Assessing Risk of Closure
The balance sheets and financial health of individual institutions vary widely within these broader trends. To take a closer look, we assemble the most comprehensive data set to date on the characteristics of 8,633 American colleges and universities, including dates of operation, institutional setting, student body, staff, and financial data from 2002 to 2023, primarily from the Department of Education’s Integrated Postsecondary Education Data System (IPEDS) data. We focus on variables that could potentially be associated with college closures based on prior research, economic theory, and our experiences in the field of higher education finance. These variables include enrollment, staff, revenues, expenses, assets and debt, financial metrics such as liquidity and leverage, and measures of economic health such as cash on hand and major swings in enrollment. We also document when data is missing—most frequently, institutional data lacks measures of debt, assets, and leverage. Finally, we look at the characteristics of the college’s local population, including rates of employment, poverty, and per-capita income.
We then identify schools that closed between 1996 and 2023 based on Closed School Weekly Reports from the Federal Student Aid’s Postsecondary Education Participants System (PEPS) database. Our analysis only counts schools where the main campus (not a branch or satellite) closed; overall, a total of 1,671 colleges closed during the analysis period.
The vast majority of closures are among private for-profit colleges, which have the highest closure rates (see Figure 2). This is intuitive—whether they are “nimble critters or agile predators,” for-profit colleges are much more likely to exit the marketplace if they do not see the opportunity to make a profit in the near future. Nearly three-fourths of closures in the data set are two-year for-profit colleges, and almost one-third of the 3,732 institutions observed in this sector closed at some point between 1996 and 2023. On the other hand, while closures at private nonprofit four-year colleges get the lion’s share of attention, rates are relatively modest at about 7 percent over the same period. Public schools, in turn, almost never fully close, but rather reorganize.
Comparing schools that close with those that don’t reveals immediate contrasts. Colleges that close tend to be smaller, more tuition-driven, and experience larger declines in enrollment and revenue than colleges that remain open. Among schools that never close, the median operating margin is about 9 percent, and tuition accounts for 45 percent of revenue; at schools that close, the median margin is 3 percent, and tuition makes up 86 percent of revenue two years prior to closure. Our data also show median year-over-year enrollment declines of 58 percent among colleges that close two years later, while those that remain open experience no or smaller enrollment declines. Further, more than one-fourth of colleges that close post operating losses in at least three of the five years prior to closure—twice the rate among colleges that remain open.
However, none of these factors on its own is a reliable predictor of closure, and overall, our comparisons show substantial overlap between open and closed colleges on individual metrics. Current federal accountability metrics mainly rely on a school’s financial responsibility score to assess risk, but achieving a better understanding of a school’s risk of closure requires more than a single metric—even a composite one.
