A Looming Crisis: New Analysis Shows Dozens of Well-Known Colleges Are Near Financial Trouble

Steve Shulman reached out to me at the end of 2024. His alma mater, Brandeis University, had been in the news earlier in the year because of some sizeable cuts followed a few months later by the resignation of its president. An entrepreneur who, in the second half of his 50-year career, had served as a software developer and a financial consultant for several higher education institutions (Shulman sold his patented IP—the “System and Method for Econometrically Based Grant Management”—and the consulting practice he built around it, B3i Analytics, to Huron Consulting in 2020), Shulman wondered if Brandeis’s financial woes were indicative of broader challenges in higher education. After all, in Brandeis’s previous annual reports, the University had consistently touted its “strong working capital position,” when the position was, in Shulman’s opinion, “severely anemic at best.”

He decided to dive deeper by exploring in-depth the finances of 44 private, tuition-dependent New England colleges and universities that enroll between 1,000 and 8,000 students. What he found shocked him. A significant number of these mid-size colleges and universities that had strong brand names were on the precipice of significant liquidity crunches. In his words, “the kind of ‘austerities’ that would be needed to close the cash gap would be draconian.” It was no exaggeration to say that, given the enrollment declines likely to impact many colleges and universities in the years ahead and given that higher education isn’t known for being fleet of foot, many of these schools are staring at existential risks.

Given my own research, writing, and predictions on the topic of college closures and mergers with Clay Christensen (such as in the New York Times and subsequent updates and explanations in Forbes), Shulman reached out. When I finally got around to spending a lot of time with his dataset this past summer, I couldn’t believe what his in-depth research showed. Most of my focus had been on three segments of the industry where most closures and consolidations had occurred: for-profit institutions; tuition-dependent, non-profit schools with fewer than 1,000 students, which represent 35% of all colleges—down from 40% a decade ago thanks to consolidation; and regional public colleges and universities that are merging. By focusing on mid-size, private colleges, Shulman showed that the world of hurt for higher education could cut much deeper. We began to collaborate, and I published a piece in Forbes yesterday on his findings (read it here). In today’s Substack, Shulman and I teamed up to explain the research in much more depth—and to anticipate several questions around what might happen next. Given the sensitive nature of the research and how long this write-up is, I’ve made the piece free to read.

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While much of the country remains fixated on the tensions between the Trump administration and elite research universities, a more insidious threat to many other institutions of higher education is brewing.

Shulman’s analysis using audited fiscal year 2024 results indicates that 15 of the 44 schools he studied are already facing serious liquidity challenges at their current levels of enrollment—or will do so shortly. Specifically, assuming business as usual, these schools will only be able to cover their typical operating expenses and other normal uses of cash for a maximum of three years before they must spend beyond 5% to 7% of their unrestricted quasi-endowments to sustain operations—which risks undermining their long-term sustainability. Six have already stepped into that dangerous territory, as they are, on average, drawing down 12.7% of their endowment for operations—well in excess of the industry norm of roughly 5%.

Six more—a total of 21 of the 44—schools will find themselves in the same difficult position if their enrollments begin to decline by just 10% between 2025 and 2029—a decline in accordance with what has long been predicted for the industry over that period of time.

Although there are arguments and competing datasets over just how steep the decline will be—some use data from Nathan Grawe, a Carleton College professor and author of “Demographics and the Demand for Higher Education” whereas others cite The Western Interstate Commission for Higher Education’s (“WICHE”) most recent study, “Knocking at the College Door: Projections of High School Graduates”—Shulman’s study serves as a warning: getting into a debate over the precise decline in the traditional college-age population will cause schools to miss the point.

There’s agreement that college enrollment is shrinking, and Shulman’s analysis shows that the survival of a significant number of the schools is at-risk. Business as usual for many is not an option, as his study looks at the potential financial impact of enrollment declines on the 44 institutions that range from 0% to 20%. Indeed, first-time matriculations at 27 of the 44 schools dropped 8.8% on average between 2023 and 2024 according to IPEDS—which will have a cascading impact on their overall enrollment as larger classes graduate, regardless of any possible further declines in the size of their incoming classes.

The cause of these challenges isn’t one single factor, but a set of pressures building from demographic changes, shifts in the public’s perception of the value of a college education, increased operating costs, emerging alternatives to traditional colleges, and, of late, possible changes in federal policies and programs. The net effect is that many institutions are much closer to the brink of closure than they have been in the past.

For example, if enrollment at the 44 schools falls by 15% over the next four years and business proceeds as usual, then 29 of the schools will have less than 10 years of cash on hand and generated in the normal course of business plus unrestricted quasi-endowments before they would become insolvent, assuming no major cuts, additional philanthropy, new debt, or asset sales. Fourteen would have less than five years before they become insolvent.

Even if enrollments declined only 2.5% per year over four years, quasi-endowments would sustain 22 of the 44 survey schools for just 5.4 years on average. If enrollment declined by just 1.25% per year over four years, 15 of the schools would have just five years before they became insolvent.

Although the research can’t say definitively that the schools will consolidate, it does show that many of these schools are in for a predictable world of hurt.

Understanding the Research

As shown in Figure A, many of the schools analyzed in this study have relatively strong, recognizable brands. They collectively serve roughly 140,000 students and employ nearly 13,000 faculty and 19,000 staff members.

Figure A

In contrast with most college financial health models that give considerable weight to an institution’s net-asset value on paper—which includes a school’s entire endowment and equity in property, plant, and equipment—the model used in this analysis examines the cash flows of a college or university. It looks only at liquid assets—cash that is available and generated in the normal course of business and other unrestricted investments that can fund operations. For most schools, these total only about a third of total net-asset value. The model uses a simple formula with just two parts to examine each school’s potential long-term cash flows based on published year-end financial statements: Cash and equivalents on hand and annual primary net cash flow.

Annual “Primary Net Cash Flow” (as distinguished from cash that might be on hand for technical, temporary, or restricted purposes) is calculated in the following manner:

Operating Outcome + Depreciation - Debt Retirement - Capitalized Expenditures

“Operating Outcome” is a college’s net income from operations—operating revenues minus operating expenses. Schools typically rely on this as the primary measure of their financial performance over the course of a year. But this focus is short-sighted. It doesn’t say whether a college is generating a cash surplus or cash deficit, which is far more important than the operating outcome per se.

The methodology of this study addresses that by adding back depreciation—a non-cash expense; subtracting debt retirement—cash payments on debt principal given that just interest is considered an operating expense; and subtracting capital expenditures that are not funded with debt, which have an immediate impact on cash, but are only recognized as operating expenses over time through future depreciation. Factors other than these that affect the expression of cash on school’s balance sheet that are technical in nature (such as an increase in payables) and are unavailable to fund normal operations (such as investment returns that are en route to be reinvested in designated endowments) are not included. Likewise, one-time infusions of cash from issuing new debt or the sale of assets are excluded because the objective is to estimate future net cash flows in the normal course of business.

For those institutions that have a negative net cash flow, one can calculate how long the institution can continue to operate in this manner in the ordinary course of business on a present value basis simply by dividing its cash and equivalents on hand at the end of a fiscal year by the primary net cash outflow for that year. We refer to this measure as a college’s “Baseline Staying Power”—the time period by which a college will exhaust its cash and cash equivalents before it must take extraordinary measures to meet payroll and pay other bills if it simply carries on as it has most recently.

A school with $25 million in cash and equivalents on hand and a negative net operating cash flow of $10 million, for example, would have 2.5 years of “Staying Power.” The calculations assume a business-as-usual posture—meaning they assume there won’t be any groundbreaking gifts, dramatic cuts, new debt, or growth.

Technical cash-management tactics and short-term borrowing to cover seasonal needs aside, if an institution desires to continue carrying on business as usual, those extraordinary measures will likely mean dipping into its unrestricted quasi-endowment beyond a normal spend rate as the primary source of additional cash. By adding in an institution’s quasi-endowment, we can calculate a “Maximum Staying Power” measure to see how long a college could sustain operations by spending down its unrestricted investments.

To be clear, although schools can legally draw down the principal of their quasi-endowments and use those funds for any purpose with board approval, it is only prudent to do so to preserve working capital. It may make sense, for example, to fund an essential but costly maintenance project using quasi-endowment. But drawing down funds that the board has put aside to support the school for the long term to fund current operations on an ongoing basis is contrary to the principles of sound financial management that have helped the 44 schools exist for 134 years on average.

With these calculations in place, one can then approximate how different declines in enrollment would impact the institution by reducing its total student net revenue in lockstep—a 10% decrease in overall enrollment, for example, would mean a 10% decline in the total student net revenue portion of an institution’s total operating revenue. For purposes of calculating Staying Power, it isn’t necessary to get overly analytical about which student populations might see declines and the impact of tuition discounting. The calculations focus only on net student revenue.

Figure B shows how the baseline staying power shifts at different levels of enrollment decline—from 15 at-risk of dipping into quasi-endowment within three years if enrollment is flat to 28 at-risk if enrollment declines 20% over four years.

Figure B

Figure C shows how the maximum staying power—a measure that assigns a timeline to potential insolvency—shifts across the 44 institutions at different levels of enrollment decline assuming business as usual—from two institutions at-risk within 10 years assuming no decline in enrollment to 32 schools if there’s a 20% decline over four years.

Figure C

Some natural objections may arise.

First, what about a school’s endowment? Endowments other than quasi-endowments are restricted by donor stipulations and can’t cover ordinary operations except in accordance with those stipulations and subject to state law, federal regulations, and the institution’s endowment spending policy. On average for the 44 schools, 61% of total endowments are restricted.

Second, what about the ability of an institution to sell off other assets like real estate or to take out debt? Those are certainly options, although the ability to take out additional debt on favorable terms or at all from a compromised financial position is a question mark at best. Using the commercial market real estate model as a proxy for a school’s debt capacity in the absence of any standard measure, debt averages 54% of the book value of fixed assets for the 44 schools, which indicates they are already somewhat heavily leveraged. And liquidating assets is certainly not business as usual.

Case Studies Using the Methodology

Although many in this group may close or merge, these numbers aren’t a prediction per se. That said, the measures do seem to predict a school falling into financial challenges better than existing financial metrics.

To give an example of the model’s utility, consider Birmingham Southern, a college in Alabama that closed its doors in 2024. When the school’s 2019 financial statements were fed into the cash-flow model, it showed that the school had less than a year before it would become functionally insolvent—which is what would have happened had it not received a $3 million COVID grant, a $10 million loan from an affiliated religious group, and spent down most of its $50 million donor-restricted endowment to stay afloat.

By contrast, the federal government monitors colleges based on a “Financial Responsibility Composite Score,” or “FRCS,” which is made up of three ratios from an institution’s audited financial statements: its primary reserve ratio, an equity ratio, and a net income ratio. It ranks schools along a scale from negative 1.0 to positive 3.0. According to the Federal Student Aid website, “a score greater than or equal to 1.5 indicates the institution is considered financially responsible. Schools with scores of less than 1.5 but greater than or equal to 1.0 are considered financially responsible, but require additional oversight.” According to the federal government, Birmingham Southern’s composite score in 2019 was “financially responsible” at a 1.9. Birmingham Southern’s auditors did not identify the school as a going-concern risk until 2023 based on its 2022 audited financial statements. What this shows is that the purpose of the federal government uses the FRCS test to stop providing additional student loans to institutions that are clearly failing and don’t have a quasi-endowment backstop. That’s a reasonable purpose and one of the reasons that all 44 schools studied are currently considered “financially responsible” by the federal government.

As another example, at the end of its fiscal year 2023, Brandeis University, a school in the Boston area that was not part of the study because of the size of its research portfolio, reported a $1.9 million operating surplus and said, “The University’s financial profile remained solid in fiscal year 2023.” Just one year later, however, the president resigned after the University cut 60 positions and a faculty vote of no confidence, as the University faced what the Boston Globe labeled “financial headwinds.”

How did this happen seemingly out of nowhere?

In our view, the answer lies in its cash positions. Brandeis’s challenges were the predictable result of the decline in enrollment the university had experienced in recent years. According to the cash-flow model used for this paper, Figure D are the first five years of a 10-year cash-flow projection for Brandeis based on its 2019 financial statements with direct research expenditures and the associated grant revenue offset excluded. The model builds in a 10% decline in enrollment, which is what Brandeis experienced over that period of time, according to its own reporting.

Figure D (in millions)

This modeling isn’t intended to precisely replicate the University’s revenue and expense totals year by year, as it is expressed in 2019 present-dollar terms. And increased non-student revenues from indirect cost recovery, a higher draw on endowment, an increase in other investment income, COVID grants, and other factors buoyed the University’s cash position at year-end over the years creating, it appears, something of a bubble effect that masked the underlying weakness in its primary net cash flows. Still, without a precise measurement of the increases in expenses that these revenue increases covered, the model predicted an underlying erosion in cash over time based simply on the University’s 2019 cash position and primary net cash flows in relation to the risk of a decline in enrollment—which occurred. And, most importantly, the model projected a $20-million drawdown on the quasi-endowment in Year 5. Why is that number important? Footnote 10 on page 20 of the University’s 2024 required statement of Financial Assets and Liquidity Resources (reproduced in Figure E) indicates that the board approved an increase of $18.5 million in spending from the endowment in 2025—an increase of approximately $15 million above what one would have expected based on the University’s normal spending policy and approved draws on endowment in recent years.

Figure E

This behavior does not appear to be unusual for schools. They tend to overstate their financial hardiness, take a “wait-and-see” approach, or appear to be unaware of the risk they face. For example, one well-known school included in our study recently reassured its stakeholders by saying that the university maintained its robust financial position with sizeable assets and a large, relatively unrestricted endowment that meant they were relatively liquid.

The cash-flow model, however, paints a different picture. If the school were to do nothing and simply liquidate its large quasi-endowment to fund business as usual, it has less than 10 years of Staying Power even before considering the impact of possible declines in enrollment.

We’ve also replicated this analysis for 27 schools on the west coast that have characteristics similar to the New England schools, as shown in Figure F. The outcome of that research showed that the finances of the west-coast schools were even more concerning, as close to half exhibit signs of financial distress even without an enrollment decline—and nearly two-thirds must dip into quasi-endowment after 3 years if enrollment were to decline just 10%.

Figure F

This analysis suggests that many more of the 500-plus private, midsize, tuition dependent colleges and universities across the country may be facing risks similar to those demonstrated for the at-risk New England schools.

Possible Paths Forward

To be clear, institutions with something less than 3 years of Baseline Staying Power or 10 years of Maximum Staying Power are not doomed to be part of the coming college consolidation and distress—either closing, merging, or declaring financial exigency. Schools can seek to generate new revenues, attract more students, reduce costs, create partnerships, and more. They can fundraise, sell illiquid assets, and attempt to sharpen their value propositions.

Growth

But as leaders consider ways to innovate to maintain or even grow enrollments, they must remember that these strategies take time and money to mature with no guarantee of success. That 38 of the 44 schools list “growth” as a main objective in their published strategic plans with an emphasis in most cases on at least maintaining enrollment of traditional-aged students suggests they aren’t assigning sufficient weight, if any, to the downside risks to their plans in a sea of zero-sum enrollment challenges for institutions.

College leaders should also not sidestep an inconvenient truth by focusing on net asset value rather than cash with their boards—or question whether it is fair to assume that all things will be equal or simply believe they will come out on the “right” side of the coming declines in enrollment.

Yes, it’s possible that if colleges on this list close or merge, some of their enrollment will go to other schools on this list given that, nationwide, 57% of students enroll in a college within 100 miles of home. Which means that some of the schools on this list could experience rising enrollment at the expense of other institutions.

But praying and hoping for growth isn’t a good strategy, particularly given the challenges many of these institutions are already facing. As a case in point, cash declined by 30% on average at 30 of the 44 schools over the last two years. It doesn’t matter if that is because of enrollment declines—although first time matriculations were down 1.9% on average for the 44 schools in the last year; if it’s because cost increases—particularly for compensation—outpaced increased revenue; or if it’s because of tuition discounting. It happened.

Downsizing

Taking a forward-looking finance mindset to planning as opposed to relying on accounting, which focuses simply on the past, will be key. Even as schools pursue new strategies, they must plan for the downside. Clark University, one of the 44 schools in the study, provides a good example of a university proactively cutting costs—even before conventional metrics signaled risk—to avoid harsher measures later.

More generally across the 44 schools, personnel costs account for 56% of total operating expenditures on average. It is therefore possible to shore up finances at the same time schools are attempting to shore up enrollments by taking advantage of normal attrition—which the College and University Professional Association for Human Resources (CUPA-HR) estimates to be 13.4% annually nationwide—not by imposing a strict hiring “freeze” but by downsizing thoughtfully by filling priority positions through promotions or transfers from lower priority positions from within gradually, and discretely. Phased downsizing could be a relatively painless way to mitigate financial risk, so long as the school can still deliver on its commitments to students through things like the use of AI for administrative tasks, partnerships with other schools for courses, and the like. In contrast, major cuts enacted under the gun are likely to be reported by the media, which could in turn raise student and parent concerns and accelerate declines in enrollment.

To illustrate the dynamics of phased downsizing, Figure G shows a 10-year composite profile of the 21 schools that have Baseline Staying Power of less than 3 years if they experienced a 10% decline in enrollment over the next 4 years. As the figure shows, the schools exhaust their cash-only reserves by year 2 and are insolvent by year 8, assuming no major changes to operations.

Figure G (in millions)

If, in year 4, after 3 years of drawing down the quasi-endowment, this average school undertook an immediate $10 million reduction in force, then 87 positions—13.5% of its faculty and staff—would be eliminated. Imagine the media outcry given that eliminating 60 positions out of a staff of over 1,000 people earned Brandeis big headlines in the Boston Globe. Plus, as Figure H shows, the quasi-endowment would still be drained down from $104 million to $35 million.

Figure H (in millions)

But, as Figure I shows, if this average school took advantage of a 10% attrition rate among faculty and staff from the start by selectively eliminating the equivalent of 40% of the positions that become vacant, its quasi-endowment position at year 10 would be improved by $21 million—not insignificant given that this would mean eliminating 97 positions, 10 more than under the hiring freeze just illustrated to be sure, but phased in discretely over four years. It would take an untenable reduction in force of 114 positions—or 17.7%—in one year to achieve a comparable bottom line financial result. Plus, with phased downsizing, this average school will have likely avoided many negative headlines.

Figure I (in millions)

To be clear, this is an important insight—and it may not be enough. Cutting as faculty and staff leave without regards to department and function may leave schools thin in core areas and strong in areas that they don’t need to thrive. In other words, the cutting could be decoupled from a strategic perspective of where the school should focus. That’s particularly true in an era in which colleges increasingly need to have a clear value proposition—which must be clear to and valued by students and families. For most schools, the era of seeking to be all things to all people—“Comprehensive U” as Jeff Selingo terms it—is over. It’s simply unaffordable, as this analysis shows.

As Clay Christensen and one of us, Michael, argued in a 2013 article in the Chronicle of Higher Education, that means colleges will need to learn to focus. Schools will have to decide which Job to Be Done they want to excel at and which ones they’ll purposely forego. Doing so has at least three benefits.

First, organizing around a Job reduces an organization’s overhead costs significantly. As an organization delivers on a Job, processes emerge, and if the organization focuses on just one Job, then the processes become efficient. If you try to do lots of Jobs for lots of people, however, then organizational processes become complicated, much like what has happened in colleges. If a school, for example, tries to do four Jobs instead of one, our research shows that its overhead per student will be roughly 70% higher than if it focuses on one job. Overhead is the significant driver of costs, and overhead is driven by complexity.

Second, if an organization focuses on an important Job in the lives of customers and does it well, it can charge premium prices that customers are willing—and even delighted—to pay.

Third, when an organization focuses on one Job, it’s much easier to make changes and tradeoffs as new technologies and tools become available. With the mindset of focusing on a specific Job, it doesn’t matter what new technologies emerge in the future. If a technology can help a college do the Job that it has chosen, then it should be able to make changes accordingly and seamlessly. If the technology is not useful to doing the Job, then it can ignore it. And if a cost center helps a school execute on a Job, then it keeps it. But if it doesn’t, then it helps a college understand what it can discard without degrading its “quality” because it’s clear around what it’s prioritizing—and choosing not to do.

Mergers

Finally, leaders would be wise to stop considering partnerships and mergers as being akin to failure. Instead, being realistic about whether an institution can make it on its own is critical so that the institution can avoid not just Birmingham-Southern’s fate, but also what that institution did to the 1,224 new students it enrolled between 2019, when it was obvious it was in deep trouble, and its closure in 2024.

Being proactive about a merger while an institution still has valuable assets and a strong value proposition provides leverage in negotiations. And using that leverage to preserve the mission of the school in the context of a merger may be the best and possibly only way for the board to fulfill its fiduciary responsibility.

Steve’s analysis models out what each of the schools can gain by merging with others among the 44 by generating a composite financial profile of the combined schools, which allows an institution to model out the potential financial synergy based on a range of possible economies of scale.

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Ultimately, strategic cost cutting coupled with the proactive exploration of mergers are likely both better strategies than hoping for growth and outperformance of other New England colleges in what is going to be a tough environment for higher education.

Schools and their boards of trustees should acknowledge the reality and plan accordingly.