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Colleges and the Effect of Falling Enrollment

colleges are going out of business

Between 2016 and 2019, 86 colleges have either merged with other schools or shut down completely. In fact, 53 colleges closed permanently during the 2019-2020 school year. From 2019 to 2021, colleges saw a 7.8% drop in enrollments. In 2022, more than 1 million fewer students are enrolled in college compared to before the pandemic. 


What is causing the fall in enrollment? The rising cost of education outpaced inflation and family income growth until the pandemic affected tuition increases. The lower return on investment, as 73% of people who have a bachelor’s degree or higher are in a job unrelated to their major, also contributes to the low enrollment rate. 


It is predicted that college enrollments will fall by around 15% between 2025 and 2029 due to a smaller candidate pool. Currently, less than 50% of high schoolers want to go to a 4-year college, which is significantly less from 2019 when 71% of high schoolers aimed for college. 


The pandemic has affected the declining enrollment as well. More than 50% of college students in the U.S. have said they could no longer pay tuition in 2020. Half of these people had to find a new way to pay due to the financial impact of COVID-19 while about 7% had decided to unenroll in order to work full-time or find other alternative education options. 


70% of college students said affordability affected their education plans in 2021, leading to almost 500,000 undergraduates deciding to drop out in 2021 fall semester. Financial strains due to the pandemic impacted plans after high school as well with 36% of students deciding to attend a community college (up from 28% before the pandemic), 15% thinking of going to a public rather than private college, and 27% willing to take a gap year to save for college. 


Colleges are essentially competing against each other for business. From 2019 to 2021, while community college enrollment fell 15%, enrollment at highly selective colleges increased by 3.1%. Smaller schools with less than 5,000 students have also typically struggled more than schools with more than 30,000 students. Nonetheless, many universities are operating with a small margin even with rising costs. 


Compared to other colleges, Ivy Leagues and other highly selective schools have a competitive advantage due to the most popular degrees being considered more valuable at these schools than at public and community colleges. Highly selective schools also usually have large endowments that allow them to offer beneficial financial aid to new students. 


How do endowments work at colleges? They are financial assets obtained through donations and are used to create a permanent pool of investments that don’t come with a lot of risk. Universities usually use endowments to fund activities from general operations to research and fellowships. Although schools that spend around 5% of their endowment each year experience less risk for the future market value of their investments, only 106 universities currently have endowments worth $1 billion. 


College is a great investment, so it’s best to know whether your choice is ultimately financially viable. Research is useful for determining the financial health of your chosen college before you begin attending. You can look for tuition discounts, read endowment reports, understand the school’s financial responsibility composite score, or review news reports. 


It is also important to be prepared in case your college closes. If this does happen, some colleges may have transfer agreements with surrounding universities to help students get their degrees, but it’s a good idea to get as much information as possible about transferring credits. You can also research possible federal loan discharge choices or contact local legal aid offices for guidance. 


Investing in the right college can be beneficial in the long run. 

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