The number of distressed institutions in higher education is up 70% in the US compared to a decade ago, according to a report by Bain and Co. Inc.
About 910 schools met at least one risk indicator like declining tuition revenue or number of applications, the report released Monday said. About 364 schools met four or more indicators.
Authors of the report attributed the schools’ challenges to factors including inflation and higher interest rates, the threat of tuition cuts during a recession and declining domestic enrollments.
Their analysis of over 1,500 schools shows improvement with the outbreak of the coronavirus when colleges and universities received $76 billion in stimulus to help cushion enrollment declines. But with that aid set to expire, the authors expect the sector’s overall stability to fall below pre-pandemic levels within three years.
“The industry really needs to continue to rethink itself,” said Jeff Denneen, global head of Bain’s higher education practice and one of the authors of the report. The top tranche of schools will likely be stable. “For everybody else, they’re going to hit a wall coming out of Covid,” he said.
The pool of students graduating high school in the US is expected to peak in 2025 at 3.9 million before sliding back down to 3.5 million over the following decade, according to a 2020 report by the Western Interstate Commission for Higher Education.
Macroeconomic factors, like inflation and rising interest rates, have also exacerbated problems by driving up costs for colleges. The threat of a recession could then force schools to slow tuition hikes, offer more financial aid, and make cuts into endowments.
Elite private schools and members of the Ivy League are in a “substantially” stronger position thanks to reputation, enrollment growth, healthy reserves and larger endowments, the report said. Large public universities may struggle due to weaker margins, but the highest risk is concentrated among smaller private and public schools.
This article was provided by Bloomberg News.