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One Third Of Private 4-Year Colleges Are At High Risk Financially, Model Predicts05:24
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A file photo of Newbury College, in Brookline, which closed in the spring of 2019. (Jesse Costa/WBUR)
A file photo of Newbury College, in Brookline, which closed in the spring of 2019. (Jesse Costa/WBUR)

A model developed by Boston startup Edmit finds that more than a third of private four-year colleges in the United States are at a high risk financially.

"Many colleges will be able to help students find ways to survive this crisis, but others will need to make the incredibly difficult decision to seek a merger or close in the next few years," co-founder Nick Ducoff said.

The survey analyzed 17 years of revenue from tuition, return on investments, expenses and the size of tuition discounts that 937 colleges offer students. Of those, 345 are at high risk, meaning that if present financial trends continue they would be able to survive six years, at most.

Colleges were already facing headwinds. The college-age population is declining nationwide, and even more so in the Northeast.  The pandemic has exacerbated those challenges. The model predicts that effects from the pandemic would reduce the life span of the average college by 22 years.

The colleges in the Edmit model participate in the federal student loan program and are well attended. There are more than 1,800 private four-year colleges in the U.S., but these are the ones for which there were at least 17 years of publicly available data.

The basic premise of the Edmit model is that revenues have to exceed expenses, and assets have to be greater than a college’s debt.

The model assumes that colleges will lose 10% of their tuition revenue this coming academic year because fewer students will enroll and because they'll have to offer more discounts on tuition to entice students, and 20% the following year. It also assumes that revenue from investments declines 20% this next academic year. But it also assumes that colleges will save 10% in salaries next year.

Edmit allowed Michael Horn, co-founder of the Clay Christensen Institute for Disruptive Innovation, to look at their model.

"In many ways it may underestimate some of the impacts in the long run of college closures in the sense that it doesn’t model some of the demographic declines that are coming down the line," Horn told WBUR in an interview. "But in the immediate term, I think it’s probably a pretty accurate portrayal of the risk for institutions over the next two to three years."

Many colleges will be able to help students find ways to survive this crisis, but others will need to make the incredibly difficult decision to seek a merger or close in the next few years.

Edmit co-founder Nick Ducoff

Barbara Brittingham, the executive director of the New England Council for Higher Education, which accredits colleges in New England, said colleges are looking at two critical factors as they consider how well they can weather the financial impact of COVID-19.

"We don’t know whether colleges are going to be able to open up and let students back physically on campus," Brittingham said. "We don’t have a good idea about how many students — particularly, I would say, incoming freshmen — are going to be comfortable moving back to campus if they’re open."

One college that could be particularly well suited to re-opening this fall is Hampshire College, which has lost students over the years as it has restructured. It has all single dorm rooms and a huge dorm to take on students who might need to isolate. Ed Wingenbach, the President of Hampshire College, is planning to re-open the campus in the fall, if allowed by the state.

"If the numbers of students coming back in the fall is substantially reduced from what we expected, or if we can’t bring people to campus and therefore don’t have the room-and-board revenue that we do count on to make the college run, those start to be bigger challenges," Wingenbach said.

The bigger a college's endowment, the less it has to rely on tuition and room and board. The colleges most at risk are those that don't have big endowments and need that tuition and room and board to stay viable. On the spending side, many colleges are trying to keep their staff and faculty, and the first place they're freezing spending is on capital projects: new buildings.

The Edmit team looked at colleges' reliance on international students. It's unclear how many international students will return in the fall. Edmit did not incorporate a college’s reliance on international students into their model, but they did predict that schools with more U.S. students will do better financially.

As chairman of the Board of Higher Education, Chris Gabrieli oversees the process of closing private colleges, but he mainly oversees public higher education. Because it’s in part funded by the state, public colleges and universities are in much better financial shape. He said there is still a lot of uncertainty for key financial drivers at both private colleges, such as enrollment, but he thinks some public colleges could benefit.

"People are predicting a potentially significant reduction," Gabrieli said. "Maybe, though, some colleges will benefit from people wanting to stay closer to home or maybe getting a better value. Hard to know how that will play out for all campuses and any one campus."

Another concern: potential loss of revenue from dorms if campuses cannot open in the fall.

Private colleges may be on their own after the disbursement of $14 billion in the CARES Act, the Coronavirus federal stimulus. But there's always a discussion of how much more money states, including Massachusetts, should be providing public higher education.

This time, higher ed is competing against health care for taxpayer support.

A previous version of this article omitted a letter in Hampshire College president Edward Wingenbach's last name. We regret the error.

This article was originally published on May 08, 2020.

This segment aired on May 8, 2020.

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Fred Thys reported on politics and higher education for WBUR.

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