Crisis in Academia: 500+ Colleges Close, Stranding Million+ Students

How you can help protect your children from attending a college that might close 

Ric Edelman: It's Thursday, September 5th. There are more than 500 colleges across this country that have closed in the last 10 years. That's three times more than have closed in the 10 years prior to that. This has affected one and a quarter million students and the closures are expected to continue. 

I've been telling you about this for quite some time. There are a lot of reasons for this:  

1) COVID 19 funding is gone.  

2) There are fewer students in the pool because of reduced birth rates.  

3) We've got a rise in prices as we all know, and it's causing students to think twice about the value of getting a college degree. 

The bottom line is that enrollments have been declining since 2011. That's fifteen years roughly, and it is putting a real pinch on universities. With declining enrollment and fewer students attending, that's less tuition revenue they're earning.  But their costs remain high. One of the more recent to close is the University of the Arts in Philadelphia. This school is 150 years old. And in May, it announced it was closing, and it closed a week later. Talk about little notice. Birmingham Southern College shut down on May 31st. In fact, they did it with no notice at all. Its baseball team was playing in the Intercollegiate World Series Championship in Ohio.  When they announced they were shutting down, the students went home. There was no college left when they got there.  

Now, here's the bright side of this terrible story. Other colleges are now beginning to offer deals to students that have been stranded by their school closings. When the University of the Arts in Philadelphia closed in May, a dozen other schools posted announcements that they'd accept the students.  Yersinia College and Drexel both offered the students a 50 percent discount on tuition. Point Park University offered free housing for a semester. LaSalle said they'd take all the students. And the College of New Jersey waived its fees. All these schools jumped in because they themselves are struggling to attract enough students. 

So they're kind of scavenging. Actually, I think this is good. Because in a study of all the schools that closed between 2004 and 2020, less than half of the students continued their education. And when a school closed abruptly, like the University of the Arts did, the students were even less likely to re-enroll.  So, bravo to these other schools for offering to rescue the students.  

This story led one of my listeners to ask me this question. Here's what Laura in California wrote to me: “My adult daughter is going back to school for an MBA. I’ve heard your words about schools going under and what can happen to the students of schools that go bankrupt and close their doors. How can she research if a school is financially solid before she commits to attend? Where is that information kept?”  

This is part of the dilemma, Laura, is that schools generally don't release their financial information. They consider themselves private. Even if they're a public institution, they consider their finances off limits to the public. And if they are in financial trouble, the last thing they want to do is let anybody know about it because that'll just exacerbate their situation.  If you knew that the school was in financial trouble, you wouldn't attend and that would just accelerate their financial troubles. So, they don't really reveal this kind of information. The only thing that I can suggest is that you contact the school, ask them to provide the data. I would think that a school that is financially solvent would be more willing to release its financial statements. 

And I think this is something that we need to press our state legislatures for to get them to pass laws that require schools in their state to release this data on an annual basis so that students and their parents can evaluate the financial solvency of the institutions. What I will tell you is this, the schools that are most at risk of closing are rural liberal arts schools that have less than a thousand students. If you're a small school that is offering the kind of a degree that is touchy feely, you know, a little more intellectually focused as opposed to pragmatically focused, chances are higher that you don't have enough revenue to be able to sustain your operations. These are the schools that have been closing the most frequently over the past decade. 

So, keep that in mind as you're considering where to send your child. Does that school, does that school have thousands of students? Tens of thousands? Or does the school have merely hundreds of students? The downside to all of this is that those small rural schools are highly appealing to students because they are a close-knit community.  You have a very strong student-teacher ratio so that the students are sitting in a classroom with 20 other kids, as opposed to sitting in an auditorium with a thousand kids that are being taught by a teaching assistant...themselves a grad student, as opposed to a faculty member who is devoting their attention to the students full-time.  So, I get why  small liberal arts schools are attractive to students. But let's just make sure that you're doing your best to ascertain whether that school will be in existence over the next four years.  

On a related note, the Supreme Court, as you probably heard, just killed the latest attempt by Joe Biden to waive student loan debt.  That plan would have canceled 400 billion dollars in student loans. The Supreme Court, I think this is now for the fourth or fifth time, has said, no, this is not constitutional. So, don't assume that if your student does go to school, and the school closes, and the student is stuck without a school, without a degree potential -- but has student loan debt from that closed school, that student is likely going to continue to be stuck with that debt, making it more and more imperative that you choose the college you want. 

Hey, remember next Wednesday, September 11…it's our webinar on the federal rate cuts that everybody's expecting to be coming soon, creating a very new interest rate environment. The first one in years where we have declining rates rather than rising rates. We're going to tell you all about it. Jerome Schneider from PIMCO is joining me. This is a wonderful event and a great opportunity for you to figure out what the new interest rates are and what fixed income opportunities there are for your portfolios. Register for free. The links in the show notes. If you're a financial advisor, you get one CE credit. See you next Wednesday. 

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Rates are Poised to Drop, Now What? (9/11 Webinar – Register Now for Free!): https://www.thetayf.com/pages/rates-are-poised-to-drop-now-what 

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