Tuesday, April 30, 2019

Today is the Day More Private Colleges Will Decide to Close

Today is the Day More Private Colleges Will Decide to Close

Well, maybe not the final decision to close.

May 1st is a common date for students to commit to the college of their choice with a financial deposit.  Since last Fall, college leaders and admissions staff have projected, updated and then projected again and again what they think will be the final number of new freshmen who choose their college or university.  They have also been tracking the total amount of unfunded scholarships (also known as discounts) offered to encourage new students to enroll.

Many of theses small and medium-sized private colleges have small windows of error for their enrollment projections.  The cost-cutting efforts over that past few years have left nothing more to cut without loss of quality and consistency.  Tuition revenue has become their most important determinant of a financially viable future. 

In many cases, the percent of students accepted has gone up from previous years, but the percentage of students who accept the admissions offer has gone down.  Scholarships in the form of unfunded discounts have eroded the amount of cash needed by these colleges to survive and thrive.

The noise about private college closings, particularly in the Northeast and Midwest has reached the level that it appears many families will have concerns about choosing a college that may not survive their student's college years.  If this thought process is exhibited in any significant numbers, the impact will result in a series of private college closure announcements.  The margin for success is small.

Based on the financial ratio research I have done on hundreds of private colleges, here is my prediction of private, not-for-profit college closure announcements through December 31, 2019.

                       Northeast: 3-5
                       South: 1-3
                       Midwest:  4-8
                       West:  0-2

If these estimates are anywhere close to accurate, the cascading impact for college decisions on May 1, 2020 will be substantial.  The word-of-mouth and industry prognosticators will create so much uncertainty in the future of small to medium-sized private colleges and universities that students and their families will increasingly choose more financially stable options for their college education.

May 1st will be a day of decision for many private colleges.  While still an option, the economic logic of mergers and alliances has probably passed; now the student's choices may make the struggling college's decision to close a reality. 

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