Pace University 'Quick Clip' from the October 29, 2024 'The College Financial Health Show'

section. But I'm gonna start with a good school today. Start with Pace University. And, um, I think there's a lot to like about this school. And I started digging deeper into my paid app to see what they did and found some surprises, as I always do when I dig into the data. But I'll show you first their overall financials. So I've already got it on Pace, and I'll zoom in a little bit here, starting with just their key, uh, financial operations metrics. Net income margin, right? Sorry, I got these backwards. Net income margin, and let's do cash flow on the bottom. All right, net income margin, we got positive 4. That's actually above the 75th percentile, um, maybe a bit too high actually, plus 9.8%. These are always plus, plus, plus. They had 2, 1 negative year, no big deal. Everything else is plus. Okay, so that's great. Cash flow always positive. That's exactly what you would expect from a school that's well run. And again, maybe even perhaps too high now. Maybe they have some money to make some investments. So that's the key financials. I'll bring you through everything, really the whole picture here. Let's take a look at revenues over time, operating revenue and expenses. The bottom graph. Okay, so top graph key here is their operating revenues are up 17.6% since 2016. That's well above the median of all private colleges. And again, this red line is what a closed school looks like. This is the median for 9 closed schools, and we're going to see another one that actually looks quite a bit worse than this. But closed schools at about -17%. And the school's growing, right? The expenses are up 16.7%. Revenue's up 17%. That's perfect, right? I mean, as your revenues are going up, you should be investing in your mission. And it's exactly what they're doing. That's perfect. All right, so that's what the picture looks like. I'll show you net tuition revenue. Net tuition revenue is up a bunch. The median school has actually contracted a little bit on net tuition revenue, down 4.4%. And Pace is up. Again, this is Pace in New York, up 17% on that tuition revenue with a sort of increasing slope here from 2022 to '23. And I'll show you, I'm going to dig into that a little bit on my paid app and we'll, in a second, show you how they're doing that. I can see a lot of that in the data. Of course, I can't see a lot of the details of what's happened there, but I can give you a big picture of what they did to generate that increase in that tuition revenue. and we'll look at that. Let's take a look at the endowment. I think they have a big endowment if I remember right. It is. Yeah. Well, it may be big, but it's small compared to their expenses. So that's actually problematic for them. Endowment to expenses. And then, uh, I was going to show you appropriation. So again, I'll start with the appropriation. So this is a school that clearly does well at managing its endowment. In fact, their draws are a little bit small. They don't need to be bigger, right? They have a balance. They already have a big surplus, right? So this is great. So their endowment's growing well. And in fact, it's probably growing faster than normal because of those small draws. And so I'll show you that change in endowment value. Yep. A little bit bigger, a little bit faster growth than normal at 53% since 2016 compared to the average or median school of about 45%. But their, their endowment is actually pretty small compared to their expenses, which is interesting. It's about half the size. Of their expenses, whereas the median's about same size as expense, annual expenses. So that's interesting. Yeah, we don't see that very much. No, that's a pretty small endowment, but, um, you know, that clearly doesn't matter to them. They are, are killing it. All right, uh, unrestricted net assets. Let's take a look at that. Unrestricted net assets. Take a look at the ratio again. They don't have a lot of unrestricted net assets. Pretty low. And, but they're managing them well. They're growing. If I remember right, change over time. Oh yeah, huge growth, 402% growth in unrestricted net assets. So the school is on the rise for sure. You've got a huge increase in net tuition revenue. Their endowment's growing, unrestricted net assets are growing. And let me just show you their physical plan. So I'm talking, I'm talking about their buildings, their equipment. Computer equipment and stuff like that. So I'm going to show you property, plant and equipment. So first I'll show you the investments in property, plant and equipment relative to the depreciation rate. And then I just added this one this morning just to give you a better sense and me a better sense of how these— the value of their property is changing over time. And I'll start with the bottom graph, actually. So their property, plant and equipment value is up 27.5% since 2016. That's bit better than normal. Normal is about 14% growth and they're at 27% growth. And the main reason for that, you can see right here, the main reason is they're injecting a lot of cash into their physical plants. Right. This is, again, the ratio of cash going towards property, plant and equipment relative to the depreciation ratio. Any ratio above 1 means your capital stock is rising. Right. And they're always above 1. 3.8, 1.8, 3, 2, 1.2, 1.7, and so on, right? We hardly ever, we hardly ever see that, Matt. No, this is a school, again, not a huge endowment, but they're clearly growing, both growing the endowment, growing unrestricted assets, which probably a lot of these buildings and the computer equipment and things like that, and, uh, investing in their, in their, uh, they're growing enrollment too. And I'll show you that in a, right now actually. So, so one of the questions I want to dig into is how So one of the, one of the points of this show, and we've had people ask us, what's the point of the show? And maybe not a positive way, right? I think there are a lot of positive things about this show. One is to try to learn what works, right? And, and also what doesn't and flag those things so that people can learn. So clearly whatever they're doing on the net tuition revenue side is working and I can give you some hints as to what they are doing. Let's take a look at— this is the paid app that I don't offer free, but you can learn a lot from it. And you might reach out to me if you want to learn a lot about what's going on at your school. So I'll show you what's happening since 2016. Their net tuition revenue is up a bunch, right? So how is that happening? Well, it can happen a couple of ways. It can happen either by getting more students or the students paying more per student, right? And it seems like it's mostly more students. Their FTE enrollment is up 5%. But interesting thing here, it's not across the board. Their undergrad enrollment's pretty flat, if not, it's decreased by 6%, right? So that's not great. But their graduate enrollment's up 32%. And it's a lot of students. So about half of their students almost are grad students, or not half, but you see it's a big graduate student enrollment. It's up 1,300 students. So that's their strategy. It looks, and it's working, right? Even though they have losses on undergrads, they have growth in graduate students. So the question is, I think if you're a policymaker, what are those programs that they're investing in? I can show you them on the degree programs table. And just, there's a bunch of master's programs. It looks like they've just brought online. And so one of them is not necessarily brought online, but serious growth in computer science, master's level computer science. See, back in 2016, they had 165 grads. Now they're at 288. That's significant growth. And then one that's unexpected is history. Take a look at this. They didn't have any history major graduates in 2016 at the master's level, and now they have 97. That's a lot of grad students. in a short amount of time. So they probably just started this program like right, uh, right about 2016, '17, or I suppose, uh, but I have to look back and talk to their provost about that. Um, another thing they added, they also added, let's see, they've got special ed, special ed programs, 13, SEP 13. I think this is education. They added like master's level education programming. Again, you can see 53 grads. Now they've got 126 of master's in special ed. And they have health profession. That one's not huge growth, but there was another one that, oh, this one's interesting. I don't know what this is actually. Multidisciplinary master's degree. I've never heard of that actually. I've heard of that at the undergrad level. But it's exploded to 50, 50 graduates in a multidisciplinary master's program. Not sure what that would be. Multidisciplinary studies. So interesting things to learn here. If you're a school that wants to grow enrollment, perhaps you can follow this model, add these programs, history, computer science, special ed. That probably requires accreditation, I would imagine, licensing. But all these others are pretty easy to add. This, this one in particular, interdisciplinary studies, you can probably just add that tomorrow. And so I guess one of the things that you worry about adding programs is whether they added a lot of faculty as well. And so that's the cost of adding some of these programs. And it doesn't appear to be the case. So they actually, their number of faculty in 2016, full-time faculty, was 486. And it is 483 today, last read. And the blue line is a peer group, Matt. Yeah, peer set is blue, right? So they're, they've held their faculty constant and they've added some graduate programs. So they're probably taking undergraduate programs and just adding, tacking those onto the, to the same faculty. I'm not sure how they're managing the load, if they change the load or if they just have excess capacity. Capacity or what. But one thing that's interesting too is you can see their per student values. Take a look at their— so this is faculty per student, right? So they're at about 4 faculty per 100 students. So 25 students per faculty member or so in 2016. And they're a little bit less than that. So they actually have bigger class sizes slightly in 2023. So they've kept the class sizes really big. Compared to their peer set. Their peer set have a lot more faculty per student. So it's not costing them essentially, at least at the graduate level, looks like they're just more, they're putting more of a load on their faculty, which may or may not be a positive thing. Certainly a positive thing for the financials, right? Certainly positive for the financials. And that's why this school is doing well financially. It's a big part of it. All right. Another thing I want to look at is why is their undergrad, so they have this huge growth in grad enrollment. And you can see it here. Why is the undergrad not growing? In fact, shrinking slightly and is expected to continue to shrink. Well, it's going to stay probably. This is my simulator projecting now. It looks like they're going to stay about flat for the next 5 years considering their same enrollment parameters. And interesting, interesting to look at what's going on here. Again, 2016 was when we started to 2023. And you can see their funnel looks like they have really great applications, 26,000 applications, and a normal number of applications for them would be about 21,000. So that's excellent. They're not selective at all. So that's certainly not causing them to reduce enrollment. They basically admit everybody. And they have forever. They had 84% admission rate. Now it's 83%. It's the same. What's— what has changed is their yield. And that's this number here, the percentage of admitted students that actually enroll. It used to be 15%, which is a pretty normal yield rate. Now it's 9.5%. It's very low, right? You see their peer set's about 17.6%. So they have a really low yield rate. And so again, you worry that, you know, what can cause a low yield? One is having the price be too high. So that could be one issue. Others, just ineffective admissions office. All right. I don't know. Nobody wants to say it, right? But you may just not be doing a good job of selling the place. And so that's something to look at as well. But I think there's some evidence here. I probably don't have time to go through all this, but potentially the price is a bit high. I can show you that. I'll just show you that right now compared to their peers. They have their net price is about 10% higher than the peer set for kids and students in the range of $75,000 to $110,000 family income. That's not huge. That's, of course, that's 10%. It's quite a bit higher, but it's not massive. The area I think they have the biggest problem is low-income students. They're paying— their price is way higher, 25% higher than the peer set. So I think they have an issue with their pricing strategy here. It shouldn't look like this. You shouldn't have a net price for low-income students that's basically the same as everybody else. It's not normal. You can see what's normal here is $23,000 going up to $37,000, right? They go from $29,000 to $37,000. So I think what they have here is potentially, they don't have enough need-based aid, basically, is what the problem probably is. But they would need to dig into that. And this is why you use data, right, Gary? You wouldn't know this unless you looked at this, right? So I'd look really hard at the need-based aid formula that they're using. It's probably not normal. It's probably quite unique in that it's not giving enough. Maybe they don't have much need-based aid at all. And again, the thing is, like, reducing— increasing need-based aid sounds like you reduce your revenue, but you can actually, you know, depending on how sensitive the students are, which they are, to changes in net price. You can reduce the net price and actually get more revenue because you get a lot more students, right? So that's the idea.