When Dowling College on Long Island closed last year, it left a few things that will be easy to unload. There’s the waterfront mansion and a score of houses. There are 13 cars and a couple of boat trailers.

One thing off limits is the $2 million endowment, restricted by a tangle of bankruptcy law.

“We’re figuring it out now,” said Robert Rosenfeld, the school’s chief restructuring officer. “The likely scenario is that those funds are going straight to the AG’s office.”

Attorneys general will have to navigate legal thickets to dispose of relatively tiny sums as small colleges like Dowling close at rates more than three times higher than before the recession. They leave behind not just physical plants, but the shriveled remnants of endowments, which are a well of frustration for donors’ descendants, vendors owed money and bondholders. The biggest victims may be the states that have to expend mighty efforts to settle minuscule amounts of cash.

“The attorney general or state regulators are going to have to get more involved in bankruptcy cases,” said Lawrence G. McMichael, a Philadelphia lawyer who last year represented Morris Brown College when it sought protection from its creditors.

In 2016, 763 higher-education institutions closed, including for-profit schools, according to the U.S. Department of Education. That’s the most since 2012.

Four-year, nonprofit institutions at risk rely heavily on tuition to cover expenses, a structure that Moody’s Investors Service deemed inefficient in a 2015 report. The ratings company predicted that closures of those colleges would triple to about 15 annually, most with fewer than 500 students. Many are affiliated with religious denominations.

“Catholic schools are winding down,” said Janet Mills, the attorney general of Maine, who helped close Bangor Theological Seminary in 2013. “Girls don’t want to be nuns anymore. You have to do something with those funds that’s actually going to help people.”

Unique Hassles

Bankruptcy courts operate under federal law, but endowments aren’t considered property of colleges because they don’t fully control their use. Instead, a patchwork of state laws governs endowments, said Susan Menditto, the director of accounting policy at the National Association of College and University Budget Officers.

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