Many private colleges remain in danger

Clayton M. Christensen and Michael B. Horn:

The average tuition discount rate at private colleges was a whopping 49.9 percent for first-time, full-time freshmen in 2017-18, according to the National Association of College and University Business Officers. That means that students are paying roughly half of what colleges and universities say they charge. A tuition discount rate above 35 percent puts a college in a danger zone, particularly when it is heavily dependent on tuition. Many institutions have discount rates far above that now.

Fund-raising and endowments don’t offer much hope to bring in the necessary amount of revenue for most schools, either.

Although the total amount of alumni giving to universities is up — it ticked in at $11.37 billion in 2017, which was up 14.5 percent from the year prior — the number of alumni who give has actually fallen. Fewer younger donors give. Only 5 percent of alumni from public universities donate, and just 18 percent of private university alumni give.

What that means is fewer people are giving bigger gifts. And, with certain exceptions from which it’s dangerous to extrapolate, most of those gifts are going to the well-off elite institutions that are not at risk.

On top of that, just 11 percent of colleges and universities hold roughly 75 percent of the $500 billion in endowment wealth in the United States. That means most institutions don’t have substantial endowments that can support their costs over time — and many endowments have significant donor restrictions on how they can be used. In other words, the limited dollars in many endowments may not be able to support a college’s most urgent needs.