Cautions and Paths Forward
To be clear, institutions with something less than three years of baseline staying power or 10 years of maximum staying power are not doomed to be part of the coming college consolidation and distress—either closing, merging, or declaring financial exigency. Schools can seek to generate new revenue streams, attract more students, reduce costs, create partnerships, and more. They can fundraise, sell illiquid assets, and sharpen their value propositions.
But as leaders consider innovative ways to maintain or even grow enrollments, they must remember that these strategies take time and money to mature and are not guaranteed to succeed. Furthermore, they should not sidestep an inconvenient truth by focusing on net asset value rather than cash with their boards. Nor should they question whether it is fair to assume that all things will be equal or simply believe they will come out on the “right” side of the coming declines in enrollment.
Yes, it’s possible that if colleges on our list close or merge, some of their enrollment will go to other schools on the list. That’s likely, in fact, since 57 percent of students nationwide enroll in a college within 100 miles of home. Some of the schools could therefore experience rising enrollment at the expense of other institutions.
Many of these schools appear to be adopting such a strategy of hope, which is unwise given the challenges they are already facing. Thirty-eight of the 44 schools list “growth” as a main objective in their published strategic plans, and in most cases emphasize at least maintaining enrollment of traditional-aged students. That suggests they aren’t assigning sufficient weight, if any, to the downside risks to their plans in a sea of zero-sum enrollment challenges for institutions.
As a case in point, at 30 of the 44 schools, cash declined by 30 percent on average over the last two years. Whether that shortfall is because of enrollment declines (although first time matriculations were down 1.9 percent on average for the 44 schools in the last year), because cost increases—particularly for compensation—outpaced increased revenue, or because of tuition discounting doesn’t matter. It happened.
Taking a forward-looking finance mindset to planning as opposed to relying on accounting, which focuses simply on the past, will be key. Even as schools pursue new strategies, downside risks must be considered.
By way of illustration: Personnel costs account for 56 percent of total operating expenditures on average for the 44 schools. It is possible to shore up finances at the same time schools are attempting to shore up enrollments by taking advantage of normal attrition—which the College and University Professional Association for Human Resources (CUPA-HR) estimates to be 13.4 percent annually nationwide—to downsize thoughtfully, gradually, and discretely. Phased downsizing could be a relatively painless way to mitigate financial risk, so long as the school can still deliver on its commitments to students through strategies like using AI for administrative tasks, partnering with other schools for courses, and the like. In contrast, major cuts enacted under the gun are likely to be reported by the media, which could in turn raise student and parent concerns and accelerate declines in enrollment.
