Quincy University 'Quick Clip' from The College Financial Health Show (9-10-2024)

So we're starting with Quincy. That's the one that's in rough shape. Quincy University in Illinois. And you can see why I think it's in rough shape. Again, they're the blue line here. This is their net income margin by fiscal year. They had a -8.5% loss in 2021, -11% loss in 2022, -23% loss in 2023. So they're getting worse. And again, they're worse than the schools that have recently closed here, that set of 9. Another thing that is very, very alarming, of course, they have a negative cash flow, and it turns out this is about a $4.4 million cash deficit that they covered using credit cards, basically, and, and also overdrafting on their checking account, which is really interesting. The first time I've ever seen that, and pulling a lot of money from their endowment. So all of that's there. But the most alarming thing, again, for this school, we saw 2 schools last week where their unrestricted net assets went negative. Well, that actually happened for Quincy in fiscal year 2023. That's very alarming. Again, it suggests that if they were to close, even after, like, selling everything, they may not be able to pay back their creditors. I guess it would depend on the legal decisions around restricted endowment funds, if those can be used to pay back creditors or not. And I'm not actually sure that that is like settled case law. So it's very interesting. We'll have to watch this for schools that start closing that have negative unrestricted net assets. Okay. So that's what they look like. Again, they have massive deficits. So let me show you something that's really interesting on their audit. So this is the first time I've ever seen this. So one of their liabilities is a bank overdraft. So basically, so they have 3 lines of credit. And a bank overdraft. So things are not going well at Quincy. I mean, maybe their enrollment's doing better, but it certainly hasn't shown up in the bottom line yet. You see, they've had a bank overdraft. Again, the first time I've ever seen this on the liability sections of an audit. They have almost $500,000 in overdraft from their bank. So hopefully their bank is being nice to them and not charging them massive fees for that. But It's interesting inside of this line item here, they have 3 lines of credit and you can see they drew an additional $3 million or so on that in 2023. That was to cover their $4 million cash loss from operations, this $300K draw as well. And then they also drew down their investments. You can see all this right here in the balance sheet. So their investments went from $24 million to $19 million. That was basically— they pulled— and what was it, um, they pulled $3 million or so from their unrestricted endowment, which there's only $3.5 million left in their unrestricted endowment. And just a little history on that as well, this school recently went to the Attorney General in, I believe, 2020 or '21 in Illinois and asked them to unrestrict a bunch of money that was supposed to be restricted for scholarships. And so they unrestricted that in 2020. Uh, their unrestricted endowment fund was up to like $6 million then, and now it's back down to $3 million. So basically, they're burning through this, what was formerly restricted endowment funds. Um, so again, Gary, we focus mostly, mostly on like students and, you know, parents, you know, of course the staff that work at these schools, but they're also donors. When you think about like, if you're going to give a restricted donation to this school, I don't I don't think that you should really be confident that that restriction is going to be held. This school certainly is going to the Attorney General to unrestrict endowments, funds to be used for whatever they feel like, right? Basically is balancing the budget. So something to keep in mind if you're going to give a restricted donation to this school, it may not actually be going to what you want.

Yeah. And we're seeing that more and more, Matt, where colleges are sometimes asking those donors to release restrictions and sometimes they're not asking at all. And of course, that's not good in either case. But in the second case, when they're just doing it on their own, that's a risky proposition, Matt.

Yeah. And it's interesting, even in the auditor's going concern sort of clause, they're like, yeah, the school's losing a lot of money, but they do have the option to go to the attorney general and unrestrict a bunch more assets. So basically that's part of their strategy right now. It sounds like at least the auditor is saying, making it sound like it's not really a big deal. I think that's a pretty big deal, right? What kind of confidence can you have sitting down with your donors and saying, hey, this is going to go to a scholarship when, you know, it may or may not go to a scholarship and they have a history of actually not putting it there. So that's another thing to think about. So again, negative assets, they're running the place on lines of credit and a bank overdraft. And again, there's this question of what's their accrediting agency doing? What are they saying? Are they signaling to the market that there problems. And again, I just don't think there's enough happening. I can show you by pulling this over. This is the HLC record for Quincy, and they're doing some stuff, but it's not very obvious, right? They had a comprehensive evaluation in 2024. So basically, Quincy University in Illinois, they are running big deficits right now. They are covering those deficits by unrestricted endowment funds and using large draws from their endowment to cover the the loss. They're also using lines of credit, 3 of them, and overdrafting on a bank account. So the question is, I mean, one question we've had, Gary, in the past is, are the creditors doing enough to sort of signal to the people that are participating in this market, particularly students and their families, that, you know, one of the schools under their umbrella is in serious financial stress? And at a minimum, what they can do without sort of killing the schools, put them on probation, right? At least send a signal the people that, you know, things aren't right. But, you know, one of the beefs that I think I definitely have with HLC and Middle States and others, they seem really reluctant to do that. Even the probationary tag, you can see what they've done. They just did a comprehensive evaluation in last year, in 2024, after— so they're seeing all the stuff that I just showed you. They have already seen that.

Yeah.

Negative net assets, the whole bit, overdrafts, all of that. And, you know, I would suspect that that would be an automatic— I would argue that should be an automatic probation, right? But it's not. They went with continued accreditation with monitoring, which is a really subtle thing. Like, most market participants are not even going to know that's happened, I would imagine. And so basically it looks like in 2025, over a year from now, a year and a few months, they're going to have to talk about budget and finances again with HLC, which Yeah. You know, who knows if they'll even like— if they don't turn it around, they may not even be around by the time that this review is going to be done. So it's irritating. I wish HLC and Middle States would do more and other accreditors to not only warn the public, but to also push these schools. Like, who, who's going to make them do balance their budgets if the creditors are not even going to do it? Right. So, yeah.

Um, you know, and, and you know why you go to the next college. Let me just talk about that. You and I, in our, in our pre-show meeting this morning, we're talking about some social media exchanges that both of us engaged in this weekend. And it, it begs the question— I won't go into the details on those, Matt— but it begs the question, who are the accrediting agencies protecting? The colleges, Matt? Certainly, with what you've talked about, what you know I've talked about before, they're not upfront with the public on the financial challenges of Quincy University and other places, are they protecting the students? Now, what started this whole social media conversation over the weekend was one— the president, I'll be honest, the president of Middle States essentially wrote a self-serving piece that said, we're here to take care of the students. Well, Matt, I can make the argument, and I'm guessing you would concur, that in the case of Middle States, I think HLC mostly, and maybe the other accrediting organizations, their focus is not on protecting the students at these colleges. Their focus, Matt, I think, and I think I'm right, is on protecting the colleges. Is that right or wrong? I don't know.

Yeah, I think that's right. Um, yeah, man, so lots of questions I would have if I were a congressperson. For sure, I would be asking serious questions about why— I mean, maybe the incentives are wrong. Maybe the accreditors have an incentive to accredit the schools, right? Which is a problem, right? They should be sort of agnostic to whether the school is accredited or not if you're going to sort judge these schools, you need to be sort of separate and willing to drop the hammer if it's needed, right? I'm not sure if that's happening.