This Week In College Viability (TWICV) for March 25, 2024

It is March 25th, 2024. It's a Monday, so it's time for another episode of This Week in College Viability. Good day, everyone. Hi, it's Gary Stocker. Lots of news again this week in higher education. We're going to be talking in this podcast about Marquette is our cutback college of the week, but in a different business sense. We'll talk about that. Is Hampshire College really on its way back? Columbia College in Chicago is searching for couch money to survive. We'll certainly talk about that. Bluffton University and the University of Findlay merge. Is 2 enough? I don't think so, and I'll tell you why. And Birmingham Southern College is back into the Alabama legislature, and I'll bet this time next year there are more stories like that one that we'll talk about in a few minutes. And Iowa, because they had a closure of Iowa Wesleyan University last year, the Iowa legislature wants a heads up if a college is closing. That bill is working its way slowly through, slowly through the Iowa legislature. And Concordia, Ann Arbor, and collateral— we'll talk about that. And then we'll wrap things up with my discussion of something called a going concern, and I'll explain that at the end of our podcast. Time together this week. Layoffs and cutbacks— I have one this week. Marquette University up in Milwaukee plans to cut $31 million by 2031. And this story was in the Milwaukee Journal Sentinel from Rory Lanane, Mary Spacuzza, and Alec Johnson on March 19th. And as you might imagine, it generated some controversy and pushback from faculty, but it's $31 million over the next 5 or 6 through 2031, so 6 or 7 years. And it's kind of sort of couch money. This is a different kind of cutback than the desperation one. In the last 8 years, Marquette University revenue growth has been about $30 million. This is prudent planning. This is not, in my mind, desperation cutbacks. There was, however, the prototypical faculty pushback. I think it was an English professor quoted in the story as being angry that the Marquette administration had not consulted faculty on this, what's effectively not much more than couch money cutback. Get over yourself, professor. Teach English if that's your discipline, something you're good at. Others are skilled, more skilled than you certainly, at managing the business and at Marquette. Let them do that, please. They don't need to tell you about every comma on dot period hyphen semicolon that they use. Page 2, "Back from the Brink." Hampshire College is the headline. Hampshire College is nearing financial viability. You can hear the doubt in my tone of voice. In the past 5 years, the college recommitted to its mission, raised funds, and revamped its curriculum. Experts, and I'm gonna use that term loosely, say others can learn from this playbook. And this comes from I believe Higher Education Dive, and Danielle McLean, who we've used for other stories before. This was on March 20th. And remember that Hampshire College is the college of famed documentarian Ken Burns, and his famed— some of his famous documentaries are on baseball, Vietnam War, the Dust Bowl, and other topics as well. And let's, as you know we like to do here at College Viability, let's go to the data. And we're going to the data from the 2024 Private College Viability App We're just using the one for faculty and staff version this time. And the FTE, the full-time equivalent enrollment, is down about 900 students since 2015, but it is up 35 students in 2022. So maybe there's a slight trend. The 4-year graduation rate is trending downward. Now there's got to be something beyond that. It's probably the scope— it is beyond the scope of our discussion today, but a college like Hampshire, I believe, prided itself on strong graduation rates. And the 4-year graduation rate is trending down. We'll have to watch that. The admissions yield is down 10 points to 16%, but everybody's admissions yield is down. You only want to focus on the ones where the admissions yield is up. That's big news. The revenue at Hampshire College is down $45 million over the last 8 years. The endowment is down $6 million, so they've been spending some of that to keep the lights on. And expenses are down $21 million. As you would expect, a college in trouble, they have cut down their expenses. And the unfunded institutional grants— and that's the fancy way of calling for discounts— is down $11 million, credit to Hampshire College, but still at $15 million. So they're using about $15 million per year in unfunded discounts, revenue they don't collect, to get students to enroll at Hampshire College. And the tuition and fee revenue is down almost $30 million, almost $29 million since 2015. So really what this story was and my respect to Danielle McLean at Higher Education Digest, but I don't know that this was a bunch more than a PR or advertisement. And so if you're reporters, reporters, if colleges are going to feed you advertisements like I think this story was, at least report them as such. Maybe, maybe Hampshire is on its way up. The data doesn't suggest so, but this reporter didn't dig very deep on, on the actual data. They just took, I think, what Hampshire gave them. And guys, it's been a couple weeks since I talked about Columbia College, but they're going to have a couple of stories in the podcast today. Uh, breaking news, this is from the internal Columbia student newspaper, I believe, or student website. Columbia College could downscale future commencement and some other important celebrations they have at the college to help save costs. And this was a story written by Olivia Cohen, who's the editor-in-chief of the Columbia Chronicle. And I think, I think I have a new predictor of a college that is in deep, deep trouble. And you know your college is in deep trouble when they can't afford a full-fledged commencement like they have historically provided. And I got a guess that the cost of a commencement, while substantial, is still relatively couch money. And I use that term a lot. Of course, it means not much more than what you and I would find as quarters, dimes, and nickels in our couch cushions. And to not honor the graduates of your college with a substantial and substantive graduation event is not good. Not good. And I don't recall, have we identified the person who's going to be the last one to turn out the lights at Columbia College in Chicago? And I'm going with a single geesh on this. And we're not done. Here's another breaking news story. I don't have a reporter on this one, but from the Columbia Chronicle, college postpones tenure-track appointments. This is Columbia College in Chicago. College postpones tenure-track appointment decisions, shocking faculty who are up for promotion. And again, Columbia College, another sign that they are in the desperation mode plus is they are apparently either considering or actually decided not to award additional tenure-track promotions to save a couple bucks. Again, a couple bucks is my reference, not theirs, but But I still make the case that this is still college couch money. And maybe, maybe, maybe if we piece together some couch money on top of more college couch money, we'll have eventually have real money. I doubt it. But you know what, the more I think about this, if I were the electric company, whoever provides electricity to Columbia College, I might want to ask Columbia College to start prepaying future electricity bills. The university— the Bluffton University-University of Findlay merger. Um, first of all, credit. Um, they have taken the steps to announce a merger. It's not a done deal, uh, but they deserve credit for working through. And they used, uh, an organization called Consolidation of Higher Education— that's not the right term— to put that, to put that program together. Credit to them for providing guidance, but I would not yet bet the farm on it actually happening. Credit is given for trying. And just looking at the data, there was another story from the Courier on this merger, and they called it a transformational moment. Well, all right, the PR folks— give them a story and they're going to find big words to use. But let's go to the data like we regularly do here at College Viability. Finley University is about 5 times larger. The University of Finley is about 5 times larger than Bluffton University. So this is really a bigger college looking to leverage a lower cost basis from Bluffton to improve net revenue. All right, nothing wrong with that. The data— the unfunded institutional grants are up for both colleges, so they're both giving away more of the store to get students to enroll. Their graduation rates are modest. They're not awful, but they're not modest. I think Findlay might be right around 50% at 4 years, and Bluffton is a little bit below that. The expenses are down. All right, credit is due. The endowments are marginal at Findlay, I believe about $55 million in 2022, and lower than that at Bluffton. I don't recall the number. And Findlay, to their credit, has been able to raise their net tuition price about about $1,500 over the last 8 years. Bluffton has been unable to do that. Interestingly, grad student enrollment— graduate student enrollment is down at both, not as down, not quite 20% at both. The more I look at this, the more I realize there's, there's more to report on this. So I think I'm going to go ahead and sometime this week I'm going to do a full 2024 private college viability app YouTube video analysis on this merger. And these two colleges. So stay tuned for that. You'll see that published on social media and on my LinkedIn account as well. One sidebar on this that I noticed from, from an Inside Higher Education story on the Bluffton-Finley merger: they're going to merge operations— good— but they're going to continue traditions and sports, mascots, that kind of stuff. And that's good. I've always espoused on this podcast and other media that I produced that the way to consolidate and merge colleges is you keep the mascot, you keep the sports, you keep the foundational aspects. You just merge initially the non-academic stuff and eventually the academic stuff. So in that regard, I think they're on the right path. But two, two colleges is not enough. Two colleges is not enough to generate materially significant results. I have said before, and I'll say again, mergers and/or acquisitions need to be in the 10 to 15 college range. They're not there yet, they're not even close, but I think you'll see that. I believe you'll see that in the coming years, and here's why. And I, I posted blogs on this model over the past few years, and I'll talk about this in the, in the wrap today, is every other industry has had significant merger and acquisition consolidation activity. There's no reason No reason to believe higher education is immune from that. Page 3, Birmingham Southern. Boy, I was getting lonely. Birmingham Southern loan viability remains in question after public hearing, and this is from the Alabama Daily News. Here's the quote from this story. I'm going to read it to you. A substitute bill is expected to be voted on in a House committee in Alabama And besides shifting oversight of the loan program from the Treasurer of Alabama to the Executive Director of the Alabama Commission on Higher Education— I presume a friendlier position— the new bill, the new proposed bill, also adds some steps loan recipients would be required to meet to avoid default. Now this is where it gets interesting. I continue. Colleges approved for a loan must see an annual enrollment growth of at least 10% a year and must also see budget deficits— I presume they'll have some— and must also see their budget deficits improved by at least 15% over a 5-year period. The loan would be considered to be in default where either of those simple two milestones not met and would be required to be paid in full, I presume from assets from the college. So Alabama citizens, get your towels out. If you're in Alabama, you're about to take a financial bath if this bill becomes law. And so let's look at BSC, Birmingham Southern. Their enrollment is down 7 out of the last 8 years, and that this bill would require a 10% growth, and that's from 2015 to 2022. Revenue is down $11 million. They wanted to see a 15— 1-5% growth over a 5-year period. It's down 11 million. I don't have the percentages over 8 years. And here's a paradox, one of the paradoxes, I think. And the 4-year graduation rate at Birmingham Southern over the last 8 reported years is hovering around 60%. That ain't bad. That's not bad at all. There are too many privates not even close to that throughout the country. And I don't know if they're giving away diplomas at Birmingham Southern like Easter eggs at an Easter egg hunt. But that's a decent number. But just sit back and think about the higher education market in Alabama. How many students, how many families are in some form or fashion aware of these Birmingham Southern College stories and have already ruled them out of their search? What about employees? You know, what employees, what number of staff have strapped on their parachutes getting ready to jump out? Of this struggling college. And finally, a great quote, and this is from the same story, and it's from Representative Debbie Wood from Alabama. And she said that you do not make a loan because of collateral— because Birmingham Southern is offering their college as collateral. So Representative Debbie Wood says, you do not make a loan because of the collateral, which is the case that BSC is making. You make it because you think you'll get paid back. All right, she gets a— she gets 5 stars in my book. She continues, because in my mind, if I'm writing a check for an investment, which is what the Alabama legislature is doing, I'm hoping that I get my money back, said Debbie Wood, representative in the Alabama legislature. And she actually concludes, I want my money back. I don't want your buildings. And what we're seeing is not just here in Alabama, but we're seeing the similar kinds of thought processes, and even some, some media with bondholders. Bondholders that invested in a college loan in whatever form or fashion— and it happens across the country— they want their money back, plus their investment, plus their interest. They don't want a 50-year-old science building that can't be reasonably expected to be used for anything else. They want their money back. They want their money plus their investment back. And when bondholders start to call those bonds due, ladies and gentlemen, boys and girls, it's going to be ugly. To Iowa, they're kind of a day late and a dollar short compared to Alabama. But year after— the year after— here's the headline: The year after Iowa, Wesleyan shuttered, lawmakers in Iowa proposed private Campus closure mandates, and this is from Vanessa Miller at the Gazette. I presume that's an Iowa publication. And just let me read some of the highlights. The closure of private institutions of higher education language have built-in supports for impacted students. So if a college closes in Iowa, here's the proposed legislation. It's working its way through the legislature. Whether it passes this year or not is problematic, but maybe in subsequent years. But here's what it proposes: within 5 business days of notifying the state of Iowa of plans to close, under the measure, any private— any closing private college would have to provide the Department of Education, I presume, with a list of relevant details including a teach-out plan, a student directory with contact information related to every student's status as a date of closure, a transcript retention plan— there's 3 or 4 other items that I'm not reading to you— and a process and contact person for student concerns, complaints, and questions about the closure. So here's my question: where, where else will this legislation begin? It's already been enacted in Massachusetts. There are other states considering it. And what pressures Well, that adds to financially challenged private colleges. And Massachusetts, that I just mentioned, has a more aggressive heads-up requirement for their colleges. They promise that bad news that private colleges share with the Massachusetts Education Authority will not become public, but, but, you know, I don't want to bet the whole— don't want to bet the farm on that promise being kept. Page 4. For this small college, the headline reads— this is from The Chronicle and David Jesse on March 14th— for this small college, a merger was a lifeline. Now it's the focus of suspicion. And the essence of this story is the value of the property in Concordia College in Ann Arbor, Michigan, is valuable. And Concordia, Wisconsin And Concordia Ann Arbor had a merger a couple years ago, and that's the essence of this story, the history of that. The essence of the story in this case is Concordia, Wisconsin, back when this merger was put together, wanted some coverage for taking on the risk that was Concordia Ann Arbor. I believe— I'm being sarcastic here— I believe the term is called collateral. And what's, what's developed in the last couple of weeks is that Ann Arbor Concordia Ann Arbor has announced they're going to remain open for another year. That's a promise I could do without. And the students, interestingly, a story that I think I covered previously, the students were thrilled to find out that Ann Arbor will be open for another year. But here's what Ann Arbor needs to be financially viable: it needs about 500 to 1,000 fully paid-for dorm rooms to generate needed income. Concordia, Wisconsin has contributed— the story reports— around $90 million since the merger to Ann Arbor. And if that was my money, if that was your money, wouldn't you want access to some assets if the investment goes into the dumpster? And that's all Columbia, Wisconsin is asking for. They have provided financial support They wanted access to some of the property, and now the folks at Ann Arbor are saying, "Hey, that's not fair." Well, of course it's fair. Of course it's fair. It's done all the time. Can we please, can we pretty please start adding some business common sense to these emotional college financial distress stories? I don't deny the emotions. Not for one second. I would be distressed also. But among many other resources, our College Viability App is there for students and their families to compare the financial health and viability of these colleges. It's relatively new, I understand, and it's past time. I make this case regularly. It's past time for students and families to start using financial data about college's financial health, just like colleges do when they eventually get a family's FAFSA report this year. And you can call the College Viability App the reverse FAFSA. It lets families see the finances, enrollments, and graduation outcomes of private and public colleges they are considering. And finally, I want to talk about something called going concerns. A going concern is usually— is always in an audited financial statement, and it's a responsibility that auditors have to share their concerns if an organization— any organization, but we focus on colleges— auditors share their concern that a college may not be able to continue as a viable business. This term is called going concern. A going concern is a business that will continue. It's ongoing. It's an ongoing concern. Where the term from— the term came from, I have no idea, but that's what's used. And issues with a college being able to continue as a going concern is a big deal. Now, in the last 4 or 5 years, I've only seen it referenced 2 times in the past year when auditors had a concern about a college's ongoing viability and said, hey, we have concerns about it continuing as a going concern. In my experience though, it has not been referenced in the financial statements of colleges that have closed. Now, as I get time, I'm going to research a set of closed colleges to see if their audit is referenced a going concern. But I did do a check of Notre Dame College in Ohio that closed just a few weeks ago, and in the 2 or 3 audited financial statements I looked at for them, there was no special reference made by the auditors of those financial statements for Notre Dame College that it might not be able to survive as a going concern, and it closed That bothers me. That makes me wonder about some of the things that go on with these audited financial statements. I think I'll have more on that in the coming weeks and months. If you want to do this on your own, here's the process. Go to Federal Audit Clearinghouse, and I have a YouTube video on how to do this on my YouTube channel, my College Viability YouTube channel, and search for any college that you want. When you bring up the PDF for that financial statement, do a control find, Ctrl+F or Command+F depending on a PC or Mac, and you'll normally see two basic references to going concern. It's just responsibilities that are in the standard template for financial statements, and they're not a big deal. It's just standard stuff. But if you see more, if you see more than two references to the phrase going concern, continue on in that audited financial statement and read them. It's probably not good news, and it's almost certainly bad news. About a college's— about a college's ability to continue as a going concern. As I shared earlier, there continue to be many reasons, many reasons to believe we're in the midst of a two-phase college consolidation in both the private and public college markets. We're in the closure phase now for privates, and we'll look back in a couple of years and realize it. And the closure phase will— closure phase will be followed by the consolidation phase of mergers and some acquisitions. Every other industry, as I shared earlier, has undergone some form of significant consolidation, and there is no reason, no logical reason, to believe that higher education is immune from that reality. Until next Monday, hey, it's Gary Stocker again for This Week in College Viability. Thanks for listening. I am grateful. We'll talk again next week.