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Comment by guptaneil | Hacker News Reader

I believe every college maintains a backup fund to make sure that the college can survive at least 5-10 years if all else fails.

In such a scenario, the school would prioritize using the money to make sure that current students can graduate and that their degree is worth something for at least a couple years.

EDIT: That was poorly worded. I meant to say that the fund is meant as a buffer to help the school avoid shutting down, so that they have time to get their act together. But it also helps guarantee that their degrees will be worth something for at least a few years, so that students feel safe continuing at the school and so recent graduates are not screwed over by something that wasn't their fault. I'm not sure, but this might even be an accreditation requirement.

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One data point: I teach at a small liberal arts college. Our endowment is roughly of the same order as our annual budget. Annual draw-down on the endowment is 4.5% or so, which means that the rest of the budget comes from tuition. If enrollment cratered (but didn't go entirely to zero) I suppose the administration could draw the shortfall from the endowment, but the board would pitch a fit, (and likely not approve that kind of move) and it's a sign that the college isn't going to be around long.

The full sticker price (Tuition, Fees, Room and Board) just passed $40k/year last year, and it's having an impact on our ability to recruit students. Since so much of our budget comes from tuition, though, a shortfall of even 30 students from predicted numbers (out of a total student population of about 1400) can cause a serious budget crunch.

Aside from the goodness of their hearts, why would they do that?

I edited the post, it was poorly worded. My intention was to say that colleges are at least somewhat protected from just "going out of business" since that would potentially destroy the lives of thousands of recent graduates.

As far as why they would do that, my guess is that is probably a requirement to get accredited.

"The institution’s financial resources are sufficient to sustain the quality of its educational program and to support institutional improvement now and in the foreseeable future. The institution demonstrates, through verifiable internal and external evidence, its financial capacity to graduate its entering class. The institution administers its financial resources with integrity." -- New England Association of Schools and Colleges, Standards for Accreditation [1], Page 22

I'm sure the other regional accreditation agencies have similar requirements.

[1](PDF) http://cihe.neasc.org/downloads/Standards/Standards_for_Accr...

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