhile, data on institutional aid showed some improvement. About 90 schools lost the flag while roughly 60 new schools hit it. However, the data was not included in Bloomberg’s analysis as it was not a full dataset that included information on enrollment and operating margins.
If the analysis had incorporated the incomplete dataset, six schools would have seen enough improvement to lose at least two flags, including Reinhardt University in Georgia, Bethany College in West Virginia and Bluefield University in Virginia. Another 14 colleges that met three or more flags in Bloomberg’s analysis showed enough improvement to lose at least one flag. They wouldn’t hit more than two flags once the complete dataset is released either.
Small Schools Have Been Accepting More Students But Fewer Are Saying Yes
- 2008
- 2021
Percentage of applicants admitted
More schools
Fewer
0
25
50
75
100%
Percentage of students accepted who enroll
More schools
Fewer
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75
100%
Percentage of
applicants admitted
Percentage of
students accepted
who enroll
More
schools
Fewer
schools
0%
0%
25
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The median yield
went from 36% to 21%
between 2008 and 2021
50
50
In the meantime, the
median admission rate
went from 68% to 72%
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schools
More
schools
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“If you are seeing 80%+ acceptance rates year over year, I think that is indicative of desperation,” said Jonathan Mondillo, head of North American fixed income at investment company Abrdn, which manages over $1 billion in municipal assets, including higher-ed debt. “There are a whole host of other factors you can look at: debt metrics, how levered the university has been, how well they’ve controlled costs, and what margins have looked like. But all of that stems from admissions and enrollment. That’s the canary in the coal mine.”
Several schools that met four or five flags in Bloomberg’s analysis are openly struggling.
For instance, Cardinal Stritch University, a small Catholic school in Wisconsin, began winding down operations in May, citing the pandemic and downward enrollment trends. Earlier this year, Seattle Pacific University in Washington said it was cutting its budget for academic programs by 40%. And in November, the College of Saint Rose’s Board of Trustees voted to close the New York-based school.
“Every time I get together with presidents, more and more of us are talking about struggles,” said Frandsen, Wittenberg’s president. “It’s real, and people who are in denial about it are going to have a real problem.”
Frandsen said Wittenberg’s enrollment is up, and early indicators of demand for the next academic year look promising. But longer-term, he knows the demographics pose a real challenge. There’s little room for missteps: The school only has $6 million in its board-designated endowment, which is the portion of those funds that are unrestricted. Therefore, the administration is investing in career development, experiential learning and extracurriculars to improve the student experience, and trying to become more attractive to non-traditional students who’d like to return to college.
To be sure, meeting the flags is not a guarantee of financial problems.
Even some of the most prestigious and strongest schools in the country hit at least one or two metrics in Bloomberg’s analysis. But experts interviewed say they see schools with more flags as likely to have a harder time recovering from external issues like an economic downturn or a pandemic.
“These are metrics that at least warrant you looking deeper into those schools,” said Lisa Washburn, chief credit officer and managing director for Municipal Market Analytics, one of the six who reviewed Bloomberg’s analysis. “There may be mitigating factors, there may be something unique about that school, but it doesn’t mean that they’re not facing disproportionate challenges.”
Some schools counter that high acceptance rates and growing aid aren’t indicative of strains, but rather demonstrate an institution’s values and mission to make a college degree more accessible, especially for low-income and minority students.
Closures also take time and there are many factors that can hasten or slow a closure. For instance, colleges with large endowments have more cushion against external shocks, and may be able to operate through challenges for longer periods.
But these challenges aren’t going away, and schools will need to figure out how to proceed, said Emily Wadhwani, a senior director at Fitch Ratings.
“We aren’t going to miraculously grow more high school students in the next decade,” she said. “We have too many seats to fill in the sector for all of those students. So the question then becomes for that school, are you going to find more students or are you going to shrink?”
Of the schools contacted by Bloomberg, some said it’s not possible to glean a complete picture of an individual college’s situation using only five metrics. They highlighted additional factors like balance sheets and donations. Other institutions also pointed to steps they’re taking to boost enrollment like targeting different student profiles and adding new academic programs.
“I don’t think anyone would argue that these are challenging times for most higher-education institutions, especially those that are smaller,” said Travis Carter, dean of admission and financial aid at Randolph College in Lynchburg, Virginia, which met four flags in the 2021-2022 data collection period.
Still, he says the metrics don’t give a full picture of an institution’s fiscal health, especially as the timeframe in the analysis includes the pandemic and an economic downturn. Randolph has an approximately $180 million endowment, and he cited its ability to renovate its athletics center and science building without taking on additional debt or financing.
Decreasing Number of Graduating High School Students
Like other schools, Randolph has also shown signs of recovery. In 2021 and 2022, Randolph’s new student numbers climbed, and it welcomed a first-year class this year that’s 40% bigger than last, Carter said.
Willamette University in Salem, Oregon, also pointed to rebounding enrollment since 2021, when it met three flags. Financial hardships, health concerns including the mental toll from the pandemic, and a desire for a more “normal” college experience led many students to defer enrollment or take a gap year at that time. Now, Willamette’s headcount is the highest since 2014 across all of its schools, Vice President for Enrollment William Mullen said.
“When most of our competitors were cutting programs and budgets, Willamette’s strong financial position allowed us to invest in important new initiatives,” said Mullen, citing the incorporation of its art and design school and launch of a computing and information sciences school. Plus, Willamette had its best fundraising year ever, with $27 million in new gifts in the fiscal year that ended in June, he said.
Similarly, Kimberly Kvaal, the chief financial officer for the University of Puget Sound, said the lack of a balance-sheet metric is a “significant omission” in Bloomberg’s analysis. The Tacoma, Washington-based school hit four flags in the 2021-2022 collection period. But Kvaal said the university’s growing endowment, healthy liquidity, and manageable debt give her confidence in the school’s financial stability.
Some schools may be seeing signs of progress since the pandemic. But the most recent numbers show only a modest 2.1% increase in overall US undergraduate enrollment this fall compared to last year, according to the National Student Clearinghouse, which is separate from the Integrated Postsecondary Education Data System survey conducted by NCES that Bloomberg’s analysis used.
That’s the first increase since the outbreak of Covid-19. Still, freshman enrollment declined by 3.6% over the period, the data show.
“I wish I could say the pandemic was such an anomaly, that by next year or the year after, 98% of the schools that have those flags are going to be in a different state,” said Jim Hundrieser, vice president of consulting and business development at the National Association of College and University Business Officers. “I see nothing that suggests that.”
Hundrieser, who is one of the six experts who vetted Bloomberg’s analysis, sees the environment as a chance for schools to take stock of what’s working. “We need to be reconsidering and re-evaluating our systems,” he said. “This is an opportunity for institutions to take a critical look and think about how they will operate differently.”
Rider, a college known for its business school and choir program, met four metrics in Bloomberg’s analysis. Fall 2021 full-time enrollment was down over 20% from 2011. Admission officials gave offers to 82% of applicants, yet the share of students who accepted was just 9%. Institutional aid was rising. And the school was operating at a deficit. It was a difficult time: Covid-19 cost Rider about $31 million in increased expenses and lost revenue, overshadowing the $19 million it received in stimulus, about half of which went directly to students, Dell’Omo, the school’s president, estimates.
Rider President
Gregory Dell’Omo
Rider’s administration tried to raise cash by relocating its choir college and selling the real estate in upscale Princeton. But the deal has faced challenges in part because of student and faculty opposition, as well as protracted litigation. (The school is moving in a “positive direction” with regards to a settlement, Dell’Omo said.) For a period, Rider had to rely on a line of credit to cover operating expenses until student revenue started flowing again in August.
Over the past two years, however, Rider has seen gains after restructuring operations — including eliminating or archiving several bachelors programs such as American studies and piano, and adding new programs related to technology and health care.
Compared to 2021, overall full-time enrollment for the fall gained 1% while full-time enrollment for undergraduates increased 27%. Its most recent freshman acceptance rate was 79% and freshman yield was 11%, according to school officials.
Early indicators of demand — like applications and visits to campus — are ahead of last year. Plus, fundraising is up after donors increased giving during the pandemic. So far, the efforts appear to be paying off. The university’s deficit is shrinking, and it expects to turn a profit in fiscal 2026.
Schools can make a turnaround, but attending a struggling institution can have a chilling effect on the student experience. Meg Ryan, a senior at Rider University, has watched what she says used to feel like a close-knit community falter as the school tries to rightsize itself.
“As a student, it’s really taken a toll on my trust in the school itself,” Ryan said. “It’s kind of had all of us thinking like, what’s going to happen?”
Analysts describe the higher-education market as a barbell, where top schools, like Princeton University and Middlebury College, prosper and schools at the tail slip further into distress. At Boston University, for instance, business is booming after a decision to go test-optional drove a “significant increase” in applications, allowing the school to drop its acceptance rate to 14% for the class of 2026. Yale University and Columbia University have also seen their applications surge.
Schools in the tail, however, will need to differentiate themselves away from the stereotypical liberal arts offerings, experts say. That means fewer schools where students can study anything from archeology to philosophy, and likely a shift among surviving schools on the margins toward jobs-based and technical programs that serve a specific need in the economy.
A rise in closures risks derailing the education of tens of thousands of students, saddling them with debt and deepening inequality.
Students impacted by a closure take longer to finish their programs and are 50% less likely to earn a credential than those whose schools stayed open, according to an April report by the State Higher Education Executive Officers Association.
The harm is magnified for students of color, who, with the exception of Asians, are less likely than White peers to finish if their school folds. An earlier study by the same group and the National Student Clearinghouse Research Center found institutions that wound up closing enrolled a larger proportion of students of color, women, and Pell Grant recipients than open ones.
“The Ivies of the world will always have room to fund pure scholarship, but a lot of schools will never be in that position,” said Keith Morgan, head of the education group at investment bank Piper Sandler. “The closing and consolidation of schools is nascent, and it will continue, I am quite confident.”