Distress skyrockets at small U.S. colleges as enrollment declines

A growing number of small U.S. colleges are under pressure, according to a Bloomberg analysis of the latest federal data that shows more higher education institutions facing enrollment declines and other strains.

About 200 schools met at least three of the five metrics that Bloomberg used to identify rising pressure on non-profit higher-education institutions with less than 5,000 students, according to a review of the most-up-to-date government data from the US Department of Education. Those factors include high acceptance rates, falling enrollment and repeated years of operating losses.

That’s up from Bloomberg’s tally last year and the most facing pressure in over a decade, according to the 202223 collection period of the Integrated Postsecondary Education Data System from the National Center for Education Statistics.

Those problems are rippling through college finances. More than a dozen small schools have shown signs of distress, including debt covenant violations, slashed credit ratings, or have plans to close or merge this year.

“There is some rebounding, but we are still tracking lower than we were pre-pandemic,” said Lisa Washburn, chief credit officer and managing director at MMA. “Overall, the trends that were in place pre-pandemic seem to be continuing.”

A change in demographics and rising costs are largely to blame.

Some schools are facing dire consequences amid the stress. At least 13 small colleges squeezed by higher costs and increasing competition struck deals with bondholders, violated debt agreements, experienced rating downgrades or have plans to close or merge in 2024.

Instances of distress among schools soared last year, according to MMA data. Schools reporting new instances of impairment, such as defaults or support draws, jumped from three in 2022 to 17 in 2023, more than double the average over the last decade.