Nearly 200 colleges raid restricted endowments as closures mount

Nearly 200 private colleges borrowed from restricted donor endowments in 2025 to cover day-to-day operating expenses, up from 131 in 2021, as enrollment declines push more institutions toward financial collapse.

"This is going to be a huge problem as small colleges close," said Joanne Florino, a fellow at Philanthropy Roundtable, a nonprofit that advocates on behalf of philanthropists. "A lot of living donors are finding out the money they donated is not being used for what they gave it for."

The percentage of private, nonprofit colleges drawing down endowments at greater than 7 percent — considered a sign of financial instability — nearly doubled to 19.3 percent in 2025 from 9.7 percent in 2016, according to Perspective Data Science, a higher-education financial consultant. Schools drawing down at 15 percent tripled to 5 percent. More than 440 colleges are at risk of closing or merging in the next decade, according to a forecast by Huron Consulting Group.

The trend is creating a new class of losers in higher education's consolidation: thousands of philanthropists who donated billions of dollars across generations. Ohio's attorney general filed a complaint against 14 trustees and officers of Notre Dame College for allegedly spending more than $2 million of restricted funds outside donors' intended purposes. Kansas, Kentucky, Georgia and Montana have passed legislation in recent years making it easier for donors to take legal action against nonprofits that misuse restricted gifts.

Donations to colleges fall into two buckets: those for general use and those restricted to a specific purpose by the benefactor. Schools can only change how a restricted gift is spent by asking permission — from the donor if still alive, or from the attorney general or the courts if the donor has died. Trustees are the institution's fiduciaries and it is their responsibility to see that restricted funds are spent appropriately, said Ben Porter, founder of Principal Gift Strategies, a fundraising consultancy.

When Natalie Strouse's husband died of cancer, she created a $30,000 scholarship in his name at Notre Dame College, a small Catholic school outside Cleveland where she taught accounting. The gift was restricted — it could only support the scholarship. When the college closed in 2024, Strouse asked for the money back to re-establish the scholarship elsewhere. An administrator told her the money was gone. "She told me they used it to pay the bills," Strouse said. "I consider it theft."

As enrollment sinks, a pattern plays out, said Doug Moore, founder of Highland Group, a firm that specializes in closing failed colleges. First, trustees dig into unrestricted endowment funds. Then they try to raise money from alumni and foundations. Then they ask donors to lift restrictions. When that doesn't generate enough, boards start "digging for dollars" by searching for loopholes in restricted funds given by benefactors who are deceased.

Audits reveal the scale of the problem

Last year, Quincy University in Illinois borrowed about $6 million from its endowment "for cash flow needs" without permission from the attorney general, according to a 2025 audit. The auditor recommended the school seek "retroactive approval" from the Illinois Attorney General. Baldwin Wallace University in Ohio reclassified about $20 million from donor-restricted to unrestricted without prior authorization of the Board of Trustees, according to a 2025 audit that found a "material weakness in internal controls." In Virginia, Averett University spent most of its restricted endowment funds after a chief financial officer allegedly hid budget deficits from trustees, according to a federal complaint and a 2025 audit.

Notre Dame College's collapse illustrates the trajectory. Enrollment fell 32 percent from 2016 to 2023, and the school was losing $4 million a year. When Michael Canty, a business owner who joined the board in 2022, confronted then-president J. Michael Pressimone about improper borrowing from restricted endowments, Pressimone defended the practice as necessary and commonplace. "I was flabbergasted," Canty said. "I threw a civil fit." Pressimone denies authorizing the use of restricted funds.

The school's financial woes spread to its athletic programs. The baseball coach discovered his card was declined when he tried to pay for team travel expenses — the card was tied to a restricted account with money raised for the team's use. In May, an Ohio hospital bought the 48-acre campus for $8 million. A week later, the school's possessions were organized in neat rows and put up for auction.

For generations, college trustees were primarily institutional caretakers focused on preservation and continuity. Today, governance is shaped by sustained financial, political, legal and reputational volatility, according to a recent report by WittKieffer, an executive search firm. Laura MacDonald, who runs Benefactor Group, a company that helps institutions build and preserve endowments, said boards often think "not on my watch" when faced with closing schools. They borrow from restricted funds because they're trying to buy more time. She calls the aversion to scenario-planning "magical thinking."

The demographic cliff is the underlying driver. The largest number of Americans born in a single year started college this past fall. Now, enrollments are projected to fall 13 percent by 2041, according to the Western Interstate Commission for Higher Education. In the Midwest and northeast, the decline has been ongoing for several years. Skepticism about the value of a college degree — heightened by the tough job market for recent graduates — has also reduced the share of Americans choosing college.

Using restricted donor funds to cover day-to-day expenses is tantamount to putting a going-out-of-business sign on campus, so it is little discussed outside college boardrooms. Even third-party annual audit reports are often vague on where schools are pulling money. The result, said Chuck Ambrose, former president of the University of Central Missouri and now a senior adviser at Husch Blackwell Consulting, is that a lot of reckless behavior will likely come to light as schools close or merge.

This article is for informational purposes only and does not constitute investment advice.