From the Headlines: Trying to Make Sense of the Financial Stability of the American College System

To say that things have been challenging for American colleges and universities lately is a massive understatement…and the worst is yet to come.

There are a number of different reasons for this blunt statement: U.S. schools, even before Coronavirus, were trending in the wrong direction when it comes to financial health, endowment size, enrollment, and public funding (where applicable). Then Coronavirus reared its head back in March and colleges took it on the chin. Almost all schools elected to shutdown regular campus operations and moved to an online format. This cost a tremendous amount of money and time in tech development and distribution. Then there were the losses from housing (dorms and school-owned apartments), food, rental facilities, research, medical facilities tied to campus operations, NCAA Division I schools suffering losses from no attendance at sporting events, and in some cases, refunds made to students who pressed their institutions for some of their tuition money back because the college experience they were paying for was no longer being offered. Yikes.

Then there’s the admission data that suggests overall enrollment is trending down. This could be a short-term effect from Coronavirus, but more likely, families who are already on shaky financial ground themselves are steering clear of high-priced colleges altogether, no longer seeing their inherent value (or simply not seeing them as possible destinations based on their super-sized COA’s). The most likely outcome, once Coronavirus is under control, is that enrollment in Community Colleges will begin to grow again, while direct-to-university enrollments will continue to hedge back slightly.

Turning our attention to the biggest losers in the current race, we find public universities in states with significant revenue declines and populations, and dead last, small, private colleges that are not household names. These two groups are seeing the worst cuts and closures. An article in The Hechinger Report describes two such states that are faring worse that the rest: Ohio and Illinois. In Ohio, spending on education is down 17% from pre-2008 recession levels. In May, Governor Mike DeWine announced an additional $110 million in education budget cuts for the state’s higher education system, amounting to a 4% decrease and leading to layoffs of full-time staff and faculty at a number of Ohio institutions.

I also received some data from Edmit.com CEO, Nick Ducoff, that showed 134 U.S. schools that are considered ‘very high risk’ for failure, with another 154 in the ‘high risk’ category. As I stated earlier, most of these schools are going to fall into the category of ‘small, private schools’, that don’t get the branding from NCAA Division I sports, or fail to have large pools of students and alumni to draw contributions to their endowments from.

When the financial weather gets rough, most colleges and universities turn to their endowment funds to cover the bills and keep all operations moving forward without disruption. The goal being to draw only on interest income and leave the principle alone. Unfortunately, things have gotten bad enough that 330 schools nationwide had to draw down their endowment principle amounts to make ends meet, with 57% of those being smaller private schools. A recent article posted in the Chronicle of Higher Education noted that many of these schools frequently borrow money at the end of the fiscal year (the summer term) to make ends meet. However, with Coronavirus lingering for upwards of a year or more, these schools started borrowing at the beginning of the school year and will dip deeper into loans in the Spring and Summer terms.

If you would like to access the original articles noted in this report, please follow the following links: https://hechingerreport.org/analysis-hundreds-of-colleges-and-universities-show-financial-warning-signs/

https://www.chronicle.com/article/colleges-grapple-with-grim-financial-realities

Do you want to look up the financial health of a particular college or university? Here is a link to the Financial Fitness Tracker housed by The Hechinger Report: https://tuitiontracker.org/fitness/