Will my college go bankrupt?
It’s something many prospective college students want to know, as Nick Ducoff and Sabrina Manville learned when they founded a college advising company in 2018.
The previous decade had been especially hard for private colleges. Fewer students were enrolling in college, and some colleges responded by increasing spending to chase after the smaller group of applicants. Every year, a handful of small and relatively unknown colleges ran out of money, forcing students to search for a new academic home.
Mr. Ducoff, a former administrator at Northeastern University, and Ms. Manville, a former administrator at Southern New Hampshire University, looked for a credible list of financially vulnerable colleges and couldn’t find one. So they decided to create their own, using publicly available information about trends in colleges’ revenues, expenses, debts and cash reserves.
They assembled and were preparing to release a list of colleges that were headed toward insolvency. But when Inside Higher Ed, working on a news article to accompany the data, began to contact the colleges affected, angry emails and phone calls started pouring in.
Making such information public would be “grossly irresponsible and would cause great harm to the college,” one lawyer wrote, demanding that Mr. Ducoff’s and Ms. Manville’s small start-up firm, called Edmit, “refrain from publication.” Edmit didn’t have the money to fend off multiple lawsuits. It put the list in a drawer.
That was in November 2019, shortly before the first recorded coronavirus victim began showing symptoms in China.
The higher education landscape is now in chaos. Last year, 419 colleges were still accepting applications for the freshman class after the traditional May 1 deadline. This year, the number is 754, suggesting an enormous drop in demand. If campuses can’t open this fall, or students don’t return, the private higher education sector faces a financial asteroid strike. Edmit updated its projections accordingly and published a less specific version of them this month. The numbers suggest many colleges are now at risk.
Take La Salle University, a medium-size, 157-year-old Roman Catholic institution in Philadelphia. La Salle does not fit the profile of a tiny liberal arts college that most people don’t hear about until it expires, like a minor celebrity you first encounter upon reading their obituary. La Salle has more than 5,000 students, several Division I sports programs and a business school that opened an 87,000-square-foot, $35 million building in 2016.
But like many private universities, La Salle has struggled with shrinking enrollment in recent years. Fall undergraduate enrollment declined to 3,900 in 2018 from more than 4,500 in 2012. Graduate school enrollment dropped 37 percent over the same time. The university has increasingly discounted tuition prices for those who attend, a common trend.
Nationwide, the average tuition discount given to freshmen attending private colleges increased every year since 2010, reaching a high of 52.6 percent this academic year. In 2018, La Salle sold paintings from its art museum for $2.4 million to fund capital improvements, earning an official sanction from the Association of Art Museum Directors.
In 2018, La Salle reported $118 million in revenues, most of which came from tuition, against $115 million in expenses, a margin of only 2.6 percent. The university has about $67 million in net assets after subtracting debts from the value of its endowment and other reserves.
Edmit examined financial trends at 937 private universities and added a conservative estimate of the Covid-19 impact: tuition losses of 10 percent in 2020 and 20 percent in 2021, a 20 percent decline in endowment earnings, and an offsetting 10 percent reduction in spending on salaries. Edmit did not estimate reductions in housing revenue, but colleges face millions of dollars in losses if dorms remain unoccupied.
Those assumptions increased the number of colleges ranked with “Low” financial health — defined as being on track to run out of money within six years — by nearly 50 percent, to 345, more than one-third of all private colleges studied.
And that assumes all private colleges are affected equally. That’s unlikely. Highly selective colleges and universities have leverage to deny student requests to defer fall enrollment. They can also hold the line on tuition prices. Many elite universities have billion-dollar endowments to ride out the financial storm.
Less competitive colleges can’t just admit whom they wish and charge what they want. Instead, they use complex statistical models to manage their enrollment and pricing policies. La Salle, for example, typically admits five students for every one who actually enrolls, relying on an analysis of historical enrollment patterns to end up with the right number of students paying a financially viable mix of tuition prices. It needs a certain number of students paying full price, or close to it, every year.
This has become common industry practice. The financial solvency of many private colleges now rests on a latticework of probability. But many of the strategies colleges use to entice admitted students, like campus visits, are now gone. If the probabilistic models collapse, revenue losses at some colleges could be much more severe than Edmit’s assumptions, and the number of private colleges in acute financial distress could be even larger.
Private colleges continue to oppose the release of public information that might show them in a negative light. The National Association of Independent Colleges and Universities (NAICU), an industry trade group, has called for the Department of Education to suspend publication of “financial responsibility scores,” which are different from Edmit’s estimates and which are meant to identify colleges at risk of bankruptcy.
Barbara Mistick, president of NAICU and former president of Wilson College in Pennsylvania, says many private colleges serve large numbers of low-income students. “We don’t want to hurt institutions unnecessarily,” she said, noting that public colleges and universities aren’t penalized by the Department of Education for the fact that state government funding is on the verge of extensive retrenchment. In addition to funding from the Cares Act, NAICU has called for a large increase in money for the federal Pell grant program, to give students and the colleges they attend more resources.
Of course, many colleges will find a way through the present crisis, and universities like La Salle could rely on administrative savvy and deep roots of alumni and community support. Modeling tools aren’t perfect, and a worrisome trajectory doesn’t mean a college will stay on that trajectory.
Historically, colleges have been among the most adaptable and durable institutions. A list of nongovernmental organizations that survived the 1918 pandemic and still operate today would include a disproportionate number of private colleges.
Patricia McGuire is president of Trinity Washington University, a women’s college founded by the Sisters of Notre Dame de Namur in Washington, D.C. Trinity is not on the Edmit list of endangered colleges. The college has kept its expenses and tuition low, Ms. McGuire says, by avoiding unnecessary debt and focusing on academics instead of amenities. “Frugality,” she notes, “is a habit we got from the nuns.”
But other private colleges used borrowed money and statistical leverage to gamble on a strategy of spending more to compete for a shrinking pool of wealthy students. For some of these colleges — if collegians desert or delay higher education in large numbers this fall — that may prove to be a fatal mistake.
Kevin Carey directs the education policy program at New America. You can follow him on Twitter at @kevincarey1.
