An Investigation Into The Financial Strength Of Higher Education Institutions: Predicting Potential Risk Factors Of Closure

Abstract

There are thousands of colleges in the US, and hundreds that fit into the small, private, non-profit, liberal arts focused market segment. The colleges in this market segment have seen financial struggle in the past decade, (Martin 2009). The following research analyzes this market segment by documenting business statistics and indicators derived from various sources. These sources include the Integrated Postsecondary Education Data System, Moody’s Investors Service, 990 tax forms released by Guidestar’s non-profit database, and news articles from reputable journals. Colleges that struggle tend to: 1) depend on tuition for a majority of their revenues, 2) grant large institutional scholarships to a majority of students, 3) have a low full time instructional staff percentage and 4) have negative core operating margins. Data suggest additional potential risk factors of institutional failure and these will be discussed in the scope of this paper. The following analysis classifies colleges into three categories indicating status: exemplary, at risk, and closed. Colleges that have been coded as at risk status may use the produced list of potential risk factors as a benchmark of how to design a proper, sustainable business model for their college.