Revisiting Campus Closures

A few years ago, I spent some time talking about the likelihood of more mergers and acquisitions in the higher education space. Predicting closures, as many in the industry have, is not one of those forecasts you hope will come true. However, as we wrap up another school year, we’re seeing an increase in the number of schools announcing their closures.

While we saw some schools close as a result of the pandemic, we’re seeing many more shutter post-pandemic as Higher Education Emergency Relief Fund (HEERF) funds ran out. While some schools used HEERF funds for one-time investments to assist with student success or technology, others used it to plug holes in the budget due to lost revenue from housing or lower enrollment. For some schools, that lost revenue has not been recovered as the students haven’t returned en masse.

We’re nearing the edge of the so-called demographic cliff when the number of high school seniors graduates will peak in 2026, leading to a precipitous drop over the next two decades. This will be compounded by pandemic learning losses impacting potential students’ college readiness.

Undergraduate international student enrollment has softened, the impact of which will be felt more at smaller institutions. Meanwhile, larger schools with graduate degree offerings are seeing a boon with a 21% increase in fall 2022 enrollment. Anecdotally, I’m also starting to hear about students shifting their interest to technical college, but I’m still waiting to see the data.

The schools that we’re seeing closing usually have a few common denominators. The good and the bad is that the signs typically show well before closure, although I’ve admittedly been surprised from time to time.

The smaller schools tend to be more vulnerable. A school of 1,000 students falling 20 students short of goal for has a far greater impact on the budget than on a school with 10,000 students. As mentioned above, with so many headwinds related to enrollment, it becomes more difficult for smaller schools to attract students.

The biggest indicator of vulnerability is money. Higher ed has a reputation for hoarding funds, although much of these are restricted for specific purposes like scholarships or endowed chairs. However, the vast majority of schools do not have as many available funds for operations and maintenance of their campus as it might appear.

For many schools, a lack of an endowment is a real challenge as they are unable to amass as much wealth from their alumni and other supporters. Schools with even a $100 million endowment can weather a blip in enrollment, but that becomes nearly impossible for schools with $10 million to $20 million, especially when access to some or most of those funds is restricted).

We’re seeing stress in budgeting even at the highest levels, such as the University of Arizona's eye-watering $162 million deficit. While it can be easier said than done for many institutions, those with strong budget discipline appear most equipped to handle changes in the higher ed landscape. These changes can be painful, but they can help the institution’s long-term sustainability.

Many schools are focusing at least a portion of their current capital campaigns on growing the endowment. This provides more future flexibility to provide short-term support for operations through higher draws, as well as enhances a school’s ability to award competitive scholarships.

A lot of schools are looking strategically at their physical plant and where efficiencies can be found. I’ve seen these strategies result in an influx of cash to invest elsewhere or provide expense reductions from maintaining the property.

Hampshire College in Amherst, Massachusetts, is an example of an institution that was able to turn around a situation that was likely to end with closure. They focused in on their mission, curriculum and growing financial resources with promising results.

I think we’re just getting started. We’re still a year or two away from the looming demographic cliff. And while inflation seems to be cooling, most universities continue to face rising labor and material costs.

The rollout of the new FAFSA form has not gone well; FAFSA completion is down 36% year-over-year through April 12. For large institutions, there isn’t a huge concern about its impact. However, schools that rely on more low-income students are very concerned about access, ease, and transparency as they work to attract these students. It’s unclear at this point what impact, if any, this will have on fall 2024 enrollment.

Bear in mind that the number of closures since 2016 still accounts for only 3% of all public and private nonprofit schools. However, 34 schools have closed or announced their imminent closure in just the past two years.

For now, there seems to be a way to navigate the current conditions. I’d love to hear about what you’re doing to help on expense management. Are you participating in any consortiums to manage expenses? How much are you doing in shared services? Are you exploring other revenue sources?