Clearly, not all small colleges can survive.

But the struggle can go on a long time. From The New York Times. 

At Small Colleges, Harsh Lessons About Cash Flow
In the last few years, small liberal arts colleges have been under financial siege, forced to re-examine their missions and justify their existence. Even several established and respected ones — Bard College, Yeshiva University, Mills College and Morehouse College, among others — have received negative financial ratings. . . . 
Smaller colleges are especially hard-hit. Many of the endangered ones are in rural areas and have traditionally drawn from regional markets, but have lost market share as students become more willing to travel beyond their home territory. Often they have not been able to keep up with the demand for expensive science and technology courses.

Some are women’s colleges, historically black colleges or religiously affiliated — appealing to a smaller audience.

They also tend to be less selective, with anemic or highly restricted endowments that make them overly dependent on tuition. Their alumni do not provide as much support as those of elite small colleges like Amherst, Swarthmore or Grinnell, which have powerhouse endowments. 
“Everybody’s competing for the best and the brightest,” said Karen Kedem, vice president and senior credit officer for higher education at Moody’s Investors Service, whose ratings can influence fund-raising and accreditation. “It makes it harder when you go down the food chain.” 
Among institutions that have closed in the last two years: Sojourner-Douglass College, in Baltimore, a predominantly black college that is waging a court fight to reopen; Marian Court College, a 50-year-old Catholic commuter college 15 miles from Boston that had been squeezed by the crowded New England market; Lexington College, a Chicago women’s college specializing in hotel management; and Mid-Continent University, a Baptist institution in Western Kentucky, now in bankruptcy. 
Moody’s estimated last fall that the number of four-year, nonprofit public and private colleges going out of business could triple, to 15 from five a year, over the next few years. The merger rate would more than double from the current two or three.

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