With each passing year, the financial pressure on the U.S. Colleges is becoming evident. Nearly 20 colleges closed down in 2024. Adding to this is the alarming news reported by the Federal Reserve Bank of Philadelphia that as many as 80 colleges may shut down within the next 5 years. The financial stress, shifting demographics, and change in the perception regarding the value of education are the contributing factors.
Enrollment decline and the Demographic Cliff
At the core of FBP’s report is the term ‘demographic cliff’ in higher education which simply means a decline in enrollments thereby causing a sharp decline in the number of high school graduates. According to the National Center for Education Statistics, 2023, enrollments in colleges fell by 15 percent from 2010 to 2021. The decline began during the pandemic when students opted more for online courses as opposed to full-time colleges. This decline seems to have been exacerbated by the rising cost of education. Another trend contributing to this is the decline of enrolments by adult learners.
Financial Pressures
The report outlines how financial pressures are causing financial distress. Many institutions are barely surviving due to negative returns. This is making it impossible for them to meet operational costs i.e., health insurance and administrative support, which have increased faster than general inflation for decades. Private donor support and endowment wealth in U.S. higher education are highly concentrated among a small number of institutions. This also highlights the stark disparity of financial resources in higher education.
Colleges during the pandemic survived predominantly due to federal grants and other support. Withdrawal of these grants in the post-pandemic times, coupled with other factors has resulted in an increase in closures in 2023-23. Colleges are declaring financial emergencies and even resorting to discontinuing academic programs. The report mentions, “Even flagship universities such as West Virginia University and Pennsylvania State University have pursued sizable reductions in the number of academic programs as they face budget deficits.”
Colleges that are at high risk of closing down
Analyzing the trend it is evident that some colleges that operate with smaller endowments and narrow applicant pools are at the highest risk. For example, Birmingham-Southern College, closed after the spring of 2024 because it failed to get a bond from the state of Alabama. Institutions located in urban areas have a lower chance of closure as compared to rural institutions. Some institutions that close do not provide adequate data to predict with surety about the schools that could close down. We can assume that a decrease in enrollment equal to the demographic cliff will ultimately result in the closure of institutions.
Elite colleges continue to thrive
In stark contrast, Ivy leagues and other prestigious institutions are thriving despite the cost of attendance having reached six figures. The number of applications to these institutions has reached historically high levels. The Common App reported a 10% increase in applications in 2024-25 as compared to the previous year. Applicant and application counts are up: Through November 1, 2024, 904,860 distinct first-year applicants had applied to 863 returning members, an increase of 6% from 850,165 in 2023–24. With the availability of funds, schools are offering lucrative financial aid to the extent of full-ride scholarships to students from middle and low-income households.
Conclusion
College closures cause disruption to students’ academic journey. They are unable to graduate with a degree or certifications which has a negative bearing on their career and their earning potential. This can have further repercussions on the community since anchor institutions work as economic and cultural engines of their local communities. Institutions and communities alike are feeling the financial pain.
https://www.bestcolleges.com/research/closed-colleges-list-statistics-major-closures/
