Evaluating Indicators of College and University Financial Insolvency: Application of Bankruptcy Criteria to Nonprofits

The number of colleges and universities facing financial difficulty is rising rapidly, and the pressures upon these institutions will be exacerbated by the arrival of the "demographic cliff " (18 years out from the fall in birth rates during the 2008/09 economic downturn) in 2026/27. The F...

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Bibliographic Details
Published in:Journal of education finance 2022-06, Vol.48 (1), p.54-75
Main Author: LeClair, Mark S
Format: Article
Language:English
Subjects:
Bankruptcy law
College Enrollment
Colleges
Comparative analysis
Economic Factors
Educational aspects
Educational Indicators
Endowment Funds
Finance
Financial Problems
Income
Management
Nonprofit Organizations
Private universities and colleges
Public universities and colleges
Tuition
Universities
Universities and colleges
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Summary:The number of colleges and universities facing financial difficulty is rising rapidly, and the pressures upon these institutions will be exacerbated by the arrival of the "demographic cliff " (18 years out from the fall in birth rates during the 2008/09 economic downturn) in 2026/27. The Forbes annual financial ranking of academic institutions currently places nearly one-fifth of all schools in its bottom category. Unfavorable demographics, and the resulting increased competition for students, has caused rapidly rising tuition discounting. Institutions without significant endowments are being squeezed between tuition dependency and a need to offer competitive pricing. This paper draws upon bankruptcy models, utilizing ANOVA in this instance, to establish if measurable differences exist between the financials of a random set of colleges and universities and a group of institutions that subsequently failed. The results demonstrate that net revenues, size (enrollment), endowment and assets differ significantly between the two samples, indicating these are bellwethers of future risk of insolvency. The outcomes provide insights into why institutions fail, and with further refinement could determine what indicators are appropriate as early warning signals.
ISSN:0098-9495
1944-6470
1944-6470
DOI:10.1353/jef.2022.a870006