Joseph D’Angelo, Partner, expands on the recent findings of a Moody’s study that predicts the post-secondary education sector will experience continued stress, resulting in more closures.

A recent Moody’s study predicts that sustained stress in post-secondary education will drive more private colleges to alter business models or close. As revenues and enrollments continue to decline and cash flow pressures mount, we expect additional schools to face challenging decisions. Over the past few years, and over the course of multiple engagements, Carl Marks Advisors has seen schools struggle with decisions to make changes, especially in regard to canceling programs with low demand. However, Trustees and Administrators at schools experiencing financial stress will likely have to consider all options to avoid extinction.

Operational Transformation

Many schools, including smaller and the less selective institutions, have proven resilient and even innovative in the face of financial stress by reformatting curricula and prioritizing the highest demand programs to remain competitive and materially improve cash flow. There are several operational areas common to virtually all situations that Trustees and Administrators must address to optimize the chances of enduring and thriving. These can include program review/optimization, increasing enrollment by retooling marketing strategies, using online technology and outsourcing services.


While merger activity continues to increase in the sector, closing these deals remains difficult and elusive. Sometimes, schools cannot agree on eliminating duplicate resources – two philosophy departments, two coaching staffs, two alumni relations departments, etc. Other times, the combined institutions cannot financially support the combined debt. As in other sectors, the most successful mergers and acquisitions are predicated on clear advantages and well-defined strategies to win. Defensive combinations may save two independent schools, but Trustees and Administrators must be proactive, thorough and decisive before it is too late.

Donor Support and Endowments

One bright spot for some post-secondary schools has been healthier donor support, thanks to the overall positive economy and investment returns. However, schools under financial stress tend to have more modest endowments and restrictions preventing the general use of funds. Many of these schools are using the investment gains from their restricted endowments to fill operating deficits or contacting donors to release restrictions on gifts. Unfortunately, many at-risk schools also don’t have a significant donor base or don’t have an active fundraising or development office. Using the unrestricted endowment funds and relying on donors for bailouts is neither sustainable nor reliable and should only be used to bridge the implementation cost of an operational restructuring.

Insolvency Strategies

When a school becomes insolvent, there are a number of venues available to wind down the business and liquidate assets for creditor recoveries – bankruptcy, receivership, assignment for the benefit of creditors. However, if the insolvency strategy includes selling assets of a going concern, bankruptcy is not an option because the school will lose access to Title IV funds and not have the liquidity to operate. Secured creditors can transfer assets out of court through a strict foreclosure or Article 9 sale. Assets can also be sold free and clear out of a state or federal receivership.


With few lifelines available, closure remains a likely possibility for many post-secondary schools. Moody’s found the rate of closures among not-for-profit schools has more than doubled in the past four years – and the upward trend is expected to continue. The study forecasts the school closure rate of private, not-for-profit colleges to increase but stay below 1% in 2019 – predicting roughly 15 private, not-for-profit schools will close next year.

Carl Marks Advisors expects the financial stress to continue for the segment of schools experiencing declining revenue and increasing operating costs. As an industry leader helping underperforming schools design and implement innovative solutions to complex operational and transactional issues, we look forward to continuing the dialogue around the stresses affecting post-secondary education providers.



Gephardt, Dennis M., Fitzgerald, Susan I, Smith, Kendra M. Higher education – US: Sustained stress will drive more private colleges to alter business models or close Moody’s Investor Service, 2018. Print. 1133814