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Nonprofit College Endowments after the School Closes


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According to the U.S. Department of Education, more than 750 higher education institutions closed last year, including for-profit schools. Among these closing schools are private nonprofit colleges no longer able to fill the gaps between revenue and expenses and sustain operations while debt remains unpaid. While very few of the higher education institutions closing each year are private nonprofit schools, the annual number has tripled since the recession and is anticipated to remain stable or increase further, according to a 2015 Moody’s report. Many of the schools most at risk have fewer than 500 students and are affiliated with religious denominations. When a college or university goes bankrupt, what happens to its endowment? Most financially troubled schools have modest endowments, and some of the funds within the endowments are restricted by their donors to specific “for good, forever” purposes rather than immediate general support like debt relief. For example, Art Rebrovick, restructuring officer for Virginia Intermont College, which closed in 2014, said, “The endowment was on the books for $4 million, but it had been leveraged and used for faculty salaries so many times that there was just literally no money there.” If there is money left, there can be a fight between creditors, or between successor institutions taking up the responsibility of educating students. When Chester College in New Hampshire closed, it designated New England College as the recipient of its residual assets. This practice follows state and IRS guidelines that direct dissolving 501(c)(3) nonprofit organizations to give remaining funds to other nonprofits with similar missions, services, clientele, etc. However, the New England Institute of Art challenged the decision because it said that it was taking 92 percent of Chester College’s students and that act should be supported by the college’s residual endowment. Ultimately, the New Hampshire courts decided that the funds would be split 60-40 between the two schools, with New England

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