The numbers come first. Nearly 200 private colleges borrowed from restricted endowment funds in 2025, up from roughly 130 in 2021, according to estimates from higher-ed consulting firm Perspective Data Science.
Hiram College, a 1,000-student liberal arts school in rural Ohio, offers the starkest case. Facing multi-million dollar deficits, the school borrowed from its $56 million endowment, eventually pulling more than $47 million from the fund — including money donors had explicitly earmarked for specific purposes, not for balancing budgets.
Hiram had 325 restricted endowment funds, according to a recent audit. The school is now working with the state attorney general's office on a repayment plan and is notifying donors, both in writing and in person.
David Haney, Hiram's president from 2020 to 2023, said he was surprised to learn about the loans when he took office. He called them a risky bet and said colleges should focus on cutting expenses rather than assuming enrollment will rebound. 'What a lot of these small colleges do is they think that things are going to turn around,' Haney said, describing bets on new athletic facilities that rarely pay off.
Some schools have made the strategy work. Avila University in Kansas City won court approval in 2023 to loosen restrictions on 97 endowment funds totaling $6.4 million and is now on firmer financial footing, said chief operating officer Andy Jett. The school grew enrollment partly by recruiting international students — a strategy that has since run into the Trump administration's efforts to limit student visas.
Others have not been so fortunate. Indiana's Martin University and Notre Dame College in Ohio both drew down their endowments and closed anyway. Emily Wadhwani, a higher education analyst at Fitch Ratings, said such moves 'can be a real red flag for those of us on the outside looking in.'
Analysts at Cambridge Associates compare the practice to borrowing from a 401(k): it can bridge a gap, but it carries long-term risk, including potential credit downgrades. 'It's not a rainy day fund — we know that,' said the firm's Tracy Filosa. 'But in one way, it is there for an institution to get through a rainy day.'
The underlying pressure is demographic. A declining US birth rate has left colleges competing for a shrinking pool of students. Large, selective universities — many sitting on endowments north of $5 billion — still draw more applicants than they can admit and remain financially healthy. Smaller, lesser-known schools have no such cushion.
The market has already voted. Endowments are capital set aside by donors under specific terms, not a reserve for institutions that failed to adjust their cost structure to a shrinking customer base. When colleges quietly convert restricted gifts into operating cash, they are borrowing against trust — from donors, from regulators, and ultimately from students who enroll in a school whose finances may not survive their degree.
The closures of Martin University and Notre Dame College make the lesson plain: dipping into the endowment did not fix an unsustainable business model, it only delayed the reckoning. Institutions that cannot attract enough paying students on their own merits are discovering that no amount of borrowed capital changes the arithmetic.
