Event Brief
A Wall Street Journal investigation found that college leaders nationwide are cutting programs and laying off faculty while simultaneously drawing down endowment funds to pay day-to-day operating expenses — in some cases spending money that donors gave for specific, restricted purposes without those donors' knowledge or consent. According to reporting cited in a summary of the investigation, nearly 200 private colleges borrowed from restricted endowments during 2025, up from 131 four years earlier. Separately, Forbes' financial-health analysis using Hendricks data found 192 private colleges are currently operating with negative unrestricted net assets excluding property (UNAEP), with many effectively insolvent and drawing down credit or donor-restricted funds simply to make payroll.
The starkest case is Northland College, a small liberal arts college in Ashland, Wisconsin, which closed in May 2025 after years of enrollment declines and financial struggles. Court filings show the college borrowed roughly $22 million from its endowment between 2015 and 2024 to cover operating expenses, repay a line of credit, and manage cash-flow shortfalls, leaving only about $3.3 million of donor-restricted funds by January 2026. A 2024 audit by Wipfli found the college lacked staff trained in generally accepted accounting principles and had inadequate segregation of duties. Donors including the family of a deceased former student, whose memorial funds were largely depleted, have accused the board of violating Wisconsin's Uniform Prudent Management of Institutional Funds Act (UPMIFA) and have urged the state attorney general to investigate further, even after a judge approved the college's distribution plan on July 16, 2026.
The practice is emerging against a demographic backdrop that makes it especially perilous for donor relations. The Western Interstate Commission for Higher Education projects U.S. high school graduates will decline 13% by 2041 from the 2025 peak, translating to roughly 576,000 fewer prospective students, while separate Census-based projections point to a further 15% drop in the 18-year-old population by 2039. Layered on top of that demographic contraction is declining public confidence in the value of a degree, reflected in falling Gen Z college aspirations and a broader NACUBO-Commonfund finding that new gifts to college endowments fell 9.2% in fiscal 2025 to just under $14 billion.
The pattern is prompting fresh scrutiny of how restricted endowments are governed. Legal commentary notes UPMIFA is now in effect in 49 states and D.C., and a June 2026 Iowa Supreme Court ruling held that any modification of donor-restricted funds must remain consistent with the donor's original charitable purposes — a precedent likely to be invoked as more colleges face similar disputes. Separately, Forbes highlighted Loras College in Dubuque, Iowa, which intends to borrow at least $42 million (70%) of its roughly $60 million endowment in fiscal 2026 despite a negative UNAEP that reached -$51 million in 2025, up from -$33 million a year earlier, and a recent debt default with lender MidWestOne.
The convergence of enrollment pressure, donor distrust, and legal exposure is reshaping how institutions, regulators, and donors approach charitable giving to higher education. As more colleges face insolvency risk, the Northland precedent — and the pending Iowa ruling — are likely templates for future litigation and state attorney general scrutiny over how restricted funds are handled during financial distress or closure.
Intersection Groups (4)
Proximity: DirectImmediateFLOW D
Small and mid-tier private colleges (financially distressed institutions)
College boards and CFOs at tuition-dependent private institutions face an immediate choice between drawing further on restricted endowments to make payroll or cutting programs and staff, with each option carrying reputational and legal risk. Institutions like Loras College, which plans to borrow at least $42 million — 70% of its roughly $60 million endowment — in fiscal 2026, are betting on aggressive fundraising and cost-cutting to replenish funds they've already spent. Boards must now weigh whether continued borrowing invites the kind of donor litigation and attorney general scrutiny that followed Northland College's closure.
Strategic Options
01Commission an independent audit of restricted-fund usage and disclose findings proactively to donors before litigation forces disclosure, following the pattern that emerged after Northland's 2024 Wipfli audit exposed accounting deficiencies.
02Engage counsel to assess UPMIFA compliance in each state of operation ahead of any further endowment borrowing, given the June 2026 Iowa Supreme Court ruling constraining fund repurposing.
03Board finance committee models a specific repayment timeline and fundraising target tied to any endowment draw, rather than open-ended borrowing, to avoid the depletion pattern seen at Northland ($22 million borrowed against a fund that shrank to $3.3 million).
↳ The Forbes UNAEP analysis (192 colleges with negative unrestricted net assets) and the WSJ endowment-borrowing count (nearly 200 colleges) are two independent methodologies converging on nearly the same number, suggesting the actual population of financially distressed private colleges is unusually well-corroborated rather than a single outlet's framing.
FLOW Rationale: With 192-200 institutions independently identified as insolvent or endowment-borrowing, and each facing overlapping legal, donor-relations, and enrollment pressures simultaneously, this is a sector-wide structural crisis requiring board-level decisions, not a routine cash-management issue.
Scale (Large): Nearly 200 private colleges borrowed from restricted endowments in 2025 and 192 institutions show negative UNAEP, indicating the practice is systemic across the small-college sector rather than a handful of outliers.
Complexity (High): Boards must simultaneously manage cash-flow survival, donor relations, UPMIFA legal compliance, and long-term enrollment strategy — decisions where each action (further borrowing, program cuts, disclosure) changes donor and regulatory posture for the next.
Key Question
Should financially distressed private colleges disclose restricted-endowment borrowing to donors proactively, before litigation like the Northland College case forces disclosure and potential Attorney General investigation?
Watch Signals:- [Likely] More state attorneys general opening inquiries into restricted-endowment borrowing following the pattern of donors urging the Wisconsin Attorney General to investigate Northland College's use of funds.
- [Possible] Additional college closures disclosing endowment depletion in year-end financial statements, given 192 colleges already show negative UNAEP per Forbes' analysis.
- [Possible] Courts in other states citing the June 2026 Iowa Supreme Court ruling on donor-restricted fund modification as persuasive precedent in pending endowment disputes.
Proximity: DirectNear-TermFLOW C
College donors and endowment contributors
Donors who gave restricted gifts to colleges — for scholarships, research centers, or memorial funds — must now decide whether to demand transparency reports, seek legal counsel, or pursue litigation if they suspect their funds were redirected. The Northland College case shows donors like the Norgaard family, who raised $156,000 for two memorial endowed funds, can see most of that money effectively disappear before an institution closes, with recovery options limited to court-supervised distribution of remaining assets.
Strategic Options
01Request annual restricted-fund usage reports and independent audit confirmation as a condition of any future major gift, rather than relying on board assurances.
02Consult counsel about standing to petition a state attorney general for investigation, following the model of Northland donors who urged Wisconsin's AG to investigate after the court-approved distribution plan.
03Where a restricted fund's original purpose can no longer be fulfilled, negotiate directly with the institution for a cy pres-style redirection to an aligned successor organization, as the Norgaard family did in creating a replacement scholarship fund at Northfield High School.
↳ Donor recourse is structurally weak even when wrongdoing is alleged: at Northland, the presiding judge found the board complied with state law despite donors' objections, meaning legal remedies for restricted-fund misuse may be far narrower in practice than donors assume.
FLOW Rationale: Donors face a genuinely unclear legal situation — courts can find borrowing legal even when donors feel betrayed — combined with limited practical leverage to compel disclosure before harm occurs.
Scale (Moderate): Individual donor losses are often in the tens of thousands to low millions of dollars per fund (e.g., Northland's $10 million Burke Center endowment), materially affecting the donor's philanthropic intent but not systemic to the broader economy.
Complexity (High): Donors face an unclear legal landscape — UPMIFA is in effect in 49 states with inconsistent enforcement, and the Iowa Supreme Court's June 2026 ruling is only beginning to establish precedent — making it difficult to know what recourse actually exists.
Key Question
Do donors to financially distressed private colleges have any practical legal mechanism to prevent or reverse restricted-endowment borrowing before a college closes, given a Wisconsin judge found Northland College's board complied with state law despite donor objections?
Watch Signals:- [Possible] More donor families joining calls for Attorney General investigation into a specific college's endowment practices, following the model set by Northland College donors.
- [Possible] State legislatures introducing stricter UPMIFA amendments requiring donor notification before restricted-fund borrowing, in response to cases like Northland College.
- [Unlikely] A state attorney general reversing a court-approved endowment distribution plan absent new evidence, given Wisconsin's AG had not challenged Northland's plan as of July 2026 reporting.
Proximity: CloseMonitorFLOW B
U.S. Department of Education leadership
The Education Department, which is pressing colleges to pledge campus reforms by the end of 2026, gains a new financial-transparency angle to fold into its higher-education overhaul agenda, potentially linking federal funding conditions to disclosure standards around endowment usage. Any additional reform push targeting financial transparency would compound the pressure already created by unrelated federal actions on financial aid and borrower-defense claims.
Strategic Options
01Add restricted-endowment usage disclosure to the list of reforms colleges are asked to pledge by the end of 2026, leveraging the existing reform letter mechanism reported by Bloomberg.
02Coordinate with state attorneys general on a shared framework for referring suspected UPMIFA violations, given multiple states now have live donor disputes.
03Direct the Department's research arm to compile a public list of colleges with negative UNAEP or endowment-borrowing disclosures, using methodology similar to Forbes' Hendricks-data analysis, to inform prospective students and donors.
↳ The Department's separate push for campus reform pledges by the end of 2026 creates a ready-made policy vehicle to fold in endowment-transparency requirements without needing new legislation, since colleges are already being asked to commit to reforms on a comparable timeline.
FLOW Rationale: The Department already has an active reform-pledge mechanism in motion with a defined 2026 deadline, so incorporating endowment-transparency asks is a low-complexity extension of existing federal leverage rather than a new undertaking.
Scale (Moderate): The Department's ongoing reform letter to university leaders (per Bloomberg, sent Monday) already sets a 2026 deadline for institutional commitments, giving it direct leverage to add endowment-disclosure asks without new legislation.
Complexity (Low): The Department has an established mechanism — the reform pledge letter — through which it can add expectations; this is an incremental addition to an existing, functioning process rather than a novel policy challenge.
Key Question
Will the Department of Education add restricted-endowment usage transparency to its campus reform pledge requirements given the 2026 deadline already set for university leaders?
Watch Signals:- [Possible] The Department of Education's campus reform letter or follow-up guidance explicitly referencing endowment or financial transparency requirements.
- [Possible] Congressional hearings referencing college endowment borrowing alongside existing financial-aid transparency legislation already under debate.
- [Unlikely] A new federal rule specifically regulating restricted-endowment usage, absent existing statutory authority over this donor-institution relationship.
Proximity: DirectImmediateFLOW C
University general counsel and boards of trustees
General counsel offices at financially stressed institutions must reassess whether past or planned restricted-fund borrowing complies with their state's UPMIFA statute, particularly in light of the June 2026 Iowa Supreme Court ruling constraining fund-purpose modifications. Boards approving any endowment draw now carry elevated personal and institutional liability exposure given the litigation and attorney general scrutiny triggered by the Northland College closure.
Strategic Options
01Obtain formal donor releases before any restricted-fund borrowing, following the approach Northland College used for more than two dozen of its over 160 endowed gifts — though incompletely, since not all donors were asked.
02Commission outside audit review of segregation-of-duties and GAAP compliance in endowment accounting, addressing the deficiencies a 2024 Wipfli audit found at Northland College.
03Brief the board explicitly on the June 2026 Iowa Supreme Court ruling requiring restricted-fund modifications to remain consistent with donor intent before authorizing any further endowment draws.
↳ Northland's own board obtained donor releases for only about two dozen of more than 160 endowed gifts before borrowing against them — meaning even institutions attempting some compliance process left the large majority of restricted funds without documented donor consent.
FLOW Rationale: Counsel must navigate a genuinely unsettled legal environment where a state court found compliance with UPMIFA despite donor objections, meaning existing playbooks for restricted-fund governance don't reliably predict litigation outcomes.
Scale (Moderate): UPMIFA governs institutional funds in 49 states plus D.C., meaning any college's counsel must navigate this framework directly whenever a board considers drawing on restricted funds.
Complexity (High): Counsel must weigh an unsettled and evolving legal landscape — a fresh state supreme court ruling, inconsistent attorney general enforcement, and active donor litigation — with no single clear compliance playbook yet established.
Key Question
Does obtaining donor releases for only a fraction of endowed gifts before borrowing against a pooled restricted endowment satisfy UPMIFA compliance, given a Wisconsin judge found Northland College's board complied with state law despite objections from non-consenting donors?
Watch Signals:- [Possible] Other state courts citing or distinguishing the June 2026 Iowa Supreme Court ruling on donor-restricted fund modification in pending cases.
- [Possible] Increased demand from college boards for outside counsel review of endowment governance following the Northland College litigation outcome.
- [Unlikely] Uniform national legislation standardizing restricted-endowment borrowing rules, given UPMIFA is state law and no federal preemption effort is currently reported.
Facts & Figures (6)
The claims behind this analysis, each with its verification status — including what is contested, unverified, or could not be established.
An estimated 200 private colleges borrowed from restricted endowments in 2025, up from 131 four years earlier.
Establishes the practice has scaled roughly 50% in four years, indicating a systemic rather than isolated financial-distress pattern.
● YOUR INPUT
Northland College borrowed approximately $22 million from its endowment between 2015 and 2024, leaving only about $3.3 million of donor-restricted funds by January 2026 before the college closed in May 2025.
Provides the clearest documented case of the scale of restricted-fund depletion and its legal fallout, serving as the reference precedent for donor litigation risk.
✓ GROUNDED
WICHE projects U.S. high school graduates will decline 13% by 2041 from the 2025 peak of approximately 3.9 million, representing roughly 576,000 fewer students.
Confirms the structural enrollment cliff is a long-term, demographically-driven headwind, not a cyclical downturn colleges can wait out.
✓ GROUNDED
New gifts to college endowments fell 9.2% in fiscal 2025 to just under $14 billion, per a NACUBO-Commonfund study of over 650 institutions.
Shows donor pullback is already underway nationally, compounding the risk that endowment-raiding disclosures further suppress giving.
✓ GROUNDED
Forbes' analysis found 192 private colleges are operating with negative unrestricted net assets excluding property (UNAEP), with many effectively insolvent and drawing down credit or donor-restricted funds to make payroll.
Independently corroborates the WSJ figure using different methodology, suggesting the true count of financially distressed institutions is broad and not a WSJ-specific framing.
✓ GROUNDED
A June 2026 Iowa Supreme Court ruling (In re Ezra L. Totton Scholarship) held that any modification of donor-restricted funds must remain consistent with the donor's charitable purposes.
Sets an emerging judicial precedent that could constrain colleges' ability to unilaterally repurpose restricted funds going forward.
✓ GROUNDED