A growing number of four-year private college chief financial officers (CFOs) see storm clouds on the horizon. A survey released this week from Inside Higher Ed and Gallup found that only 44 percent of them are confident that their college will be financially stable over the next 10 years. That’s down from 52 percent a year ago and 54 percent in 2016.

A four-year private college is a non-public institution that mainly teaches undergraduates. These CFOs are more pessimistic than their counterparts elsewhere. Perhaps because operating revenue at four-year privates is usually more tied to tuition than other sources. The survey offered CFOs 20 different ways to either cut budgets or boost revenue. The most popular, by far? Increase enrollment.

Fewer Prospective Students

Enrollment dependency may be part of the problem. Fertility rates have been declining since 2007, dropping more than 12 percent by 2013, and now declining by about 1 percent per year. Nathan Grawe has sorted this trend by geographic region. The impact is expected to be most acute in the Northeast and Upper Midwest. Fewer children coming up the pipeline translates into a smaller local market for undergraduate students.

While the decline in 18 year old high school graduates is still in the 5-10 year horizon — those born in 2007 will be 18 in 2025 — college enrollment has been decreasing since 2010. Enrollment dropped by 6 percent between 2010 and 2015, then more slowly thereafter (see Figure 1). Also, a growing economy usually means lower enrollment. The Wall Street Journal reported that among high school graduates in 2017, just 66.7 percent went straight to college. In 2016 it was 69.7 percent. Too early to say what the 2018 batch did.

The other challenge is that college-bound students are applying to more schools than ever before. “Yield” — the percentage of admitted students who actually enroll — has dropped as a result. A typical yield for four-year private colleges is somewhere in the 25-30 percent range. Meaning you have to admit 1,000 students to actually get 250-300.

Unsustainable Discounting

With fewer students in the market, what can a college do to boost their yield? One way is to kick up the discount rate. That’s been happening for some time now, and it’s easy to see why: You’ve got an admitted student who has 5 other offers. It’s better to get some revenue from the student than to lose him to another school. Like a Black Friday sale, they’re relying on volume to make ends meet.

The problem is that you can’t keep raising the discount rate forever. Sure, lower your profit margin to secure new business, but you have to at least cover your costs. Discounting your way into the red is a recipe for disaster. But lowering costs and growing can be tough. It requires developing efficiencies and economies of scale — badly needed in many cases, but easier said than done.

Where are we? Today, more than two-thirds (68 percent ) of financial officers at four-year private colleges acknowledge that their tuition discount rate is unsustainable. Just a year ago only 59 percent said that. In 2015, it was just 47 percent. That’s a dramatic change in sentiment over just 3 years.

More are Considering Full or Partial Mergers

Mergers and buyouts happen in the business world. What about in higher education? In 2017, just 5 percent of CFOs at private four-year colleges said their school had seriously discussed merging with another college. In 2018 that figure shot up to 24 percent. An even higher figure — 34 percent — said they’ve seriously discussed consolidating some of their programs or operations with another school.

If asked “Do you think your institution should merge with another college or university in the next three years?”, 26 percent of these CFOs said yes. Consolidate programs or operations? A majority — 57 percent — said yes, their school should do that.

How likely are either of these scenarios to occur? Only 14 percent of these CFOs said a merger was likely. Just 35 percent thought a consolidation of programs or operations was likely. These differences suggest there could be a disconnect between the severity of the problem and an institution’s willingness to make big changes.

What About Christian Colleges?

Most Christian colleges fall under the “four-year private college” umbrella. They’ve got the same challenges as everyone else along with a few extra hurdles. One, they have to attract not just great faculty and staff, but ones who share their faith commitment.

Two, some restrict their enrollment to Christian students — for noble reasons, as you might imagine, but that can make it harder to meet your targets. It’s no secret that the percentage of Christians in America is not exactly growing. Then there’s the uncertain future of religious freedom and expression, especially if state and federal aid flow through a college’s coffers.

So, don’t be too upset if your child’s financial aid offer isn’t as generous as you expected. It’s probably not because they’re greedy. Most Christian college employees view their work as a ministry. Some have taken a considerable pay cut to be where they are. The intangible benefits of an education that supports your values is hard to quantify. If you know faith-based colleges that work hard to provide students with academic and spiritual value, include such organizations in your family’s annual giving.

Dr. Alex Chediak (Ph.D., U.C. Berkeley) is a professor and the author of Thriving at College (Tyndale House, 2011), a roadmap for how students can best navigate the challenges of their college years. His latest book is Beating the College Debt Trap. Learn more about him at alexchediak.com or follow him on Twitter (@chediak).