College Financial Crisis? We look at the financial health of Bay Path U. (MA) and Coe College (IA)

Welcome back to the College Financial Health Show with Matt Hendricks and Gary Stocker, where each and every Tuesday we look at the financial health and even viability of private colleges throughout the United States. And of course, we use data that colleges themselves submit their audited financial statements, their IRS 990s. In some cases, we pull data from the National Center for Education Statistics. And Matt Hendricks, we're approaching 200 colleges in the next month or so. We will have reviewed 200 private colleges. We haven't even been at this 2 years yet. And Matt, there are some patterns that we see. It'll be interesting to see if they show up with today— with today's 2 colleges.

Yeah, we'll just roll with them, uh, just kind of follow the data. Um, so we have Bay Path in Massachusetts and CoCollege today in Iowa. And, uh, we'll see what we find. Get right into the financial compass. A path— now you can see this, right, Gary?

Yep.

All right, we've got the peer set populated here. We have a double confirm, two double confirms, others that are double confirmed, three double confirmed. This is pretty good. Um, so this looks like a reasonable peer set for them. A couple self-reports that were not confirmed by the other side, but it's pretty decent.

It happens.

Yeah, I'll go straight down to the, um, key metrics table and pull this over. And usually you want to check these flag values right away. So operating revenues have declined in the last 5 years— not good, especially with inflation. This is not real operating revenue, this is nominal. So went from $57 million down to $55 million in 5 years. We'll take a look at what's going on with revenue. Change in net assets from operations. They used to run— they're still running surpluses here. That looks fine.

Small area.

Yeah. Net income margins positive. That's fine. All right. FTE counts. Down 10, 9% on FTE enrollments in 5 years. That's significant. And you'll see that's worse than the average school and probably worse than their peer set as well. Net student revenues are down 18% in 5 years. Again, that's probably— so we've got a couple things happening. I can see right away if your FTE enrollment's down 9% but your student revenues are down 18%, It almost always means that the price is also falling. So we have a loss of quantity and a lower price. So you're getting double whammy on the net student revenue side. So we need— we'll take a look at what's going on there. It also could be— it could be also change in the mix of the students. If you lose a bunch of graduate students that were paying a lot more or something, that could drive that same result. This is concerning on CapEx to depreciation ratio. Over a 5-year span, they averaged 0.37, which means they're losing capital stock fast and probably have significant deferred maintenance building up, at least over this 5-year period. Again, normal for this would be a 1 or higher on average. And certainly some years where it would spike, there's a lot of renovation going on or whatever. We don't see that at all in the last 5 years. Their stock is deteriorating probably quite fast. So remind me to check that, Gary. Um, I, I actually did have a chance to look at this before the show, and I thought maybe these were going to be wrong, but they're not. Uh, they're actually several years where they didn't draw any money from their endowment, but now have started to draw. Um, which is interesting. They drew $2 million. Actually, I don't see the, the value there. It's like a million or so. Um, what was their change in net assets from operations? It looks like they're now starting to draw at the same time that their net income margins are getting smaller and smaller, although not negative. Yeah, I think that's okay. They certainly have stress on the revenue side. Um, and let's— what did I see on their expense side? Expenses are coming down, but, um, not as fast as revenue, not quite as fast as their revenues falling. Um, but it looks like they have serious problems with student revenues. Um, so let's take a look at what we find here. Um, all overall though, this, this looks quite good. The UNAP, again, this is sort of like their liquid, uh, it's really your runway. Um, to deal with crisis. This is your unrestricted assets. So we don't have to ask donors or anything about this, and it's not tied up in buildings here. This is unrestricted investments or cash probably that they could use to dig out of a hole. So they have a long runway. I'm not worried about this school closing. Certainly much better than the comparison group and the national median. So that looks great. Um, but we'll take a look. They are starting to see some stress on their net income, uh, net income margin. Yeah, they used to run, yeah, about normal or a bit higher than normal on net income, and we're getting closer to zero here, although still positive. So terrible, doesn't look bad at all actually. The school seems to be managed pretty well despite having significant drop in student revenues. Let's take a look at their overall operating revenue. Total operating revenue is all unrestricted operating revenue. Okay, so that somehow we're able to get a decent bump here. I wonder, let me see what it is in raw values, how much that was. Pretty flat. 5 million jump. Um, we can dig deeper and understand where this is coming from because they had several years here. Let's see, we had 1, 2, 3, 4 years, 4 straight years of losses in operating revenue, and then all of a sudden a big jump. Um, I don't think that's coming from student revenues, but let's double-check. Could be there, some gifts.

Well, that was the post-pandemic period also.

Yeah, and then they started a bigger endowment draw, so that would certainly fit into that. Let's check their, um, let's check their student revenues. That's student revenues percent change. Yeah, revenues are just a lot of downward pressure here, doing worse than their peers in terms of the change in student revenues. Again, this auxiliary and net tuition and fee revenue added together.

Show the per student on that. Doesn't it confirm that they're lowering the price?

Yeah, so the, the price has always been quite low, which is interesting, but it was at $16,000 and some change. Now it's at $15,000, and that's a 10-year period. So in real terms— well, let's see here, I can just do it.

Yeah, there's a button for that, right?

So they used to charge about $16,000 in real terms, in the same, um, $26, they're now charging $11,800. So significant drop in the real, um, per-student price to attend the school, um, on average.

It just reflects the market pressures on tuition is all that is.

Yeah, so serious issues there. Um, and then despite the price being quite low, they're also getting Lower enrollment, which is very concerning. Although it's been a bit more resilient than their peer set, their peer set charges way more. Right, didn't we see that on the last slide? I think so, yeah. Okay. So look, we have a slight rebound in the number of students as well. So that could be part of how their operating revenue rebounded. So I think this, the school is certainly feeling some stress, but are able to continue to balance their budget. It looks like for the most part, although I'm really concerned about— I wonder why this is happening. Remember, we saw that their CapEx to depreciation ratio was incredibly low, and you can see that here. Yeah, I was wondering what the state of the buildings and technology on campus looks like, because this looks pretty stark here compared to the peer set, which is also bad, and the national median.

Man, is that a reflection of depreciation for the most part?

Yeah, they're just not replacing stuff, right? Computers, fixing buildings, and so on. That would— so there's the CapEx spend is how much they spend on property, plant, and equipment. In a given year, and then the depreciation is how much their property, plant, and equipment has declined in value. Um, ideally the average would be above 1 to keep your capital stock at least constant. Um, but they're well below 1. You can see the— so when you see this, um, you know, main things I worry about is just, you know, buildings in disrepair, technology that's just old, right? A lot of depreciation is computers and other tech on campus that, you know, wears out in like 5 years or so, so, or just gets obsolete quite fast. So that's, that's what you worry about the most here. Roads not getting repaired, parking lots deteriorating, that sort of stuff. All right, so let's move into some operational side metrics and see, I mean, we already kind of talked about one. I would look really closely if I were them. So they've significantly reduced the price per student is going down and at the same time, so is enrollment. It's a really bad combination. They might experiment with a higher net price for students. I mean, really, what do you have to lose? You've already lost students with a lower price. I suspect they're in that range where their price is already quite low. So there's a buffer region where they can bring their price up at least closer to their competitors and not really see much change in demand at all. Because you're already, you're still going to be probably the cheapest, which is the only thing that really matters in terms of that decision of when a student's going to join or not. So they might experiment with the higher net price on the revenue side and see how that goes. They have a long runway. So I think experiment's good. They can just try one. Small change or try a change with a subset of a grouping of students and see what happens to their yield rate and all their— mostly the yield rate will be impacted there and perhaps retention. And if you don't see an effect, try it with everybody else or continue trying on that path. So that's how they can do that. On the expense side, let's take a look at the the big items, uh, W-2 employees. Start with fees for— are actually salaries and wages first and see what we look like. Okay, so they have a large internal staff, perhaps they're, uh, but they are in Massachusetts, so we'll double-check the number, yeah, number versus compensation here in a second. But their, their total spend on in-house, uh, labor is quite high per $1 million. But it is near their peer set as well. But this is— they're all really— remember, the peer set's not doing great either, so maybe they can learn from this as well. We're near the 75th percentile. Over 61% of their revenue is being spent on salaries, wages, and benefits, which is usually not healthy, which is probably part of the reason we don't have enough money left to cover capital depreciation. So we have high payroll. All right, let's check if it's just a lot of people. We can get some evidence here if it's a lot of people or if it's, uh, just high compensation. It looks like it's probably both, right? We're a little bit high on the number of people here. This is total W-2 employees, um, but this I don't think explains it all. It's probably high compensation and a high number of people at the same time. All right, I can dig a little deeper on this. We can do, um, check how many are paid over $100K. Actually looks low. All right, and so it's looking like maybe we have a lot of, uh, lower paid employees perhaps. Yeah, look at non-officer salaries and wages. Yeah, it's very, very high.

Yeah, look at that.

So the story that's emerging here, and of course there's a lot more detailed data we can pull on, but it looks like with high payroll costs, it's mostly driven by a lot of folks below $100K, or at least non-officer salaries and wages is the primary driver here. It looks like could be a combination of high pay for them on average and high numbers. All right, so that's the payroll side. The other big bucket that we check all the time is vendors. I'm going to start with total fees for services, and not ideal. When you have a high payroll cost, you have to really be the opposite. I mean, these really need to be, uh, substitutes for each other. In almost every case where I have a school that has massive deficits or financial issues, it's almost always because they have both a high internal staff and a high vendor, uh, spent. And that's what BayPath is showing here, that high internal labor costs. And now they also have very, very high fees for services. Not ideal. You really can be one or the other in most cases, unless you're quite rich. But, um, this is all scaled on your revenue, so Really can't, you really can't be high on both. All right, so we're above the 75th percentile, way above their peer set and have been for a very, very long time. So I'd look really closely at their vendor spends. Let's see if it's again sort of same question, is it the number of contractors or is it just high-priced contractors? So let's take a look. All right, the number of contractors per $1 million in revenue looks high. So yeah, it looks like we're gonna have both though because that probably doesn't explain being above the 75th percentile. Centile, so they probably have a combination of a lot of contractors and expensive contractors. Um, some of the expensive contractors can show up in different areas. We can do advertising, for example. Wow. Oh, okay, this might be where a lot of the vendor spend is. Uh, advertising spend per $1 million is incredibly high.

That's almost— in early— in 2018, it's almost 10% of their expenses.

Um, yeah, it's very high. Uh, let's see, what else can we check? So insurance sometimes becomes an issue.

That looks okay, especially if you're in Florida.

Travel conferences, yeah, they're in Massachusetts, so it doesn't look so bad. Fundraising costs. Okay, all right, so it looks like we have vendor issues with too many vendors and high-priced advertising perhaps. Let's take a look.

So Matt, as you bring up the expenses for vendors here, this is a college that's got some runway. Talk about what the strategic compass could do for them.

Well, here's, well, one, we already, we saw that the internal staff cost was high. So I can help them pinpoint exactly where that's showing up. It's not always obvious until you see the actual counts of employees in different buckets. And we bucket them by occupation. And then with help from the university partner, we can bucket them by department, title, and really narrow down where these high levels of staff are.

And you compare them to peers, right? You compare them to peers.

Compare them to all sorts of peers that we create. Their peer competitors, probably the most important peer set that we compare to in the case of staffing is your peers that have balanced budgets, right? Become strong financial peers and probably want to emulate that set in terms of expenses and staffing and vendor spend and so on. All right. So we said we have— yes, we have some advertising, actually a couple. Yeah, we've got a lot of advertising, $1.2 million to Google. It must be for clicks. 2 million to Google the previous year. 2 million to Google the previous year from that.

It's not working, Matt.

No, it's not working. That's, that's really high. And then on top of that, we have a marketing contract that's $440,000 with $451,000 marketing. And Lamar— this must be billboards. Wow. And then again, $650,000 to— that's just a lot of money to be spent on advertising.

I just—

to spend that amount of money, I mean, look at— you're spending $2 million on clicks. We've got another million, $1.2 million going to the marketing vendor, and then another— I think these are billboards— that's another $600,000. So we have really like over $3 million spent on marketing. That is, that deserves a deep dive on the ROI at a minimum. And they've been spending this kind of marketing money for the last several years. Looks like they've been unhappy with some of their vendors. Fred Stern looks like ended and we went with 451 Marketing the last couple years. What's the ROI? I mean, you spend $3 million. $3 million is a lot to spend on advertising if it's— especially if it's not, um, driving. Yeah, yeah, enrollment. It's at the same time that you're advertising a lot, you're also— the seems the price is falling and enrollment's falling. Uh, again, more experiments and testing the ROI for each of these is probably well worth your time at $3 million investment. Yeah, I'd be willing to bet that ROI is very low just based on what we see with enrollment and their net price average student price.

You've got that new fundraising value you got in the chart too. What does that look like?

Yes, look, fundraising. So we have this ratio of operating gifts. This is total unrestricted plus restricted over their fundraising expense. It's a way to get an ROI, and you can do something similar for advertising. Or yeah, for advertising. Um, did I lose some of my— uh, it's a ratio. I guess I don't do percent change for that, do I? Yeah. Okay, good. Um, let me drop off the national norms here just so we get better scale. Looks about normal, 3 to 1 of operating gifts to expense. That's good. Looks great.

So they're generating operating fundraising gifts, but the advertising they're spending is not working.

Yeah, advertising— assuming the advertising is, is meant to drive enrollment— clearly not working. Although of course we don't know the counterfactual, you know, what that would look like if they didn't advertise at all. But I think at this point I would roll the dice to fire them and just try to find the counterfactual, see what the counterfactual is if you didn't. Spend $3 million on advertising, I would assume that their trajectory of enrollment would change very little. So you can perhaps try that or just try different marketing. But at any rate, I think $3 million is very high. It's way too high, as you saw on that advertising spend graph for a school like this. But all right, I would relay that back to them. Okay, Coe College.

Let's go to Iowa.

Let's go to Iowa. All double confirms. Great. Excellent peer set. Can't argue with this, right? The reason you can't argue with this peer set is both Coe College and Wartburg said they were peers of each other. Same with Knox. Coe College says Knox is, Knox says Coe College is, and so on. All of them are double confirms. Excellent. All right, looks like I'm missing some of their gift revenue, but let me go back down to the, uh, let's go down to the key metrics table. All right, UNAP. Okay, UNAP was negative, so the school clearly— I mean, it's positive now at $2.8 million, but that is a tiny runway. Yep, especially on— what's their revenue? $44 million in revenue and $42 million. Yeah, it's a very small runway. There's really no margin for error with the school. Um, although they've improved recently, went from negative $1 million to positive now, plus $3 almost. So that's good. But, uh, they're small but good. Yeah, they're right on the edge here. Something— I mean, just one catastrophic event, uh, I don't— the school wouldn't be able to deal with it like, say, Bay Path could, right, where they have tens of millions of dollars they can call on to fill the gap. So precarious situation there. Uh, let's see what else is flagged. Okay, enrollment's down 10% in 5 years. Not good. Student revenues are down 6% in 5 years. Maybe their net price has come up a little bit on average, um, which is good, but still losing students at a pretty high clip. CapEx depreciation, same thing as Bay Path. We're going to see their property, plant, equipment just sort of falling off. Um, although fiscal year '24 was much better. Looks like they get a much better handle on things. Uh, FY24 is probably their best audit, uh, they've reported in a while. That looks good. Okay, let's see what else. Oh, okay, whoops. Um, all right, so it looks like they did a massive draw on the endowments, which kind of changes the way this hall looks. Quickly because they drew 14% on their endowment, um, in 2024, which is like 4 times the normal amount, um, which will probably mean their endowment's gonna shrink. And it did, it did, down to 80. And the UNEP number probably went up because they pulled a bunch of restricted money out of the endowments, uh, which they'll have to probably pay this back Uh, so kind of maybe took a loan, or, um, yeah, they must have taken a loan, otherwise it would show up in unrestricted, I would imagine. So, uh, we'd have to look more deeply at this, but this certainly changes the way you interpret these numbers because everything is going to be inflated now artificially, uh, off of what you'd normally see. So operating revenues well above the normal, uh, because they took a massive amount of money out of the endowment and put it into operating revenue, and that's that. Um, so that's concerning. All right, let's take a look, take a look here at one way to get a sense of this is to look at total net assets because you can't really hide anything there. Total net assets. See, percent change. Yeah, this looks pretty dire. So I think I changed my mind. I don't think things have gotten better. Actually, they just sort of masked some of the numbers in the statement of activities by drawing a bunch of money out of their endowment. Okay, so we have total net assets that are virtually stagnant over a 10-year period. Not good. Even their peer sets, not good, but certainly much, much better than CoCollege. Um, so concerning for all those schools really here that are not gray. Um, wonder what unrestricted net assets looks like. It's probably gonna look a little better because they took money out of the restricted endowments. Yeah, this is all kind of hard to interpret unless you get deep into the weeds in terms of where all this money came from. I think it was pulled out of the restricted endowment funds. All right, so I'm going to go right into net student revenues. There's really no way to inflate that number. Look at that peer group. Won't report it, but yeah, this peer set is struggling. Coe College is doing better than their peer set on student revenues, so that's one thing they can look at. Still a negative number though, negative 7%, uh, per FTE. $19,000 to $20,000, it's pretty similar to what the peer set did, $25,000 to $26,000. So cheaper than their peers too though. So yeah, yeah, let's go back to raw values. Yeah, all right, so Student revenues are struggling. Let's take a look at the enrollment students, I think of it, FTE students and percentage change. Actually done a bit better than their peer set on enrollments. The peer set schools are more expensive, so they're sort of similar now in terms of total student enrollment. All right, I don't know if there's much I can say about this at this point, but to be losing students this fast and your peer sets doing the same, the whole group probably would need to change. I would recommend if they're going to do, again, if they're going to do sort of benchmark study, don't use this peer set to sort of set your strategy because—

Yeah, yeah.

Follow them. So Again, that's the Strategic Compass engagement that we have. We find peer sets that you actually want to be like, uh, or are currently like, um, and take a look at all sorts of different cuts of the data and learn, learn about what the strategy might look like to dig out of it. All right, let's go to the expense side. Uh, same sort of exercise here. Let's go first with salary, wages, and benefits per $1 million. Actually looks low. It's fine. W-2, so I'm imagining they just have a low employee count as well, and that's certainly misreported. All right, so, um, pretty sure because I've never seen this error on my dataset, I'm pretty sure that they reported zero W-2 employees here, uh, but probably not. Uh, it's probably false. Um, so although they're, uh, their in-house staff payroll cost didn't look bad at all. Uh, let's see contractors though. Let's go fees for services, also very low. Okay, uh, let's go to the numbers.

To fire the person that reports the data in 2023.

Yeah, number of contracts, this W-2, or sorry, this 990 just doesn't look right. Yeah, there are zero contractors over $100,000, went from 13 to zero. Um, there's something up with this, um, 990, and, um, I'll get to the bottom of it. It's possible— actually, I remember an issue with this school where they submitted the wrong EIN or a different EIN, and I think it was like some kind of foundation that swapped out. So it's possible that this data is just messed up at the federal level. Um, so I'm not sure how much we can rely on it at this point. Um, so I guess we'll have to put an asterisk here. After, after the show, I'll go back and double-check what's going on with these. There's probably zero chance they went to no employees and no contractors. Um, I'll double-check what's going on, but I, I seem to remember there was an issue with this school where the EIN was changing in and out of different numbers and it messed up the data pool. Uh, what— anything we can say that's not on the 990? Oh, I was going to show you their property, plant, and equipment. All right, percent change. Yeah, yeah, it's up 6%, but you know, it was up 20%. So sort of similar to Baypath, just, uh, ignoring the capital physical plant, technology, and so on. So certainly some distress here, and the, the concerning part about this school is they just don't have much of a runway. If you're a stakeholder at Coe College, I would advise that you spend some time to learn about where that, where that endowment money came from, how they got it, if the state attorney general allowed them to get it released, or if they just took a loan against it, or what. Has big implications for the future. 'Cause of course they'll have to repay it at some point in theory. So tiny runway as well. So I'll fix this data and you can go on here and see what your expense side looks like after I fix the 990s. All right, thanks. Pass it back to you, Gary.

And Matt, we talked about the strategic compass when you were going over Bay Path. And again, for those watching the show, whether you're at Bay Path University Oraco College, the Strategic Compass is a tool that Matt developed at Perspective Data Science that actually digs deep into your data. And there are 15 or 16 different reports, and it uses a variety of peer sets. So if you're, if you're looking for a resource that is reasonably priced— and trust me, that's a reasonable price that Matt charges for that— reach out. I'll leave my contact information in the show notes, and you can reach out to me, and Matt and I will set up a time chat with you to show you what the potential would be for that strategic compass, especially, Matt, I think at Bay Path they have a runway. Co-college, it will work for you, but you're, you're living on, on a very thin margin right now. So if you want to move, you probably want to move faster rather than slower. Let me just show a couple things, Matt. And so we're looking at the 2026 College Majors Completions Act, but I've been doing a lot of work, a lot of promotion on this, and this is for academic leaders. You can define that any way you want— provost, deans, department heads, chairs, whatever the case may be. This is a tool that lets you look at both the internal market share, which is what I have up now, and external market share, which I'll show you briefly before in a moment. So Bay Path University, this is internal market share, and you can see that— we'll pick a middle one in accounting— Bay Path in 2020 had 19 students complete their bachelor's in accounting, and it's been dropping quite a bit since then. It was 8% of the total completions in 2020, and it's down to 8%. It's flat, I guess, over the last 5 reported years. You can see areas where you got to wonder why they're even in the business. Visual Performing Arts, 5 students, 3 on average over the last 5 reported years, very small share. You can also look at the high end, the programs they rely on the most. Looks like Accounting on the way down to Business Administration and Math. The number I used to look at is 30%. Anything higher than that, and I have some concerns. A little bit here at Bay Path, they're pretty reliant on Business Administration. If they lose faculty or if they lose accreditation or if they lose students, that will hurt them more than if they lost students from Visual Performing Arts. And the same thing for Coe. Coe appears to have an approach of throw everything against the wall and see what sticks, because you can see a lot of low enrollment majors here. And again, Matt, you've heard me say so many times What are they doing in this business when they have next to no graduates? I understand that philosophy is offered as a gen ed, but how strong can a philosophy program be when they're averaging 1 student completing graduations per year over the last 5 reported years? And this goes for bachelor's degrees, goes associate's degrees, master's degrees, Matt, 160-some-odd majors, 2,500+ 2- and 4-year colleges and private colleges. This is the tool that you want. To see if you want to engage in cutting programs and have the data to support it, or if you want to look at revenue-sharing opportunities with other colleges across these majors. And then we can also look at external market share, which is what most organizations do. And we can take a look at— we'll just pick one degree here, and it's always on top, so do accounting. Let's do accounting. Let's just do— I'll go to Iowa because that's where we were. Okay.

There you go.

And so now we're looking at the pie chart. So this is, this is the external market share for accounting majors with the bachelor's degrees in all the private colleges and public colleges in Iowa. So we can see the colleges that are strong: Iowa State, University of Iowa, which you would expect. And we can also see this small, what I call bit players. What are these smaller colleges doing in this organ, in this major? And you can change majors to 160-some that we have. This is what you look at again to look at where are the opportunities to cut or grow, and where are the opportunities to look for academic partners as well. And then Matt knew in the last couple of weeks is that mycollegeviability.com is a tool for students. Now I know this is mostly focusing on college leaders, but this is a tool that focuses on students and helps them step through and look at your financial health colleges, look at your enrollment trends, look at your 4-year graduation rates And you can see all of the things that we do for the colleges. We get them— the app lets them look at questions associated with academic experience, student outcomes, and other things as well. We even step them through questions for the campus visit where the students can actually prepare questions to ask your representatives when you go to colleges. So, Matt, again, we see two colleges, one in much more significant with much more significant challenge than the other. And that co-college in Iowa, week after week, we see colleges in trouble. And it's— Matt, I've not done a good job picking colleges because we haven't seen strong ones in a while. But as you well know, we don't pick colleges.

Yeah, it's not a random pick, right?

So, so I have— I can't tell you the last time I picked a college, Matt, for you and I to do on the show, because we're regular ask-for-requests And Matt, I think— I can't tell, I haven't told you, but I think we're out into mid-May sometime. We have that many colleges lined up where folks have dropped either you or me a note and said, hey, would you mind looking at this college? So, college leaders, finance leaders, board members, and the world is watching. And if you're doing well, great, we'd love to have colleges on the show doing well, but it just doesn't happen that much. And if you're not doing well, CoCollege and those like CoCollege, The world knows. You're not hiding the data from them anymore because it is the Moneyball era in higher education, and we know what's going on. So for Matt Hendricks, I'm Gary Stocker. Thanks for making time to watch the College Financial Health Show. We'll be back next Tuesday with two more colleges. We'll see you then.