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More colleges may close in ailing economy

By Justin Pope
Associated Press / November 17, 2008
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For 15 years, Cascade College in Portland, Ore., struggled to find the financial necessities for any college: students to pay tuition and donors to help build an endowment.

Then came the global economic crisis, and suddenly that struggle became an impossibility.

Late last month, the small Christian college with just 280 students and $4 million in debt announced that it would shut down at the end of the current academic year.

"Our hearts would have said we would like to continue trying," said Cascade president Bill Goad, somberly adding he never imagined his duties would include closing the school. But on top of their long-term challenges, "small colleges like Cascade just don't have the slack to survive those kinds of impacts," he said.

Every year, a handful of institutions go under. And while a wave of college closings is unlikely, the economic turmoil could accelerate the pace.

In addition to Cascade, another Christian institution, Taylor University, announced last month that it would close the undergraduate program at a branch campus in Fort Wayne, Ind., while Pillsbury Baptist Bible College in Owatonna, Minn., said it would close.

And on Wednesday, Vennard College, a Christian school in Iowa that was down to about 80 students, said it would close at the end of the current semester - two years shy of its 100th birthday. More closing announcements could come next semester, or next fall, when schools find out how many of their students don't return.

There are about 4,400 colleges in the United States, and the American Council on Education has records show that only four closed in 2007. Mergers are somewhat more common, but outright closings are rare for several reasons. Nonprofit colleges don't have to please Wall Street, and many have endowments they can tap in emergencies. Students pay up front, often with large government subsidies.

While 76 institutions had endowments over $1 billion last year, about one-third had less than $50 million - even before the downturn, according to the National Association of College and University Business Officers. NACUBO reports figures only from about 800 colleges; the rest have negligible extra cash.

Some colleges may have taken on more debt than they should have, lured by low interest rates and ambitious growth plans. Moody's figures on private colleges show median debt up 50 percent over the last five years.

Others have become collateral damage from the collapse of Wall Street firms.

Simmons College in Boston was placed on a watch list for a ratings downgrade because of an estimated $10 million exposure in a complex interest rate swap deal with now-bankrupt Lehman Brothers.

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