Tory Schalkle Shares Which Colleges May Be Most Likely To Be Financially Insolvent 

(This is part of a series on real world data insights) 

Harvard Business School Professor Clayton Christensen had repeatedly predicted that 50% of colleges and universities will close or go bankrupt by 2030 – a staggering number. “Is that realistic and, if so, which colleges?” wondered Tory Schalkle. Given his job at a large U.S. bank, Tory Schalkle was no stranger to financial data, analytics, and models. So one weekend he set out to answer that question as a banker would. 

To begin, Schalkle thought like a banker modeling a potential investment – if he were evaluating the financial durability of a company, he’d run basic ratios like Current Ratio (a company’s ability to pay near-term debt) and Solvency Ratio (ability to pay long-term debt). Schalkle used federally available data from the U.S. Department of Education to pull every U.S. college and university’s revenue, expenses, debts, and assets.  

The result? Clay Christensen’s 50% prediction may be a bit dramatic. Tory found that 16% of these colleges had a Current Ratio below 2.0 – the typical rule of thumb for near-term solvency. Put differently: 16% of U.S. colleges and universities, if they were a business going in front of investors or a bank, would likely get serious solvency questions. “That’s pretty staggering,” said Schalkle.  

The banker did not want to name names of institutions who lead the list, except to say that the top 100 colleges with the worst solvency ratios were concentrated in community and technical schools. “That surprised me a bit. I wasn’t expecting elite private schools or large public schools to be on the list but there was a lot of speculation on the end of small liberal arts colleges and, maybe that will happen, but they weren’t the most egregious ones on this list,” Schalkle said. 

As U.S. higher education changes, bankruptcies may increase. And that may cause a lot of prospective applicants to think both like a student and a banker, asking “will this college be solvent by my 10 year reunion?”