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Moody's: Private College Closures at 11 Per Year

MOODY'S:  PRIVATE COLLEGE CLOSURES AT 11 PER YEAR
AUGUST 3, 2018

Private college closures have risen to a rate of about 11 per year, and the rate at which campuses are shut down is expected to increase in the future, according to a new report published by Moody's Investors Service on July 24.  The report comes  a few years after a notorious prediction the ratings agency made in September 2015--that closure activity would as much as triple and mergers would double by 2017.  Although the headline grabbing tripling of closures has yet to come to fruition, a significant uptick has indeed take place.  And Moody's is still projecting a future increase in closures toward the range of 15 per year.  

Moody's has consistently noted that private colleges are tenacious in the face of pressure and that while it projected increasing closure rates, it was still predicting a relatively low closure rate of less than 1 percent that could add up if it were to continue over multiple years.  Nonetheless, the ratings agency is pointing out that continued stress from falling tuition revenue and rising expenses will drive colleges to close, merge or make changes like cutting a significant amount of programs.

In the past, favorable demographics and growth in federal funding helped keep closure rates for private colleges low.  But now, demographic changes, most notably in the Northeast and Midwest, are likely to create an "increasing amount of churn" in the higher education sector.  The gap between revenue and expenses is becoming unsustainably high, Moody's found.  About one in five small private colleges is under fundamental stress.  While colleges have other sources of revenue, like gifts and auxiliary income, these other sources will not be enough to make up for the lost student revenue, leading to deep stress and questions about long-term sustainability.  

Lest one think that private higher education institutions are less vulnerable to closure, it is quite the opposite.  Because of smaller enrollments and increasing financial challenges, faith-based colleges and universities and theological seminaries, are in fact closing every year and are included in the Moody's Report.  Nor surprisingly, enrollment growth and financial sustainability continue to be areas of focus for my higher education consulting activities.

Larry J. McKinney
Higher Education Consultant


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