Michael Horn analyzes 44 New England colleges and finds 15 already in liquidity stress, with six depleting endowments at twice the safe rate. A 10-15% enrollment drop could push over half into insolvency within a decade unless they shrink operations, refocus on core missions, or merge.
Colleges aren't in trouble just because enrollment is falling. It's also because many of the schools they're acting as though enrollment isn't dropping at all. Steve Shulman and I have teamed up this week to do a deep dive into the finances of 44 private mid sized tuition dependent New England colleges. And the picture it's sobering. Fifteen of the 44 are already facing serious liquidity stress even if there are no further enrollment drops. Six of those are drawing down from their quasi endowments, their unrestricted endowments at over two times the recommended levels and 10 to 15% enrollment decline. If that happens, it could push more than half the institutions into insolvency within a decade unless they make some big changes now. The big difference in our approach is that we're focusing on cash flow, not restricted endowments or paper net asset values. And our contention is that it offers a clearer picture of the true financial staying power and creates a measure that predicted closures like Birmingham Southern years in advance of the actual closure. So our takeaway business as usual, but just not a strategy for colleges. Growth is not a place to depend on frankly. Institutions need to focus on what's our job to be done, where's the focus and they need to right size their operations and consider mergers even much earlier than they prefer. Denying this trend doesn't change anything, but planning for it might just save these schools.
