How Dire Is Higher Ed’s Budget Crunch?

The first month of the Trump administration has been a series of body blows to American colleges. These actions include the freezing of grants for research and outreach that were even tangentially related to topics of race or gender, attempts to sharply reduce indirect cost rates for existing grants, and a “Dear Colleague” letter that seeks to go well beyond the current Supreme Court’s decision limiting race-conscious admissions. This has led to a series of major research universities implementing hiring “chills” and freezes while they wait to see how everything plays out in the courts.

See the table below to look up how your college has performed over the past 10 years.

It is somewhat ironic that the universities most affected by the Trump administration’s actions to this point are the ones that have fared the best over the last decade. Enrollment growth in recent years has been concentrated at a small number of flagship public and wealthy private universities, while regionally focused institutions — engines of social mobility — have generally struggled. Tuition prices have increased more slowly than the rate of inflation for much of the last decade, and rising tuition-discount rates have reduced revenue for many colleges. On the other side of the ledger, operating costs have risen quickly since the pandemic and typically outpace gains in revenue. While there was some rare good news on enrollment across higher education last fall, this does not make up for a lost decade for many institutions.

Together with my colleagues Dubravka Ritter and Doug Webber, I recently released a working paper examining factors associated with college closures. By using machine-learning tools and compiling dozens of data elements going back more than two decades, we were able to much more accurately predict closures than previous research or the federal government’s existing set of accountability tools. We also estimated the potential effects of a gradual 15-percent decline in enrollment: An additional four to five colleges would close each year, mainly in the for-profit sector.

I remain more optimistic than many in the field that there will not be a mass extinction of colleges, although less optimistic than I was prior to January 20. Yet it is also clear that quite a few colleges are struggling and will need to make significant changes to remain viable in the long term. In a recent Chronicle essay, I identified several key factors that indicate financial challenges. But what are the numbers behind those factors, and how can you tell if your college is at risk?

In my analysis, I focus on degree-granting public and private nonprofit colleges in the 50 states and Washington, D.C., excluding colleges with missing data and special-focus institutions. This included 526 public four-year colleges, 936 public two-year colleges, and 986 private nonprofit colleges, using data from the U.S. Department of Education’s Integrated Postsecondary Education Data System (IPEDS) over the last decade. The time period helps identify colleges that have been facing financial challenges for an extended period of time and are at risk of major cuts or outright closure (especially for private colleges).

Factor 1: Consistently losing money. This measures the number of years over the last decade that total expenses exceeded total revenues. A few years of losses during the period was not at all unusual due to temporary declines in investment revenue or occasional declines in state funding. For example, Harvard lost money in fiscal years 2016 and 2022 because its mega-endowment lost value. Monocles surely dropped along the Charles, but I think it will end up being OK. Three hundred and fifty of the roughly 2,500 colleges posted gains in each year, including public flagships such as Arizona State University and the University of Iowa, community colleges including Walters State Community College, in Tennessee, and Western Nebraska Community College, and small private colleges like Shorter College, in Arkansas, and the University of the Cumberlands, in Kentucky.

On the other hand, just over 200 colleges lost money in seven or more of the last 10 years. Most of the private colleges that have announced closures (such as the College of Saint Rose, in New York, and Cabrini University, in Pennsylvania) ended up on this list. But two-thirds of the colleges that frequently lost money are public, and a number of regional public universities and community colleges were in this category. This budgetary plight was particularly acute in New York, Illinois, and California.

Factor 2: Declining enrollment. Even though some colleges are taking steps such as eliminating academic programs, mothballing buildings, or declaring financial exigency, these are often insufficient in scope to fully make up for fewer enrolled students. Nearly six in 10 public universities and private nonprofit institutions and almost three-fourths of all community colleges in this analysis had fewer students in 2023 than in 2014, creating financial challenges across broad swathes of American higher education.

More than one in three colleges also saw declines in student numbers in seven or more of the last 10 years along with an overall decline from a decade ago. Forty-nine institutions lost students in each of the last 10 years, creating an extra level of frustration for institutional leaders. Some of these declines were relatively modest, such as West Virginia University falling from 29,175 students in 2014 to 24,200 in 2023 even though it planned for growth. WVU resolved its enrollment-driven budget deficit by raising revenue from other sources and laying off faculty and staff after cutting programs. On the other hand, Fontbonne University, in Missouri, saw a decline from 1,819 to 874 students, which led to an impending closure later this year as it did not have the resources or market power of WVU.

Factor 3: Declining appropriations (public) or declining endowment (private). Aside from revenue coming directly from students through tuition and room and board, appropriations or endowments are often the second most important revenue source for struggling colleges. Both state appropriations and the stock market have been relatively strong for the past decade, meaning that these two sources of revenue have done well for the vast majority of colleges.

But some colleges received less in state funding or had smaller endowments than a decade ago, even before adjusting for inflation that eroded purchasing power by about one-third during this period. Forty-five public universities and 142 community colleges — nearly 10 percent of four-year institutions and 15 percent of two-year colleges — received less in state funding even though overall state funding for higher education increased substantially during the last decade. The institutions with funding cuts are disproportionately concentrated in a few states: Illinois, New York, Ohio, Oklahoma, and Oregon. These states span the ideological spectrum, showing that while state policies on key issues like academic freedom and diversity, equity, and inclusion are sharply polarized, funding decisions have been far less so to this point.

Nearly one in eight private colleges had a smaller endowment value at the end of fiscal year 2023 than they did at the end of fiscal year 2014. Given the strength of the stock market in this period, that is an indicator of using endowment funds to plug budget gaps in a way that puts the long-term health of the institution at risk. An example of this is Webster University, in Missouri, which saw its endowment rise from $128 million in 2014 to $157 million in 2021 before it authorized pulling nearly $50 million out of its endowment in the next two years to continue operating. Its endowment fell to just $86 million by 2023.

Putting it all together. About two-thirds of all degree-granting public and private nonprofit colleges exhibited one of the three key indicators of financial stress: consistently losing money, fewer students enrolled than a decade ago, or a decline in state appropriations or endowment values. These issues, combined with an increased willingness to talk about financial challenges, have led institutional leaders and governing boards to focus on efforts to cut costs instead of putting all of their eggs into the revenue-generation basket.

But a much smaller number of colleges had two or more of the risk factors. One hundred and fifty-six colleges lost money in seven or more years and saw an overall enrollment decline over the last decade, and these were spread out across public universities, community colleges, and private institutions. Forty-seven of these colleges also had a decline in appropriations or endowment values in the last decade, with community colleges and private colleges dominating this list. Notably, six of the 23 private colleges in this category have already announced their closure or are no longer enrolling new students.

I am simultaneously pessimistic and optimistic about the financial health of American higher education. The reasons for pessimism are clear, and these challenges are likely to only intensify in the coming year due to the Trump administration’s actions on higher education and an economy that is likely to slow even without taking the possibility of tariff-fueled inflation into account. But my optimism comes from the longtime resiliency of struggling colleges and a growing willingness to take on financial challenges before they get out of hand. It is not going to be an easy stretch by any means, but I think that the number of colleges facing extreme financial stress will not grow by nearly as much as most people expect.