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Six key financial and operational metrics pinpoint higher ed risk

A new EY-Parthenon metric shows that 40% of US higher education institutions are at or nearing financial and operational risk.

In brief

  • EY-Parthenon IVM incorporates measures of financial position, market demand and student outcomes to give a dynamic view of an institution’s health.
  • The metric can help signal potential risk to leaders earlier, enabling proactive action.
  • “At risk” colleges and universities, on average, have a higher proportion of their student bodies receiving need-based federal aid.

More four-year colleges and universities are at financial and operational risk than may have been previously thought, a new EY-Parthenon financial health metric shows. The Institutional Viability Metric (IVM) considers market demand, student outcomes and financial position to help institutional leaders get a dynamic view of their institutional health in time to take strategic and operational action.

The IVM is particularly useful as institutions of higher education face heightened financial risk. COVID-19 has increased economic pressures across the nation and exacerbated the familiar challenges of shifting demographics, declining enrollment and growing competition. While institutional revenues are becoming more and more constrained, cost structures — built up incrementally over time — largely remain steady, threatening the long-term sustainability of the mission.


According to the IVM — which uses publicly available data from the Integrated Postsecondary Education Data System (IPEDS) to assess institutional risk levels — roughly 20% of the four-year segment was “At Risk” in both 2019 and 2020, and another 20% was flagged as “Monitor.” This has proven out in recent institutional closures: 16 of 26 institutions that closed in 2020 and 2021 were flagged as “At Risk” in an IVM analysis of 2019 data (with the remainder flagged as “Monitor”), compared with only three flagged as “At Risk” by the U.S. Department of Education (with more than half flagged as “Stable”). The EY-Parthenon team will continue to monitor this trend as future data become available from IPEDS.


“This work is critical to support the conversation: what does the next 15–20 years look like and what do we do now,” one state Director of Finance for Higher Education said. “The IVM feels novel in incorporating together several types of variables that together provide a holistic picture of risk. The door then gets opened to figure out how to move forward.”


A tool for higher ed self-screening and market assessment


The IVM uses six weighted metrics in three categories to assess and score an institution’s risk, quantifying real “virtuous” or “vicious” cycles of financial health experienced by four-year institutions: 


  • Financial position (50%)

Profit margin (25%)

Reserve ratio: net assets divided by expenses (25%)

  • Market demand (35%)

Total enrollment CAGR over the past five years (20%)

Net tuition and fees per FTE CAGR over the past five years (15%)

  • Delivery and outcomes (15%)

Six-year Bachelor‘s graduation rate (10%)

Full-time retention rate (5%)

For institutions for which all six indicators can be calculated with available data, indicators are scored 1 to 3 and then weighted to arrive at an overall IVM score. Thus, an institution can receive a maximum score of 3 or a minimum score of 1. An institution is “At Risk” if it receives an overall IVM score of less than or equal to 2. An institution is placed in the “Monitor” category if it receives an overall IVM between 2 and 2.3. An institution is considered “Stable” if it receives an overall IVM above 2.3.

The IVM seeks to be transparent in terms of variables used and scoring, rather than a “black box,” which can limit the interpretability and actionability of output. The IVM is also structured to be easily replicable, enabling it to be a diagnostic tool for institutions and comparable across peer sets and regions. Most importantly, the IVM is designed to be intuitive, modeling real cycles of risk and stability that we see in the market. 

Key findings on institutional risk

Using the IVM, the EY-Parthenon team identified all four-year schools open in 2019 and calculated their score 1) in 2019 using 2019 data (pre-pandemic score) and then 2) in 2020 using 2020 data (early pandemic score).

Among the insights:

  •  Based on 2019 data, only about three in five four-year institutions are “Stable.” Roughly 20% of four-year institutions are “At Risk,” and another 20% of four-year institutions are in the “Monitor” category.
  •  Higher risk schools are notably smaller on average — in terms of enrollment — in both the public and private sectors
  • Intensity of risk varies geographically: there are only 17 states in which the share of institutions “At Risk” is less than 10%. In 22 states, more than 20% of institutions are “At Risk.” In 10 states, more than 30% of institutions are “At Risk.”
  • On average, the proportion of enrollees that are Pell grant recipients is higher at “At Risk” institutions compared to “Monitor” and “Stable” institutions (46% vs. 41% vs. 33%, respectively).
  •  Based on 2020 data (which includes early COVID-19 impact), roughly 20% of the four-year market remains “At Risk.” IVM scores were relatively consistent between years, though there was some movement in the “At Risk” and “Monitor” categories . We hypothesize that the full financial and operational effects of the pandemic remain to be seen, likely in 2021 and 2022 data, which may change the distribution of risk among four-year institutions. Early COVID-19 impacts are already reflected in the profit margin indicator; notably, the average profit margin of “Stable” schools dropped from 8% in 2019 to 1% in 2020. 

Using IVM to guide strategic conversations

Higher education institutions will need to be more proactive about their financial health to survive in an increasingly challenging landscape. The IVM can help institutions and their boards achieve earlier intervention on financial health so that strategic conversations can take place and guide institutions more effectively toward financial sustainability.

“Monitor” schools specifically may be best positioned to reverse declining positions if intervention is early and proactive. The “Monitor” category is where further EY-Parthenon exploration will focus.

We anticipate that the overall financial picture for 2021 and 2022 is likely to be distorted to some extent by the one-time federal relief funding received by institutions during this period. When we update this report with the next set of publicly available financial data, we will attempt to pull out the amount of one-time federal funding received by institutions to evaluate their financial metrics. It remains to be seen whether COVID-19 relief funding was a much-needed intervention, or one that set back higher education back to some degree in terms of change and transformation. In the words of one higher education Chief Financial Officer, “did institutions use the funding for transformation or as ibuprofen?”

Time will tell. Going forward, the EY-Parthenon team will re-assess risk for the four-year institutional landscape and work with individual institutions to conduct financial health reviews and evaluate strategic and operational options.

Evaluate your institution’s risk level with the IVM

Use the self-scoring calculator to evaluate your institution’s risk level. This tool can be used retrospectively by inputting historical values or prospectively using forecasted values.


A new EY-Parthenon metric indicates that more colleges and universities may be at financial and operational risk than previously thought. The Institutional Viability Metric (IVM) incorporates measures of financial position, market demand and student outcomes to create a dynamic view of a higher education institution’s health.

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