Predicting Financial Distress in Private Colleges and Universities

• In Event: Nonprofit and International Research

Abstract

Colleges and universities across the county continue to experience steady drops in enrollment and deteriorating financial conditions. Although the current financial decline was likely caused by an abundant job market which sent prospective students directly into the workforce rather than into post-secondary classrooms, a shrinking population of high school graduates coupled with growth of online learning is further pressuring the financial outlook of our nation’s colleges and universities. Many schools have merged or closed altogether prompting major credit reporting agencies to raise their estimates of future closures. So how can students determine if their college is on safe financial ground? While the Department of Education (DOE) releases its annual watch list of at-risk colleges, the metrics used to develop the watch list have been critiqued by both educators and the U.S. Government Accountability Office as ineffective. Further, the Composite Financial Index created by the accounting firm of KPMG, the basis for the DOE’s Composite Index, has never been empirically validated. The purpose of this proposed archival data study, therefore, is to explore and identify the primary factors that have led to financial distress in colleges and universities over the past two decades. In addition, the study will conduct surveys with university business officers to gain deeper insight into the use of financial indicators. Together, the study seeks to develop an assessment tool that more effectively evaluates overall fiscal health in colleges and universities, while attempting to validate and/or negate popular proprietary financial health assessment tools.

Author

• Jeffrey A Byrne, Indiana University Southeast