Moody's: Small college closures to triple by 2017

'There are fewer students out there ... and it's costing us more to get them in terms of financial aid'

The rate of small college and university closures will triple in the next few years and mergers will double due to falling enrollment, according to a report from Moody's Investor Service.

Over the past decade, five schools closed on average each year, but six closed in 2014 and two have closed in 2015 so far. That rate will continue to increase, according to Moody's, which looked at private colleges with operating revenues below $100 million and public colleges below $200 million.

Because small schools are frequently dependent on tuition, falling enrollment hurts their ability to support academics, facilities, and student life. This makes it more difficult to recruit students and perpetuates the cycle. Schools are struggling; half of small colleges had a three-year growth rate of less than 2%, according to the report.

Moody's: Prepare for your net revenues to decline

"There are fewer students out there. Of those students, fewer are attending colleges and universities. And it's costing us more to get them in terms of financial aid," says Kent Chabotar, a higher ed finance expert and former Guilford College president.

While private schools are more likely to close from this financial pressure, public ones will likely merge, leading the number of mergers to double to four to six per year, compared with the current 10-year average of two to three annually.

But mergers are not easy to achieve. "Even institutional priorities and sensitivities can stand in the way of even semi-obvious mergers. It's not always straightforward," senior credit analyst Dennis Gephardt says.

For that reason, closure rates will still outpace the mergers.

Chabotar, however, says he does not agree with the report. "There have been predications of doom and gloom in the past, but it simply hasn't happened," he says. "These small, private institutions have this unbelievable ability to be imaginative."

Yet Gephardt says Moody's took that into account—the number of forecasted closures would have been higher otherwise (Woodhouse, Inside Higher Ed, 9/28).

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