Facing skeptical customers, declining enrollment, an antiquated financial model that is hemorrhaging money, and new kinds of low-cost competition, some U.S. universities and colleges may be going the way of the music and journalism industries.
Their predicament has become so bad that financial analysts, regulators and bond-rating agencies are beginning to warn that many colleges and universities could close.
“A growing percentage of our colleges and universities are in real financial trouble,” the financial consulting firm Bain & Company concluded in a report—one-third of them, to be exact, according to Bain, which found that these institutions’ operating costs are rising faster than revenues and investment returns can cover them.
That’s because, as enrollments decline and families become more sensitive to price, colleges are cutting deeply into their revenue by giving discounts to attract students. The result is that, even though their sticker prices seem to be ballooning faster than the inflation rate, many of these schools are falling further and further behind.
“As the price keeps going up, within 10 years our price tag will be over $75,000,” said Julie Richardson, dean of admissions at Hampshire College in Amherst, Mass. “That’s a number that begins to concern a lot of people.”
So does Hampshire’s discount rate—the proportion of its tuition revenue that goes back out the door in the form of financial aid—which Richardson said is 46 percent.
