Economic Crisis Could Make Colleges its Next Victim

College towns have been lauded as potential investment markets for real estate investors because of both the economic boost and intangible effects that colleges can have on the …

College towns have been lauded as potential investment markets for real estate investors because of both the economic boost and intangible effects that colleges can have on the surrounding communities. If a college in a college town goes under, expect the town to suffer immensely, much like other towns have been left in the lurch when other local industries—mills and mines, for example—closed down. Whether a college is a city’s focal point or not, a college shutting down would have a negative effect on that city. Those interested in investing in college towns should research the college in depth before investing in order to ensure that it is stable and won’t be folding.

Housing in dayton ohio near the closed yellow springs antioch college campus. The economic crisis has struck markets and industries once considered by many to be rock-solid; in the face of widespread penny-pinching, the next victim of the crisis could be colleges. With funding, charitable giving and enrollment down, and the number of students needing financial aid up, “private colleges will be the next fragmented industry to consolidate as a result of this over-expansion,” according to Forbes. The fact that some colleges may be forced to close their doors is somewhat ironic, considering that education is often touted as one of the elements that can help a society rebound from economic woes.

Larger and wealthier institutions, which typically boast large endowments, will likely be able to weather this economic storm without too much discomfort. But many smaller and private colleges don’t have enough to fall back on to make it through and emerge unscathed—or at all.

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The wealthiest 10 percent of private four-year colleges and universities had an estimated average of about $454,100 in endowments per student, compared to just $15,000 in endowments per student at median institutions, according to 2006 numbers from the College Board.

“The crunch will be particularly bitter for the institutions that drained coffers to build ‘country club colleges’ complete with luxury dormitories, spas and top of the line sports complexes to lure choice students, hoping that a sharper crowd would lead to more accretive diplomas, entering a profitable cycle of more successful alumni and increased donations,” according to Forbes. But with many wealthy colleges taking such measures to draw in students, colleges that were less well-off had to play along in order to keep up.

Ohio is a state that has been among the hardest hit by this period of economic turmoil, and has already seen one college forced to shut its doors because of financial troubles. In June, the 157-year-old Antioch College closed its flagship campus, in Yellow Springs, Ohio, according to Forbes.

Antioch College is unlikely to be alone by the time the economy has turned around. “According to a September 2008 study by the National Association of Independent Colleges and Universities, of the 504 member institutions surveyed, one-third said the credit crunch had hurt enrollment, and about a fifth of respondents said they had fewer returning students than expected. Roughly the same number said they had a smaller incoming freshman class than expected,” Forbes reported.

One potential reason for the dropping numbers colleges are seeing, in terms of both returning students and incoming freshmen, is simply that many students and families cannot afford college—the costs are just too high. College tuition has increased by more than three times the rate of inflation for the last 20 years, despite U.S. wages flat-lining since 2000,” according to Forbes. Further, many people have had their college savings plans decimated by the sharp decline of the stock market. With traditional colleges priced out of reach for many people, community colleges—once maligned—have seen a recent rise in popularity. And with layoffs continuing, community colleges are also typically a more affordable choice for people who are out of work and who want to brush up on their job skills, or learn new ones entirely, to increase their chances of landing another job.

The U.S. is not the only country in which colleges are feeling the pinch. The University of Waterloo, a school of more than 25,000 students in Waterloo, Ontario, recently announced “a six-month freeze on hiring and major spending. In a letter to faculty and staff, president David Johnston said the school is in good financial shape but ‘maintaining the status quo is not an option’ and it is taking a ‘prudent approach’ to weather the storm,” according to the Windsor (Ontario) Star.

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