Drake University 'Quick Clip' from the October 15, 2024 'The College Financial Health Show'

Let's take a look at Drake. Okay, Drake kind of zoomed in. All right, so negative net income margins for 6 out of 8 of these years. So here's one positive, negative, negative, negative, negative, one positive, and that's because of COVID relief, almost certainly. Negative, negative. And, uh, this most recent year, fiscal year 2023, the most recent year we can see, is pretty be— I mean, it's only a 5% deficit. It's not massive, but it is the worst that they've had on here, I believe. So it's not going in the right direction.

For the new viewers, tell them about that red line.

Yeah, again, this red line is schools that have closed. Um, not all of them. It's a set of 9 that either closed in 2023 or 2024. Um, so I wanted to kind of track, like, what did they look like over this same time period? And they either closed here Well, they either close here or off the chart. Okay. So, yeah, clearly you don't want to be close to the red line. That's basically the idea there.

And it's highly unlikely that Drake University closes, but that line is there for a reference point and lets everybody know what they're doing well in and what they're not doing well in.

Yeah.

Yeah.

So Drake— yeah, my impression is Drake won't close. They'll never close. They have a big endowment, lots of resources. They're actually similar to the school I used to work at, University of Tulsa. Also similar situation there. We're struggling financially. Never really— it was never a even brought up that the school could close. But it's, you know, we're not on the right track and we're falling behind our peers was the main, the main discussion. And this negative cash flow from operating activities is concerning. And again, it's not huge, but it is a few million bucks. Yeah, $3 million cash deficit here. And so again, that's easy. You need to cover that by borrowing or selling assets. Basically. And that's not— never a good thing because those things run out, right? You can't do that forever. Okay, so, um, why are they struggling? Also, let me go show the endowment draws here again. They're struggling— schools will tend to, uh, draw too much from their endowment. Drake is kind of creeping up there. They're not— I'd say they're on the high end of normal. Uh, this is, you know, this, this dashed line here is the top 75%, so they're in the top 25% of schools here. This is the 75th percentile, top 25% of schools here in terms of percentage draw on their endowment. Although they fixed it a little bit here, looks like still higher than normal, but high end of normal. Um, so here, here's the issue. Let me— this is really simple math, right? There's nothing like— it's not like rocket science here. Their revenues are up 9% since 2016, which seems fine. The problem is though, their expenses are up more than that. Revenue's up 9%, expenses are up 15%. So they may have an issue with spending, right? And it's clearly, it's growing faster than the revenues. And one of the reasons why the revenue's not growing very fast is that their net tuition revenue is pretty much flat. It's down 1.6% since 2016, which is sort of normal. But we just looked at Haverford, which was up like 40-some percent, right?

I mean, so, you know, there's been a lot of news stories about Drake the last many months, and indeed the leadership there is trying to manage expenses. We'll have to watch closely to see what kind of faculty rebellion might come from that, because that's typically what we see. You make any, you know, any college that makes any kind of change to their business model, the faculty almost always have significant protests in some form or fashion.

Yeah, so, so again, I was— this is a problem. If I were Drake, I'd be very unhappy with this result because the schools that are at the median here, quite honestly, are not nearly as prestigious as Drake is. Drake should be, you know, up here. So clearly they have an issue with their net tuition revenue. And so again, I made the paid app to figure out what was happening and just did this right before the show and have lots of ideas for them. Let me show you a few things. So one thing right out of the gate, I have a page here about the price of the school compared to their peer institutions. And you can see right away the price is very high. Okay. And so that could be an issue. And usually if I see a really high net price compared to peer institutions and a really low yield rate, it's a good chance that price is pushing people away. So that's one thing to look at. Another thing is just looking at why their enrollment's down. I'll just go to this simulator to make this really a concise discussion. You can see their enrollment's down a lot. This is their actual enrollment undergrad. And by the way, almost all of their losses in enrollment is from undergrad. So I can show you that on a different page. But in 2015, they had about 3,500 undergrads here. And if you go back even further, it was quite a bit higher. But again, the reason for the loss here, and they're going to continue to lose students with their current parameters, the main reason is it's not applications. Unlike Haverford, right? Their applications are quite good, actually, historically. These years here, they have record high applications right now. So why isn't enrollment growing? Well, one thing is their transfer numbers are really— are also the lowest they've ever experienced. So something's wrong with their transfer strategy. And you can't neglect your transfer strategy. This is 76 students. In 2010, they had 188. All right. These students stick around for 3 years. You don't ignore these students, right? That's like an extra 500 students or so. Okay. So did you see what I just did there, Gary? I went from what they were currently at. If you go to where they actually were in 2010, you get a massive bump here. Not right away, of course, but their enrollment goes back up. And then you can see the other issue. Also again, in 2010, when their enrollment actually was the strongest that it's been in record. What was happening? They were admitting a lot more students back then. They were admitting 74%. Right now they're at like 67%. And I would, I mean, if I were them, I'd ask why not just go back to less selective, right? I know there's costs, there's trade-offs here, but the school is struggling, right? I mean, I would rather be less selective and survive. Although again, this school's not going to survive, not going to like fail, but this is an easy way to get back on track and then deal with your lower demand issues.

So, so reasonable speculation would be they're not really doing a very good job at Drake of showing value for the price they're trying to charge.

Yeah. So that's actually, that's the next thing. So I think you adjust both of these, you get, you figure out what's wrong with transfers. There's lots of ways to do a better job getting transfers, including just setting up articulation agreements with different technologies and things like that. Admit more. That's really easy. You can do that tomorrow, right? The hardest part is this part. The yield rate is extremely low. 12% yield rate is very, very low. And just so you know, I'll show you compared to their peers, but if they get even like a 15% yield, they're back in business exactly where they were before. You see that?

3 points. That's 3 points.

Right. So 3 things to switch. So why is their yield so low? And I think it has to do with the price being too high. It's possible, right? I'm not 100% sure on that, but of course you can, you can do an experiment, right? And that's what I would encourage them to do. Try it, try it with a subset or something. You can do these and figure out what the impact is on what's your yield rate for this price versus this price. Right. Try it out. You might find that you get your 15% yield if you just knock off the net price a little bit. Um, and ironically, by reducing the price, actually increase your revenue. So that's the part that is important for them. Um, let me just show you again, uh, why I think the net price is— well, let's just make it real here. So for a student that has a Title IV student with a family income of $110,000, at Drake they're paying about $30K, $29,000. Peer institution mean $26,000. So they're about $4,000, $3,000 higher than peer set on average. And you can see it also in their net, their per student net tuition revenue. Again, it's showing up here per student paying about $21,000. Peer set is about $18,000. And, you know, some of these peers, I mean, they're not, they're no slouch. University of Tulsa is in here. Several schools that are rated higher than they are, although ranking, I don't care about rankings, but, you know, willingness to pay at these higher ranked schools is probably similar to Drake and the price is lower, right? I mean, this is the school I used to work at and this is where I threw a fit, right? You can see, you can see our net tuition revenue per student and they knew it too. It wasn't like it was new, but the problem was our price was so low. Although they fixed it now, but still lower than Drake, still lower than Drake.

Okay.

So, and that's the case for almost all of these peers. They're Drake's price is high. I would experiment with a lower price and also do a better job on transfers and see how that works. Admit more too. You can admit the admit rate. Let me show you the enrollment. The peer mean admit rate is 72%. They're at 67%. So I'm not talking about like admit everybody, but go to 72%. That's going to make a huge difference on your freshman class. Okay. So just little tweaks here. And I think they're back in business, tweaking also the price down a little bit. It'll also affect, also improve their retention, right? Again, the students looking around, okay, how much am I paying right now? How much can I pay to go to, if I go to University of Tulsa, it's free, right? Or it was for a while. Those are the kinds of things that are happening to them, I think. And they may not, they may not know it, or they just may not have this tool to kind of make it clear to everybody.