• Moody's expects rate to triple over the next few years
  • Mergers seen doubling as tuition increases harder to sustain

The small-college experience is being threatened by schools’ inability to sustain large enough tuition increases to cover costs.

Closures of small U.S. colleges will probably triple by 2017 and mergers will double as students increasingly prefer larger institutions with more resources, Moody’s Investors Services said in a report Friday.

An average of five colleges closed annually during 2004 to 2014, and two to three merged over the same period, the New York-based ratings company said. It defines small colleges as private institutions with less than $100 million in revenue and public facilities with about $200 million. Most colleges rated by Moody’s will find it difficult to increase revenue by 2 percent a year as class sizes shrink.

"The sustained nature of revenue softness can create material challenges for small colleges, leaving them less able to strategically position themselves in a highly competitive environment," Moody’s said in the statement.

Even with closures tripling, it will probably be below 1 percent among the 2,300 four-year higher education facilities since many of the colleges are small, Moody’s said. The smallest 1,000 colleges have a median headcount of under 500 students.

Dowling College, a 2,000-student school in Oakdale, New York, earlier this year became the first municipal borrower rated by Moody’s to default since 2013. Dowling didn’t have the money needed to make bond payments due on June 1, according to disclosure filings. Bondholders agreed to give the school until June 30, 2016, to sort out its finances without going after it for the money they’re owed.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE