According to a study by research firm Fitch Ratings, an increasing number of American colleges and universities are shutting down or merging with other institutions as enrollment numbers decline. These findings were corroborated by Moody’s Investors Service, which said it expects closures of higher education institutions to grow due to projected financial difficulties.
Alliance University in New York City said it was closing as of Aug. 31. as Medaille University in New York state held its last commencement ceremony in May. In July, Bloomfield College in New Jersey merged with Montclair State University following a nearly two-year search for someone to rescue it from financial plight.
Fitch says that enrollment decline as well as the pressure put on tuition and student fee growth by college administrations has contributed to the closures. Many schools are at risk of being downgraded from accredited status if their structural deficits do not improve. “Colleges will need to pro-actively make decisions on what programs, departments, capital plans, and assets they believe best fit their organizational and strategic goals,” a senior director at Fitch said.
Donations from alumni and supporters plays a large role in university budgeting. About 5% of donors make up 95% of gift revenue for colleges. This means colleges innately strive to capture the wealthiest people in society, both as alumni donors and in prospective form as students. But smaller donations are also important: alumni relations departments attempt to cultivate relationships with annual givers to build a “pipeline,” or the hope they will become major donors someday. However, about two-thirds of U.S. colleges saw a decline in their donations in 2020.
According to the Chronicle of Higher Education, one of the primary ways a university can be going over budget is through poor handling of infrastructure and facility costs. This can include underutilization of space on campus (leading to the construction of new unnecessary buildings), inefficient management of utilities like energy, too much in-house staff, too many employees in general, lack of planning for future construction projects, and a lack of vision for the university’s future.
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