Hundreds of small colleges across the United States are facing significant financial difficulties, with some resorting to the misuse of endowment and scholarship funds in an effort to remain operational. Experts estimate that over 440 institutions could close in the next decade due to challenges in covering operating costs. Last year alone, approximately 200 schools reportedly accessed their endowment funds to maintain operations.
The trend of schools drawing from endowments at unsustainable rates has accelerated notably. The percentage of schools spending more than 7% of their endowments, a key indicator of financial distress, nearly doubled from 9.7% in 2016 to 19.3% in 2025. Furthermore, the number of institutions withdrawing 15% or more from their endowments tripled during the same period, reaching 5% as of 2025, according to an analysis of 1,000 schools.
These financial pressures can lead to desperate measures, including the diversion of millions of dollars in scholarship funds intended for student aid. In Ohio, the now-closed Notre Dame College faced accusations in 2025 from the state's attorney general of using over $2 million in restricted funds for unapproved purposes, a charge the institution denied. One specific allegation involved a $30,000 scholarship endowment, donated by a late professor's widow, which was reportedly used to cover general operating expenses rather than being preserved for scholarships as intended. The donor's widow described this alleged diversion as "theft."
Endowments typically require donor permission or, in cases where the donor is deceased, approval from the state attorney general to be used for purposes other than those originally designated. While some donors may offer flexibility to help their alma maters in times of need, other institutions have drawn from these reserves without proper authorization.
Quincy University in Illinois reportedly took $6 million from its endowments in 2025 for "cash flow needs" without securing permission from the attorney general, an issue highlighted in an audit that year. The university was advised to seek retroactive approval and stated its commitment to honoring donor intent.
Baldwin Wallace University in Ohio moved approximately $20 million in restricted donor funds in 2025 without obtaining necessary approvals from its Board of Trustees, according to a 2025 audit. A university spokesperson indicated that the institution has since appointed new leadership and is implementing enhanced financial controls.
These financial strains on small colleges are exacerbated by rising tuition costs, which outpace inflation, and the burden of student debt on graduates. Unlike larger universities with substantial donor bases, smaller institutions often struggle to offset these increasing expenses, leading them to tap into their endowments as a last resort. Experts caution that such actions are often financially precarious, akin to a gamble with limited resources.