College Closures and the Cost to Consumers

We started Edmit because we saw how hard it was for families to get good information about one of the largest purchasing decisions many will make in their lives.

The U.S. Department of Education and others are trying to make better information on college costs and outcomes available to students; however, government data aren’t always readily consumable, and some colleges make the information difficult to find or interpret.

In the two years since we founded Edmit, we’ve seen a dramatic increase in anxiety around debt, questions about whether college is worth it and a small but growing set of voices asking about the financial viability of the colleges on their list. Students (and their parents, if they are dependent students) are seeing more college closures and mergers and are beginning to tune in to how they might affect them.

It is early days for this awareness -- and while we might not want it to be true, we believe more closures are coming in the future. We also believe this should increasingly be a component of families’ risk calculus with respect to their college choice. News of institutions’ financial challenges tends to be localized (if it’s made public at all), so prospective students have to do their homework.

Unfortunately, nobody is going to do this homework for them. The Education Department and, more recently, the Commonwealth of Massachusetts have taken steps to make college financial sustainability information available to consumers, but colleges have been resistant at every step of the way.

Even though most colleges have some level of state and federal oversight and are accredited by various accrediting bodies, there aren’t many rules dictating what responsibility colleges have, if any, to their students or prospective students about disclosing their financial viability. They also have little responsibility to students after they announce they’re closing. Some states, like Massachusetts, are beginning to research how much cash colleges need to have on hand and what their teach-out responsibilities should be in the event they announce they’re closing or merging. Until then, the financial risk is borne by the student (and parent to the extent they’re contributing financially or are a co-signer on loans). We think families deserve to understand exactly how much risk that is.

With that in mind, we sought to release a modeling tool we created by using publicly available data to project how many years private colleges have until they could run out of money and close. We planned to share the projections and underlying qualitative and quantitative data, taken from federal sources, on Github, a platform for open-source projects. Inside Higher Ed was prepared to publish a news article on the projections.

The pushback from colleges and the private college sector, however, convinced us that publicly releasing the projections posed too much risk for our company. So we took down the Github site.

Impacts of Closures on Students

There’s not much data or information on the effect of college closures on postsecondary student outcomes, but college viability could certainly have an impact. Here’s why.

A primary reason people to go to college is the promise that a bachelor’s degree will help them earn more over the course of their career. A variety of factors make one college degree worth more than another, but two significant ones are the college’s perception by employers and its alumni network.

If a college closes, that will make local headlines. Colleges are often anchors of communities, and virtually everyone will know that a local college has closed or merged. As a general rule, the best colleges don’t close or merge into another -- it is the struggling colleges ones that do. As a result, the college’s brand association -- to the extent it was positive -- becomes tied to its closure, which is negative.

“If employers have heard of Mount Ida, they’ll say something like, ‘Oh, that’s the college that closed, sorry,’” said Josie Kolbech, a designer who graduated from Mount Ida College in 2009. Over time fewer people will be familiar with the brand, as no more students will be attending and the last ones graduate. The brand value of the degree will thus be flat at best, and is likely to decrease over time. This leads to the next significant factor, which is the alumni network.

If a college shuts its doors, that college’s alumni network will begin shrinking as older alums pass on and no new ones are minted. This means the likelihood of alumni helping you get a job in the future are inherently statistically lower. Nathan Grawe, author of Demographics and the Demand for Higher Education, has said not to underestimate graduates’ willingness to fund struggling colleges (e.g., Sweet Briar). It is possible that alumni might band together in the short term, but over time -- without new, younger cohorts -- they will ultimately dissipate.

A more immediate consideration, and real potential liability, is the time and expense of having to transfer if a college closes before a student graduates. It can take six years or more for a student to complete, so if a college closes or merges during that time, students might be in a position where they have to transfer.

Depending on the geography where they’re enrolled, there might not be good comparable options for their area of study. And those colleges may or may not accept credits one for one. Some colleges in more rural areas might not have nearby options, and students might be forced to move or study online to continue their education. That means students might have to take additional courses -- which costs money and pushes graduation farther out. Also, this will naturally cause a lot of anxiety and could cause some students on the cusp to potentially stop or drop out of college. Persisting to graduate college is hard enough without these additional pressures and costs.

We understand and appreciate the complexity of running a sustainable college or university, having worked at Northeastern University and Southern New Hampshire University. But we believe colleges should be transparent about their financial viability to a broader audience than the state and federal government, and their board and accreditor. Students, prospective students and their families have a right to know (as do taxpayers).

Students are obligated to pay a college even if they don’t graduate. So why shouldn’t a college be obligated to stay in business until a student graduates? If so, it would require colleges to maintain a certain amount of cash to teach-out the current class. (That requirement would make many colleges financially unstable overnight, forcing many to close or begin freeing up unrestricted net assets to cover this liability.)

Instead of spending money on legal and lobbying fees, we hope colleges focus on shoring up their financial health and improving their value propositions and student outcomes.

With demographic headwinds and challenging times ahead for colleges, college goers would be wise to do their homework and really consider their choices. If you are interested in collaborating on our research, we’d love to hear from you so consumers can get the information they need to ensure they’re better off after college.