Colleges, face up to the rocky financial reality

John MacIntosh is the managing partner of SeaChange Capital Partners, a nonprofit merchant bank that helps nonprofits work through complex challenges. Steven Isenberg served as chairman of Adelphi University's Board of Trustees and interim president following the removal of the old board by the New York State Board of Regents in 1997. The opinions expressed in this commentary are their own. View more opinion at CNN.

(CNN)America's 1,700 private nonprofit colleges play a significant role in American society, enrolling 3.4 million students and employing 750,000 people. Yet few people appreciate just how much pressure they are under, despite increasing press coverage of particular situations including the closing of Mount Ida College and the restructuring of Sweet Briar College and Hampshire College. What is going on?

John MacIntosh
Steven L. Isenberg
The most fundamental challenge is demographics. The birth rate fell after the 2007/8 financial crisis and has never recovered. As a result, the number of students entering college from high school is expected to fall 15% starting in 2025—but this drop will be felt far more acutely by less selective schools in lower growth parts of the country. (Harvard will stay full.)
Any competitive industry with over-capacity, fixed assets (for example, campuses) and semi-fixed costs (such as staff) quickly faces hard choices and difficult finances. In an attempt to attract the shrinking pool of students, colleges are already cutting prices, spending more on enrollment strategies, investing in new facilities and chasing "in-demand" programs (for example, coding).
    While these decisions may be rational for individual schools, they are not collectively sustainable. As nonprofits that have already seen a reduction in inflation-adjusted-per-student government funding over the last 10 years and are already grappling with technology change, some won't have the cushion to ride out the demographic storm.
    Although the demographic cliff is still several years away, the number of closures and mergers has already risen—and more are expected. While many of these will be unavoidable, they can still be done well or badly. A "good" closure includes a fully-funded plan to enable students to complete their degrees elsewhere and avoids needless damage to small towns and rural communities where even a small or struggling college represents an important part of the social and economic fabric.
    In the face of several "bad" closures, new laws—the Financial Stability in Higher Education Act in Massachusetts and the Federal Stop College Closure Act—have recently been introduced to require colleges to regularly disclose their financial condition in "plain English," proactively reach out to the relevant agencies if they are at "risk of imminent closure," maintain "teach out" plans allowing students to complete their degrees in the event of a closure and set aside the financial resou