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Originally Published: Dec 18, 2020
Originally Published: Dec 18, 2020 Last Updated: Dec 21, 2020 8 min read
Hampshire College announced in January 2019 that it was struggling financially and looking to merge with another institution. So far, the college has managed to remain independent.
Hampshire College announced in January 2019 that it was struggling financially and looking to merge with another institution. So far, the college has managed to remain independent.
Courtesy of Hampshire College

This winter, the excitement — and anxiety — of selecting a college has been overwhelmed by questions about when (and whether) campus life will return to normal. But questions about how freshman year will look for the Class of 2021 belies a far more troubling concern for colleges — and students. Because even if a vaccine is available for this young, generally healthy population and if colleges open in the fall, a growing number of them may not have the economic wherewithal to survive in the not-too-distant future.

This summer, for example, the U.S. Department of Justice began an investigation of the surprise closure of Concordia University in Portland, which shocked students with its sudden announcement in February that it would shutter classrooms at the end of the semester. Dozens of other colleges have met a similar fate in recent years.

Nearly nine years ago, Harvard professor Clayton Christensen predicted that “as many as half of American universities would close or go bankrupt in 10 to 15 years.” His timing was clearly off. But the pandemic is wreaking financial havoc on institutions that entered the current crisis already weakened by years of economic trauma caused by steep enrollment declines.

Even before 2020, Moody’s had downgraded the financial viability of a growing number of American colleges. According to Fitch Ratings, most private colleges could absorb an enrollment decline of 5%. Yet, new data from the National Student Clearinghouse shows that the number of high school seniors matriculating directly into college fell by 21.7% this year. That means that a growing number of colleges will have to cut even more costs in order to preserve their credit ratings, which may very well accelerate the frequency of surprise closures in years to come.

The challenge stems, in part, from acute financial pressure that results from aggressive “discounting” tactics necessary to meet often unattainable enrollment goals. According to a recent report from the Chronicle of Higher Education, some colleges are acting more like department stores than institutions of higher education.

Perhaps with good reason: last year, more than 50% of colleges missed their enrollment goals. In years to come, they must contend with declining birth rates during the Great Recession, growing public distrust of institutions, and lingering questions about the value of a college degree altogether.

Of course, most colleges will exist for generations to come. But many colleges are in far more dire shape than prospective parents and students understand. I have never visited a college that doesn’t tout happy students, pristine facilities, rigorous courses and top-notch faculty. But the near-term financial reality of many institutions is starkly different than the shining marketing facade.

If you’re a parent or student, what do you do with this information? You don’t want to send your son or daughter to the next Mount Ida, Green Mountain, or Hampshire College (all of which have closed or attempted mergers with other universities in recent years). If you’re thinking, “The schools I’m looking at are stable,” the schools that are in danger would very much surprise you. Even public institutions will not be immune to closures, and those that fail to pay the ultimate price may nevertheless be forced to make tradeoffs that impact the quality of the student experience, like drastically cutting programs.

With that in mind, I’ve created a list of seven questions for parents, students and counselors to ask as they consider the viability of a college or university.

What is your total freshman enrollment for each of the past five years?
Answer to look for: Is enrollment stable? Declining enrollment is likely a major risk factor.

Are they pressuring you or offering things that feel too good to be true?
What to look for: Higher education expert Eric Hoover, with the Chronicle of Higher Education, describes this approach in a recent report: “Deposit in 2 weeks to receive a guaranteed $2K in scholarships for the next 4 years!” Look carefully at the school’s financial situation and ask yourself if a stable institution would take that approach.

Do you have graduate programs?
Answer to look for: Yes. Graduate programs provide a diverse revenue source and make it more likely that the institution will survive.

What is your 4- and 6-year graduation rate?
Answer you’re looking for: This is more of a quantitative question than anything else. You want your student to attend a school with strong outcomes. A poor graduation rate oftentimes reflects a lack of stability and quality. The American Talent Initiative is a good place to look for this, as their institutional members must have at least a 70% 6-year graduation rate.

What is your discount rate?
Answer you’re looking for: This isn’t widely known in the public sphere. The “discount rate” is the percentage of tuition scholarships or discounts given to each year’s incoming freshman class. Many schools have a discount rate in excess of 50% and rising. Anything north of 60% can be in the danger zone.

How much money do you have in your endowment?
Answer you’re looking for: A large endowment means the university has the stability needed to weather a financial downturn. It also may be reflective of a very passionate and engaged alumni base.

Where do your students come from?
What to look for:
Certain colleges in the Northeast, where many states have declining population rates, are at higher risk. Schools in states with growing populations, such as California, Oregon, Colorado, Florida and Texas, are likely safer bets.

This is far from a comprehensive list, but I advise every parent and high school counselor to consider the above points before making a final decision and choosing a college. Applying to and selecting a school can be an emotional, complex decision. This year, that challenge is compounded. You want an alma mater that you can have pride in and that will be thriving for many years to come.

When deciding on a college, trust your intuition, but know the facts. Treating this process with integrity and respect is the most important thing you can do. Taking that approach will ensure that you set the best possible example for yourself and for your life. Ultimately, whatever decision you make, enjoy the journey.

This story has been updated to correct the membership requirements of colleges in the American Talent Initiative.

Michael Kabbaz previously served as the head of admissions at The University of Richmond and Miami University. He is now the Vice President of Verto Education.