FORBES: The Threat to the Future of Small Liberal Arts Colleges

Career College Central Summary:

  • This article is by William G. Tierney, university professor and co-director of the Pullias Center for Higher Education at the University of Southern California, and James Dean Ward, a Ph.D. candidate in higher education at USC.

    • The small private liberal arts college may soon be an endangered species.
    • About a third of the nation’s approximately 4,500 private nonprofit and for-profit institutions have student bodies of 1,500 students or fewer. Of these, roughly half, or 750, are experiencing financial pressures because of bond indebtedness, according to a recently released report by Moody’s Investors Services. In the past decade, about 60 small nonprofit colleges and universities—Antioch, Cascade, Dana, and Bethany among them—have closed their doors because of debt pressures. They should be viewed as canaries in the small-college coal mine.
    • Roughly three quarters of these colleges’ revenues come from student tuition and fees. But enrollment at the nation’s colleges and universities has declined over the past three years. What’s more, there is little expectation in post-secondary circles of a dramatic increase in students in the near future. The grim outlook disproportionately affects small liberal arts colleges. About half of them report that they fell short of their freshmen enrollment and/or revenue goals in the past two years, according to the Moody’s report.
    • These colleges also face heightened competition for new students from regional public institutions and online education programs. To attract those students, they must offer more modern dormitories, student centers, and athletic facilities. With their revenues stagnating or falling, these small liberal arts colleges have turned to the risky option of issuing bonds to pay for their expensive capital projects. The roughly 750 financially stressed colleges cited in the Moody’s report suffered declining equity ratios and rising expense ratios between 2007 and 2012. Overall, the amount of money that tuition-dependent private colleges spend servicing their debts is growing nearly twice as fast as the amount they spend on such core activities as teaching.
    • Small private colleges’ big turn to debt results in large part from a lack of good other ways to finance new capital projects. Big philanthropic gifts are rare, and research-generated revenues are even rarer. Continuing education programs, even when successful, seldom evolve to provide a significant portion of an institution’s income. Public resources are largely absent, other than in the form of student loans and grants.

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