Pennsylvania universities cutting costs through layoffs, mergers to meet financial challenge

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Faced with falling enrollment and cuts in federal spending, universities are cutting costs, merging with others and pooling their resources to buy energy, computer services and health insurance, industry observers say.

And some are closing.

Between 2010 and 2021, the number of students at institutions of higher learning dropped by 15%, according to a report by the National Center for Education Statistics.

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The numbers are a result of a decline in college-age students. They come at the time of cuts in federal funding for higher education and research. In addition, staffing cuts in the U.S. Department of Education has caused additional uncertainty. The Trump administration is also seeking higher taxes on university endowments and is placing restrictions on foreign students studying in the U.S.

In this environment, Thomas P. Foley, president of the 80-plus member Association of Independent College & Universities of Pennsylvania, or AICUP, said that its member schools have joined together to help keep tuition competitive.

"AICUP manages 39 cost-saving programs resulting in tens of millions of dollars in annual savings for participants," Foley said. "We save schools money in all sorts of ways and in a variety of sectors, from technology and finance to HR and research. We buy insurance together, buy software together, buy energy together, and invest retirement funds together."

The group includes larger schools, including Carnegie Mellon University, Drexel University, Villanova University and the University of Pennsylvania, but most are small, private, independent institutions like Haverford and Swarthmore colleges.

According to Foley, AICUP pools its resources to be financially nimble because as private, independent universities, many of its members do not receive direct payment from the federal or state government. With a large percentage of students who receive financial aid and minority students, AICUP gets federal money via student Pell and other grants, he said.

Lincoln University, a historically Black university, known as an HBCU, faces additional uncertainties. As a state-related institution, Lincoln receives 25% of its budget from the state. The state budget was supposed to be completed by the end of June, but remains unresolved, which puts further financial pressure on the school and others.

"We still don't know how the decrease in staffing in the [U.S. Department of Education] financial aid offices, especially regionally, will impact the timing of student financial aid getting processed," said Brenda Allen, Lincoln's president.

About 98% of Lincoln students rely on some sort of federal aid.

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"We are having to figure out how to manage our own cash flow," Allen said. "We are just trying to navigate our way in this really shaky time."

So far, Lincoln has not had to lay off employees. Even so, "we are dealing with cost-cutting and right-sizing," Allen said.

In Pennsylvania, 10 higher education institutions have either merged or closed since 2016, according to Higher Ed Dive, which tracks college closures and mergers nationwide.

Three closed outright, including the University of the Arts in Philadelphia, which closed abruptly in 2024, citing declining enrollment, financial challenges and a weakened cash position. The two others are Pittsburgh Technical College, which closed in August 2024, and Clarks Summit University in Lackawanna County, which closed in July 2024.

The rest merged with another university, some of which were in the Philadelphia area.

In March, Rosemont College said it would merge with nearby Villanova.

In June, Lackawanna College completed its merger with Pierce College in Philadelphia, citing complementary course offerings, especially for working adults, and a major online presence by Pierce.

In July, the federal government approved Drexel's merger with Salus University.

A spokesperson for Drexel said in a statement that the merger "strengthens research capacity, community engagement and long-term sustainability in a rapidly evolving healthcare and higher education landscape."

"The Drexel-Salus merger represents a strategic and collaborative integration that combines Salus University's nationally recognized strengths in non-overlapping clinical graduate health programs — such as optometry, audiology, and occupational therapy — with Drexel's R1 research infrastructure, broad academic offerings and institutional scale," they said.

Other universities have sought to cut costs.

At Pennsylvania State University, the board of trustees in May approved the closure of seven campuses, citing declining enrollment of 30% at some of those campuses, financial pressures and demographic shifts. It will close the following campuses after the 2026-27 academic year: DuBois, Fayette, Mont Alto, New Kensington, Shenango, Wilkes-Barre and York. The university will still have 13 campuses, from Abington to Scranton.

Penn State also cut staff and other costs.

In July, Temple said it was eliminating 190 positions, including about 50 layoffs, to reduce a $60 million deficit to $27 million. Fry also cited changes in federal student loans and Pell Grant programs that will take effect in the 2026-27 academic year.

The announcement followed a June budget update by Temple President John Fry, who said university enrollment dropped by about 10,000 students since the fall of 2017, causing a $200 million hit to the school's revenue.

There is much at stake for the surrounding communities when universities face financial pressures, experts say.

"College closures, mergers and other forms of financial distress can have profound effects not only on students and employees of the affected institutions but also on local economics – particularly in areas where the institution of postsecondary education serves as an anchor of local activity," according to a 2024 report by the Federal Reserve Bank of Philadelphia.

Drexel, Temple, Penn and Jefferson University are all major employers in Philadelphia, with large health care systems.

Last year, Gov. Josh Shapiro called on state leaders to "rethink" higher education in the commonwealth and established a new state Board of Higher Education to support and strengthen the sector, according to a spokesperson for the state Department of Education.

Shapiro's 2025-26 budget proposes a $13 million increase for community colleges, $40 million for the state-owned universities and $60 million in performance-based funding for state-related universities like Lincoln, Penn State, the University of Pittsburgh and Temple, the spokesperson said.

In the U.S., higher education and hospital anchor institutions together pumped about $1.7 trillion in goods and services into the economy and supported 18 million jobs, or about 9% of the nation's workforce, directly or indirectly, according to a 2022 report by the Federal Reserve Bank of Philadelphia.

The report states that the higher education industry contributed about $700 billion to the U.S. economy, had a total student enrollment of about 25 million and employed about 3 million people.

In a report on the U.S. higher education outlook for 2025, Emily Wadhwani, senior director of Fitch Ratings, Inc., said universities are projected to continue to merge, undergo restructurings and closures this year.

"Public funding has flattened as states return to normalized revenue growth expectations, and net tuition growth prospects are modest at best," Wadhwani said in her report. "This revenue trajectory is unlikely to be sufficient to fully offset still-elevated labor and wage costs, rising capital needs, and a sharply uncertain legislative landscape."

Despite talk by some people about higher education not being a good return on investment, Foley, the AICUP president, said a college degree still translates into about $1 million more in lifetime earnings and helps students develop the "critical thinking skills'' needed for the careers of the future, such as artificial intelligence.

Allen, the Lincoln president, said she wants students to understand that education is still the great equalizer.

"Our ability to move people out of poverty and into some of the higher socioeconomic levels will always be important to us," she said. "We are redoubling our efforts to get that message out."

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