Landmark law allows payouts to ‘zombie universities’

South Korea’s National Assembly last month passed the long-delayed Private University Structural Improvement Support Act, ending 15 years of parliamentary stalemate to allow the government to shut down so-called ‘zombie universities’ that have faced financial difficulties for years, in part due to the country’s declining population.

The law passed on 23 July grants the government new powers to order compulsory closure of financially distressed private universities and, controversially, to pay their founding bodies up to 15% of any remaining assets as a “dissolution settlement fee”.

Private universities in South Korea receive substantial government funding, and their remaining assets are normally returned to the state on closure. The new legislation, which comes into force in July 2026, stipulates that even if a university shuts down due to financial difficulties, its founding corporation will be able to retain up to 15% of what remains after liquidation.

Specific criteria and procedures for calculating the settlement fee will be set out in lower-level regulations.

The legislation also provides for compensation for faculty and students affected by closures. However, it does not include any provisions for the re-employment of faculty, which some had pushed for.

A representative of a regional university said: “This law offers a realistic exit strategy for local private universities facing cumulative financial pressures from declining enrolment and frozen tuition fees. It could also encourage smaller regional universities to restructure voluntarily.”

However, a representative from a university foundation affiliated with the Council of Junior College Corporations, a group of private institutions, commented: “We understand the intention, but it’s disappointing that the process lacked proper consultation. From the dissolution settlement to compensation for students and staff, the position of university foundations does not seem to have been fully reflected.

“Closing universities that face serious financial difficulties may be necessary, but every foundation’s situation is different. I wonder whether such differences were truly taken into account.”

Although this is the first time such a bill has cleared the plenary session, similar proposals were repeatedly tabled from 2010 onwards. Four previous attempts failed, mainly due to fierce disagreements over whether founding bodies should be entitled to a payout.

Critics argued mismanagement has dogged many private university foundations – in some cases marred by corruption – and for the government to ‘reward’ institutions responsible for their own financial collapse would be inappropriate.

Universities outside the capital, Seoul, and its surrounding areas are also more likely to be affected by falling student numbers. Many of them have been in dire financial straits for years, dubbed by the media as ‘Zombie universities’, but were spared drastic action by the government, concerned by the economic impact of closures on areas outside the Seoul region.

Bipartisan consensus

However, the current National Assembly saw an unusual degree of bipartisan consensus. Lawmakers from both the ruling Democratic Party and the opposition People Power Party submitted similar versions of the proposed reforms.

An official on the parliamentary Education Committee explained: “In the past, there was a strong public perception that allowing failing university foundations to keep part of their assets, despite being responsible for poor management, was unjust – especially given the number of corruption cases. But during the subcommittee stage, consensus on the dissolution fee was reached smoothly.”

The official noted: “The sharp drop in the school-age population was a strong motivator. We also reached agreement on measures such as compensation for staff and students. The details will be set in subordinate regulations, but that’s all we can say for now.”

The urgency is clear. South Korea’s pool of 18-year-olds – the standard age for university entry – has been shrinking faster than universities have reduced intake.

According to Statistics Korea, the number of 18-year-olds fell from 660,000 in 2015 to 430,000 in 2024, a drop of nearly 30%. By contrast, university admission quotas only declined 10% over the same period, from 750,000 to 680,000.

The National Assembly Futures Institute, a parliamentary think tank, predicted that by 2040, the 18-year-old population will plunge to 280,000 – 40% below 2024 levels.

Financial reviews of private universities

Under the new law, the Ministry of Education will conduct financial reviews of private universities through the Korea Advancing Schools Foundation, a public foundation under the Ministry of Education, which will have the legal authority to impose severe measures on institutions designated “universities in financial crisis” – including halting student admissions, ordering closure, dissolving the corporate entity and liquidating assets.

A 2024 review by the Foundation found 14 out of South Korea’s 280 private universities were already on the crisis list, deemed financially distressed.

Despite receiving roughly KRW600 billion (US$440 million) in government funds over the past decade, these universities failed to return to financial health. Sustained operating losses, wage arrears exceeding two months, or failure to submit annual accounts can lead to them being characterised as ‘insolvent’.

However, the Korea Higher Education Institute issued a sharply critical statement on 24 July, arguing that the scale and speed of demographic decline meant that “simply eliminating financially weak universities” would not solve the wider crisis in higher education.

Instead, it called for a “comprehensive master plan” for restructuring the entire sector, including the introduction of “government-responsible private universities”, which would come under close government supervision backed by increased state funding. This would strengthen “public accountability, transparency and democratic governance”.

The institute also urged policymakers to consider redistributing reduced student numbers in line with revised admission quotas and educational capacity, as well as expanding universities’ lifelong learning roles.