August 21, 2014 | Beyond the College Brochure

Hello and welcome to the Beyond the College Brochure podcast, where we provide you information and guidance about college financials and decisions. My name is Mary McGrath and I'm a rising senior at Lindenwood University, and my co-host today is Dr. Gary Stocker, who is also the founder of College Viability. Welcome to the podcast.

Well, Mary, thank you very much. And as I listen to the introduction, I think next week we have to change it because next week you'll be a senior. Yes, I know. And not just a rising senior. So, you know, you're, you're almost there that last year. It has been a pleasure doing these podcasts with you the last many months. I'm sure we'll get to do many more in the coming months as well. You usually have questions for me. Do you have questions for me this week?

Yes, I do today. So just to kick things off, obviously we know our target audience most of the time, the people listening to us are usually students and families. So what would you say to any students and families who are concerned about the ability to possibly transfer credits to a different school if the college they're currently attending is facing financial issues?

I guess, Mary, the best piece of guidance I would give would be get ahead of it. If you're at a college and there are rumors among students or faculty or staff or anybody that there are layoffs coming or cutbacks in courses or programs, don't wait for it to happen. I know you chose a college. Everybody that's listening to this podcast chose a college for a reason, but if there's clearly some concerns about the financial health of that college, get out, get ahead. And here's what you do with the transfer piece. If you get out ahead of it, look at a couple of colleges, look at 2 or 3 or 4 more colleges, 2 or 3 or 4 more colleges, and send them your transcripts and compare and contrast each one of them to how many of those transcript credits they will take. And if all things else equal, choose the college that's going to accept most of your transfer credits from whatever college you're transferring from. You can use that getting ahead of the closure or cutbacks approach to negotiate with colleges, believe it or not, even on academics. If you're in the registrar's office at a college, Mary, and I want you to take my Finance 304 course from another college and you say no, You know, say, I'm sorry, Ms. McGrath, if you can't take this, I found another college that will. Now again, as you and I have talked about many times, as I've shared many times, colleges want students. Colleges need students, Mary, a lot more than students need any individual college. And leverage that fact to get the best possible deal, not just on tuition, not just on room and board, but on accepting the credits. Especially if you transfer. The transfers can be because a college closed, may close, or you may just have chosen the wrong college. In any case, get ahead of the game, negotiate for as many credits as you can. One more small point on that, and I've done some work on this, is if you change colleges for whatever reason, close or cut backs, your own, your own individual choice, and it's going to take you an extra year to finish, you're losing about $50,000 in money. Some of that is having to retake classes from transfer, but a lot of it is— and you'll be looking forward to this here in May of next year— that first year's income. If you can't get that first year's income, $40,000, $50,000, $60,000, whatever it is, that's gone. That first year opportunity for income is gone. So get that college education in 4 years, get on with it, make some money, and don't let anything get in your way, including a college in financial trouble.

And when a certain school obviously is facing financial trouble, they may begin to make certain changes, whether it be cutting programs or laying off faculty and staff. So kind of focusing on that, the latter part of it, would you say a quality of education could begin to decline if experienced or faculty and staff that have been there for a long time are laid off due to the financial trouble?

Well, I mean, the easy answer is sure. There are concerns. But I would argue that yes, and you and I know this, there'll be many more colleges that close. The FAFSA debacle and the downward trend in the market, there'll be many more that close. But there will be most, predominantly most, that won't. But it's the ones that are financially unhealthy but still viable right now that concern me because they are watching each each dollar come in and each dollar go out. And there's also a cultural piece. You haven't been through this because you haven't been in that post-college career yet, but I've heard from many others in academics that when a college is in financial trouble and the rumors start, true or otherwise, that the faculty are concerned. That's their livelihood. That's how they're making their mortgage payment. That's how they're paying for their kids to go to school. That's how they put groceries on the table. That's how they buy cars, all that kind of stuff. If they're worried about their livelihood and the livelihood of their loved ones, whatever scenario that might be, I'm not sure that their paid occupation is going to have the kind of focus it might otherwise have in a college that's doing financially well.

And similar to that, um, when looking at more schools in financial distress, would you say those schools are more likely to have limited resources for students and families, um, versus one that is maybe not doing as bad financially?

Well, and it's kind of a similar response to the previous question. Sure, if they have limited resources, they're not going to be able to buy the latest version of Microsoft Office or update, upgrade their computers from 16 megs of RAM to 32 or 64 megs of RAM because they can't do that. They just don't have the resources to do that. So yeah, you are going to get a less resourced college if that college doesn't have the funds to buy those things. They're struggling, as I've shared with you many times. They're watching those last dollars, circle the financial drain, and they aren't worried about Microsoft Office 2025. They're worried about making payroll next month. They're worried about keeping the lights on and the heat on this coming winter. Limited resources, colleges that are struggling financially certainly have— I can't say all the time, but in almost all cases, colleges with limited resources are going to provide a less quality, I guess I can say that, less quality college education than those that are financially secure.

And as we know in today's day and age, obviously campus safety is kind of a hot topic. It's very important, so as it should be a hot topic. Yeah. But would you say that schools who experience some of these budget cuts due to financial trouble, could that have an effect on the campus safety measures at that school?

Well, I don't have a lot of experience on this, so let me categorize this as Gary Stalker's perception, for what that's worth. I don't know of any scenarios I've heard about where they cut back on that overt safety— safety officers, the fire alarms, fixing the potholes. I don't know that a college would risk that for lots of reasons, in part because their insurance companies probably mandate so much coverage for that kind of stuff. But the campus safety that concerns me more really is associated with mostly building maintenance. Are these colleges in financial trouble? Do they have the resources to maintain the buildings, to fix the roofs, to make sure the air conditioning works, to make sure they can clean out the mold in dorm rooms or in classrooms and those kinds of things? That's where I think the safety issue is. And, and from multiple sources, we can tell from looking at budgets that colleges have billions, the B, of dollars in deferred maintenance. So when you're looking at colleges, make sure to look in the cracks and crannies, make sure that those buildings are maintained. If there is mold on a wall, that's indicative, I think, of much more than just mold on the wall. Be careful. I worry, and I don't think I've shared this with you, but I've shared it with others. I worry that there's a tragedy out there, Mary, waiting to happen at a college that didn't have the resources to properly maintain its building, and somebody is at increased risk of being seriously injured or worse, Mary.

And to continue on kind of with these questions regarding what might begin to decline if a school faces financial trouble, would you say that different financial aid opportunities such as scholarships or grants could also decrease when that school is in trouble?

That's a tough call because, you know, the financial aid is a big part of the recruiting strategy. You look at it when you were looking at college, you had options, right? Part of it was based on your financial commitment, whatever that would have been. So colleges are going to be hesitant to not discount tuition because then they'll have fewer students. But yet when they discount tuition, as you and I've talked about many times, they don't have the revenue they need to meet payroll, to keep the lights on, do that maintenance we just talked about. So it's tough to make any generalization on that. It's just a tough overall market. And I think something we talked about in the first podcast, this is basically an economic issue. It's basically a supply and demand issue. There are too many college seats. Some estimates as many as 2 million more college seats than needed. And not enough students like the Mary McGraths of the world to pay to take, to sit in those seats to learn something. And until that basic supply and demand is resolved, there will be many, many, many colleges with great financial difficulties. Many will close. Most will not, but many, many, many will close. And like we talked before, I don't worry about the closing colleges. I wish they'd close faster because it's obvious to me which one should. I worry about the ones that are just barely hanging on and can't provide the type, the quality of college education you and your, and your generation deserve.

And more often than not, these schools that are just barely hanging on, or even the ones that are beginning to close, usually reside in smaller towns and things like that. So is there a broader impact on that community if a local college were to close its doors?

You'll see countless stories along those very lines. Yes. To, to answer your question, colleges typically, and this isn't Gary Stocker talking, this is multiple sources across multiple media, college closures, colleges in small communities are the predominant source of economics, economic growth revenue in terms of tuition taxes, not tuition taxes, retail taxes, food and beverages and services and those kind of things. And even cultural components. You know, most colleges have some kind of cultural piece that's a big part of the college experience, whether it be visual arts kind of things, whether it be political presentations, community presentations. When the college closes, the community typically loses all those kind of assets. And an educated speculation on my part is now all of a sudden the people who live there now might not have similar incentive to live there and might start looking to move to a bigger city as opposed to staying in a smaller one with fewer opportunities. Educated speculation on my part, but certainly a logical response.

And can you provide any insight on how colleges may balance increasing their tuition while also obviously wanting to prioritize the need to remain affordable for different students and families?

What's happening now is colleges raise their tuition almost every year, not every year, but they also raise the tuition discount. And I might have shared this story with you before. I've talked with college presidents who have talked about this very topic, and they have shared with me conversations with parents who prefer what's called the high price, the high tuition price and high tuition discount model. So what colleges do is they'll raise their price 3, 4, 5, 6%, whatever per year. But they raise the tuition discount something like that. So they probably net not as much as they need, if anything, even though they raise the list price, like a list price of a car, they're not getting that at retail. They're getting a car that's discounted 50%, 55%, 60% in some cases. And parents prefer, they would love, your parents and other parents, love to go around and say, my child got a $30,000 presidential scholarship. To go to this university. And it happens all the time. It's a discount inside baseball conversation. There's no actual $30,000 in funds that are transferred. It's just a discount. Colleges are welcome to do that. Students and families love it for obvious reasons, but it doesn't really help the financial strength, financial health of these colleges that discount tuition so much that they can't meet their expense obligations.

And these colleges that are at risk of closing, do they take any certain steps to help ensure that these students are able to complete their degrees, whether it be at a different school or in a different program or anything like that?

I guess you, you could put that into two categories. And the first is colleges that close in an orderly fashion. And a good example is right here in St. Louis, where Fontbonne University announced its closure this spring. They will close in May of 2025, 18 months, give or take, out from the announcement. And yes, colleges like that, um, even though it's tough, they have put together what are called teach-out opportunities. Um, and these teach-out opportunities are with other colleges in the region or elsewhere where students can finish their degree requirements that they started at Fontbonne, whatever the college has closed. The challenging part on that, and I've done some research on this, I think Fontbonne might have been one of the colleges that did this. Many times they're referring their students who already suffered the trauma of a college closing to other colleges in this teach-out, this teach-out graduation arrangement. And I did kind of a financial look-see and many of these colleges offered the teach-out opportunities, they themselves are in financial trouble. And so what nobody wants is the first college to close and you go to teach out at another college that also closes. Is it a common risk? No. Is it a reasonable risk? Absolutely. It's a reasonable risk. And that's why if you're looking to transfer for whatever reason, closure, or you don't like the college, look at the financial health, spend the $30 on the College Viability app for students and families and make sure the colleges you're considering have increased enrollment, have decent graduation rates, are collecting some tuition revenue, and do the best you can. So that you don't even consider colleges that aren't financially healthy. And then the other one is short notice. And just this year, the pattern has increased where colleges that have to close are so poorly led and so underprepared that they're closing, they're open on Friday and closed on Monday. That's a slight exaggeration, although that did actually happen once. These short notice closures, sometimes after the fact, they do the teach-outs. But if you've just lost your job, what kind of quality partners, Mary, are you looking for for that teach-out? You're just trying to find somebody that says yes. You don't care what their, what their financial health is at all. So yes, those that are, are well prepared, like the Fontbonnes, um, McMurray College up in Jacksonville, Illinois, a couple years ago, fabulous job of closing their college. I'm sure it was tough. And there are many more that do that, but increasingly these short notice closures, whether it's over the weekend or over the period of 6 weeks, those are in my mind are still short notice closures. Good closures are a year, year plus, 2 years in advance. And those 2 years is way far out, but a year, year and a half in advance, I think is reasonable.

And with that, it'll be a wrap for myself and for Gary Socker. Thank you for joining us today on the Beyond the College Berkshire podcast, where we where we provide you guidance on college decisions, financials, and much more. If you have any questions or concerns about the financial health of colleges, please send them to marym@collegeviability.com. Thank you again for making time to join us, and we hope to see you next time.