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Recent Defaults Show Private Colleges Are Struggling

The finances of small U.S. colleges have big problems.

The latest example: Emmanuel College, an 800-student Christian school in Franklin Springs, Georgia, that failed this month to pay investors holding $25 million of bonds. It joins Dowling College, which this year became the first municipal-bond-market borrower rated by Moody’s Investors Service to default since 2013.

Investors have put heightened scrutiny on such niche schools since Sweet Briar College in Virginia abruptly tried to shutter this year, only to be rescued by a last-minute alumna campaign. Others may not be so lucky: Moody’s estimates that the pace small college closures will triple to 15 a year by 2017, leaving bondholders at risk of seeing their investments disappear along with the school.