Small U.S. Colleges Face Financial Crisis, Some Misuse Donor Funds
Hundreds of small colleges are at risk of closure as they tap endowments and, in some cases, divert restricted scholarship money to cover operating costs.
Higher-education consultants warn that more than 440 small colleges may close in the next ten years as operating expenses outpace revenue. In 2025, about 200 schools accessed endowment cash, and the proportion pulling over 7% of their funds nearly doubled since 2016, reaching 19.3%. A separate analysis showed that institutions drawing 15% of endowments rose to 5% of those surveyed.
Financial pressure has led some schools to misuse restricted scholarship dollars, exemplified by allegations that Notre Dame College spent over $2 million of donor-designated funds and that Quincy University withdrew $6 million without attorney-general consent. Baldwin Wallace University also moved $20 million of restricted money without board approval. Experts compare the practice to a desperate gamble, warning that donor trust is eroding as more colleges confront closure threats.
Why it matters
The trend threatens the viability of many colleges and raises concerns about donor intent and financial transparency in higher education.
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