College closings rare, but could rise in turmoil

updated 1:55 p.m. ET Nov. 16, 2008

For 15 years, Cascade College in Portland, Ore., struggled to find the fuels that any college needs: students to pay tuition, and donors to help build an endowment.

Then came the global economic meltdown, and suddenly that struggle became an impossibility.

Late last month, the small Christian college with just 280 students and $4 million in debt announced it would have to shut down at the end of the current academic year.

"Our hearts would have said we would like to continue trying," said Cascade President Bill Goad, somberly adding he never imagined his duties would include shutting the school down. But on top of their long-term challenges, "small colleges like Cascade just don't have the slack to survive those kinds of impacts," he said.

Colleges are remarkably resilient institutions. Princeton University's Nassau Hall still bears the cannonball marks from the Revolutionary War battle that raged near campus. Dickinson and Bowdoin colleges saw their first buildings burn down, as did the University of Vermont, which also survived its first president going insane.

Challenges posed by economic turmoil
Still, every year, a handful of institutions go under. And while a wave of college closings is unlikely, the current economic turmoil could accelerate the pace.

In addition to Cascade, another Christian institution, Taylor University, announced last month it would close the undergraduate program at a branch campus in Fort Wayne, Ind., while Pillsbury Baptist Bible College in Owatonna, Minn. announced plans to close.

And on Wednesday, Vennard College, a Christian school in Iowa that was down to about 80 students, announced it would close at the end of the current semester — two years shy of its 100th birthday.

If more college closing announcements come, it would likely be next semester, or next fall, when schools find out how many of their students don't return.

"We've seen what's happened to family income, the financial assets of so many families," said Matt Hamill, senior vice president of NACUBO, a college business officers group. The key question is "how that will manifest itself when it comes time to enroll next fall."

There are about 4,400 colleges in the United States, and the American Council on Education has records show that only four closed in 2007.

Outright closings are rare
Mergers are somewhat more common, but outright closing rare for several reasons. Nonprofit colleges don't have to please Wall Street, and many have endowments they can tap in emergencies. They also have an enviable business model. Students pay up front, often with large government subsidies. And colleges sell a product — education — that families have proved willing to pay more and more for each year, notes Roger Goodman, who analyzes college finances for Moody's Investors Service.

Still, even before the economic crisis, many small colleges were battling long-term challenges, from demographic changes away from the Midwest and Northeast, where many schools are located, to the perpetual difficulty of making the case that they are worth the extra cost over a state school.

While 76 institutions had endowments over $1 billion last year, according to NACUBO figures, about one-third had less than $50 million — even before the downturn. And NACUBO reports figures only from about 800 colleges; the rest have zero or negligible extra cash.

Some colleges — like American consumers and homeowners — may discover they took on more debt than they should have, lured by low interest rates and ambitious growth plans. Moody's figures on private colleges show median debt up 50 percent over the last five years.

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