Journal of Education Finance

abstract:

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.