This Week in College Viability (TWICV) SPECIAL EDITION- Larenda Mielke from KaufmanHall

Welcome to a special podcast episode of This Week in College Viability. My name, of course, is Gary Stocker. And you remember in previous episodes of the podcast, we have talked with higher education authors. We chatted in December with Brian Rosenberg, who wrote the book with the great title Whatever It Is, I Don't Like It, which of course is talking about college faculty. We talked with Chuck Ambrose, who also had a book out in December. Called Colleges on the Brink. We're going a different route today. We're talking with Lorinda Melke, who is a senior vice president at higher education at Kauffman Hall. She has extensive leadership experience in higher education in too many areas to talk about, but some of them include accreditation, strategy execution, financial modeling, and many, many more. You can certainly get the details from her LinkedIn profile. Lorinda, welcome. And tell us a little bit about Kaufman Hall and the work your team does.

Hi, Gary. Thank you so much for having me on your podcast today. I'm excited, especially about the questions that we're going to discuss today, questions and answers. And I would like to talk just for a second about Kaufman Hall. I've had a lot of higher ed experience most of my career and just about 4 years ago, went into higher ed consulting. And Kauffman Hall is a great company to work for and also to help those who may need some or would want some extra additional projects done, especially strategic work, as well as that integrated with financial, financial work. Kauffman Hall is very strong in the financial area. Mostly known in healthcare, but for about 10 years, we've been working in higher education as well and have worked across the country with various colleges and universities in various areas. So for example, academic profile, academic portfolio optimization, financial planning integrated with strategic planning, looking at the strategic plan, And a lot of, of areas that are a little bit special to Kaufman Hall have to do with the, the intersection of healthcare and higher education. So, um, AMCs, schools of medicine, schools of nursing, we work a lot with those, as well as, um, just kind of the traditional liberal arts or the traditional technical-based, uh, kind of university or college. So that's pretty much Kaufman Hall. And we also have some thought leadership, which I think we'll talk about today.

Well, one of the many things that intrigued me to reach out to you and ask if you'd be able to participate are the LinkedIn articles that you wrote. And this really forms the basis for the questions that I want to ask today, because, Lorena, in my mind, you take a different approach than most do. It's very analytical, and I know it's what Kauffman Hall does really well. And I think what our audience will get— the value our audience will get out of this is kind of that analytical piece that Kauffman Hall does so well. But I want to start with one of an article you wrote and posted as a LinkedIn article in April of last year, 2023, and wrote the piece with Jason Sussman, also a Kauffman Hall consultant. And the title was cute, How Many Swings Can You Afford to Get Ahead? And of course, you drew a baseball analogy and were generally making the case that colleges don't have a lot of swings left. And you strongly— in that article, you strongly encourage colleges, especially those with clear financial challenges, to consider new partnership models. Yet in my experience, and I assume in yours, there is very little evidence that this is happening. You noted in the article the closure rate, but colleges continue to try and hold on to the last minute. So my first question is, for those colleges or the stakeholders associated with those colleges, what kind of advice, Lorinda, would you give to a college leadership team who may have already waited too long? To make changes to their business model?

Yeah, so we'll talk in a minute, I think, about those who haven't waited too long, but, but we do run into quite a few that have a very short runway before they're at risk for closure or some kind of partnership that they don't necessarily feel is optimal. So the number one piece of advice that I would give to anybody listening is don't wait. Even if you feel like your institution is in pretty good shape and you can pull yourselves out of it, still take the time to take a close look at a lot of your financial variables, the different aspects of your financial situation. Perhaps someone like Kauffman Hall would be able to give you some very quicker road to finding what the situation is. And then to look at what are the scenarios that you, in which you could see success. And if you find that none of the scenarios really will lead you to success, then you need to look at something different. The problem is that if you leave your, if you leave your kind of the fix until it's too late, or if you try to fix things just kind of on the old not really the old, but the traditional way of doing things, for example, take, make, make some efficiencies here, try to get, you know, an online program going there, try to, you know, have some, some salary freezes here or there, or hiring freezes, it probably won't be enough. If you don't have enough runway, it's like a ship, it's sort of like a big ship. Where if you want to make a turn, you have to plan in advance, like, in order to make that turn. You can't just stop within 10 feet or something like that, or turn within 10 feet, because a big ship takes a long way in order to turn. And that's what we're seeing in higher ed for those people, those institutions and leadership teams that are waiting too long. And we totally can understand why they wait too long sometimes. You know, it's like, it's part of our DNA that we can solve problems. And in higher ed, that we, that we know how to find solutions to things, and that it's always worked in the past. But in the present, it's not always working. And that's because of the headwinds that higher ed is facing. And I'm sure we'll talk a little bit about that. But there, because of the multiplicity of headwinds that higher ed is facing, some institutions are have and will have to take some actions that they don't necessarily want to.

I have my own list. Of course, I use the IPEDS data for my College Viability app and much more. And Lorinda, I have my own list of high-risk colleges. This is mine. I'm not sharing with anybody. And there's 230 colleges on my list. And that's kind of what we just talked about. But that leaves hundreds and hundreds of private colleges. And that's really the focal point of most of our discussion that have longer runways. Does the advice you would give that leadership team very much than that what you just gave those colleges with a really short runway?

Not exactly the same, but similar. And I, I won't, I won't say names, but we are working with one institution right now who's in that specific— that I can think of that's in that specific situation where they're positioned very well. They have the right majors, they have the right location, they have the right students, but they're facing, they're starting to face a little bit of a deficit year over year, especially around cash flow. And so when you're looking at, when you're looking at those kinds of institutions, even though it seems on the surface that everything is going well, there is, there are some warning points that they need to take advantage of. And this particular institution that I'm thinking of actually did. They hired us for this kind of an analysis where we looked at the complete picture of where they are and what are the scenarios in which we— in which they can see themselves coming to success. And so because they have a longer runway, they have a chance to make that, to make the changes that they need to make. The changes that they make are not— don't need to be so drastic. Now, this has pros and cons, because I do think that higher ed is poised to be able to benefit from some pretty dramatic changes as far as kind of the business operations, the business structure. I mean, not that higher ed is a business, but just kind of the way, the way that higher ed does their processes and, and that sort of thing. And even in academics, obviously, you know, there's some minor changes like going to online online modality, but there are ways in which higher ed can be disrupted that can be very beneficial. And so I do think that that's a positive thing for those that have a short runway. Sometimes if you have a short runway, you're kind of forced to make big changes and people can— people, meaning your stakeholders— can understand that there's no other choice. And I can give several examples of— well, one example in particular of a college that did that. And did it very successfully— a university, I should say. But so there are pros and cons to both of these situations. And I think with wisdom and also flexibility and agility, we've seen some great successes, actually.

One of the other things that you mentioned in that, I think it was April 2023 article, you mentioned that larger private and public colleges were having layoffs and program cutbacks. Now, on one of my other podcasts, I have an actual layoffs and cutbacks section that continues to happen in 2024, late 2023 and 2024, even more than I think we saw last year. Is that what you're seeing at Coffman Hall?

Absolutely. And, you know, anyone can see who's following higher education in the news can see the news that came out about the University of Chicago recently. Penn State, Penn State is a public obviously, but also making a lot of, a lot of changes and cutbacks. And those are institutions that anyone rationally would think are very successful. But on the other hand, even the large institutions can sometimes run into some trouble. And we'll talk about endowments, for example, a little bit later. But I do think that one of the things that I mentioned earlier has something to do with this question as well. And that is, there are some times where, because higher ed is very traditional, and that's a good thing, because it keeps its, you know, the view of higher education as being respectable, and also holding those degrees that they're definitely worth something. On the other hand, sometimes they're there comes a point where certain changes have to be made. And, and we're kind of at that point, as you mentioned, not only just small, medium, but sometimes large size institutions as well. And you— I can give another example where there's, you know, considering a merger of some of the schools of a university with another university, for example. And sometimes that's beneficial. Sometimes it ends up to be more of the same. If those changes in process, changes in efficiencies, changes in ways of looking at recruiting students are not made. In other words, if you just do a merger and then you keep on more of the same, the size is not necessarily going to help.

In my mind, the poster child or the developing poster child for cutbacks and layoffs is a big college at West Virginia University. They have, what, 30,000 or 40,000 students. They built it on the old speculation, build it and they will come, and they didn't come. And last summer, last fall, the news was filled with stories of West Virginia University doing that very thing, cutting back programs, laying off faculty. And of course, you and I both know, and probably most of our listeners, anytime any college, private or public, makes any kind of change to the business model, the protests that follow are automatic. And I don't know what good that offers, but that's been my observation and yours as well.

Absolutely. And again, one of the reasons for that is the multiple stakeholders and the traditional outlook on higher education, where change is hard, and it's hard everywhere, but it's especially hard in higher ed. And let me just add something about the additional stakeholders that higher ed has, and that's the alumni and also the donors. And so, for example, You know, if we're looking at the, the contrast between higher ed and healthcare as they try to make changes, healthcare doesn't really have alumni in the way that higher ed does. And definitely alumni is, you know, are very loyal to many times to their institution that they graduated from. And also they tend to be donors. And so when you're looking at that group of people also, they remember the way the institution was whenever they were there. And so making those changes that are needed sometimes becomes not very attractive to that particular stakeholder group. And so that's just an example of some of the headwinds that higher ed is facing.

And the analogy with healthcare and all of that, that's a great point that is easy to overlook. And there's a couple of articles I want to talk about, but I want to kind of change the focus for just one question. And of course, the end consumer, the end customer in higher education is the student. And there's the traditional students where most of the media focuses on, and there's the non-traditional. I understand that part. But from your perspective and the look that you have at Kaufman Hall and the work you've done, the experience you've had, for families with a high school senior, maybe this year, headed off to college this fall somewhere, what guidance would you give to that student, the high school student, and their family, their parents, to help ensure that the college they choose, ultimately choose, is financially strong enough to provide a solid quality education?

So first of all, ask this question. You know, as a parent, it's going to be more and more important to ask this question because you don't want to get your son or daughter into a, into an institution that, you know, is going to close the next year, for example. Most of the time, if they're that close, people will, will kind of know. But from a parent's perspective, I would recommend that you do some research yourself. It's not so hard to do, and even if you don't really understand financials very well yourself, I'm sure that you would know someone who does, you know, an accountant or someone who's familiar with the numbers. And Gary, you know about IPEDS, I-P-E-D-S, It's a free database about higher education, and in that database you can look up the, the past track record of any institution's financial situation. Unfortunately, it's a couple of years delayed because this is self-reported data, but looking at that data can really help as a parent to be able to see, oh, this institution we're considering is very strong, they, they, they seem to be doing well, or potentially there may be some danger signs there that you can, you can find. And if that's the case, then it would be worth having a conversation with someone at the institution who knows the situation. And again, it's a couple years delayed. So definitely this is a little bit qualified advice because of the pandemic. You know, COVID really made some changes in the data and We're getting to the point where we're past that in IPEDS, but still most of the IPEDS data is linked to the COVID years. So it may be a little bit skewed. So I would say do that research, but also keep an open mind because of that, the way the data is reported.

And of course, you know, the reason I created the College Viability App was to take that really cumbersome IPEDS data and make it easier for families, faculty, staff, college leaders to compare 8 years' worth of data from IPEDS, even though it's a little older. Matter of fact, the 2024 version of the College Viability App comes out next week, and the data is from 2015 to 2022, but it still shows trends. Even though the data— I'll edit that out. Even though the data is a year, maybe 2 years old, it still shows trends. And I think that's what's important is the trends. You don't tell me if you've lost enrollment for 8 consecutive years that you're going to turn around in 1 year because you just can't do that. So, that's the reason I created that app for parents and others to be able to do those comparisons and not have to fight their way through iPads. All right, let's go back to the big picture. I'm going to talk about endowments. And you referenced this a little bit earlier, Lorinda, and like you, I talk with lots of folks. And one of the perceptions I have is that many view I'm talking about an endowment here. Many perceptions, many view the endowment that every single dollar in an endowment is available for any type of use a college needs. For example, maybe a college with a really small endowment, believe it or not, of $15 million, $15 million, doesn't really have that available to spend as they would like to. And I have trouble explaining that to others. How would you explain that endowment function to those who need a little bit more clarity on that topic?

Yeah, that's a good question. And we also run into this, this kind of confusion and not really obviously with our higher ed clients, but with just the general public. It seems like a lot of times, and parents too, it seems like a lot of times that, you know, it seems like institutions are very wealthy because they have, I mean, $15 million seems like a lot of money, but there are institutions that have in the billions, many of them, in, maybe not many, but a few of them, they have endowments in the billions. And so it seems like, oh, they're very wealthy. But in actuality, what happens with those endowments is that really two big categories in endowments, one is restricted and one is unrestricted. And so most colleges and universities' endowments are what we call restricted. And what that means is that a donor, you know, bequeaths funds or gives funds to a university or college, and they basically tell the university or college how those funds should be used. And that, that's a great way for donors to have some, you know, impact on the institution. So that's not necessarily— that's not really a bad thing at all, because the donors have certain things that they feel are important. And but what happens is that that restricts those funds to only that purpose, whatever it is that the, that the donor and the university agree to. And so in actuality, as we work with many universities and colleges, we see their financials, obviously, and we see that most of all endowments that we've worked with are restricted, and there'll be a smaller percentage that's unrestricted. And so even those unrestricted endowments, it's, it's a little complicated to explain here, but you can't just kind of take those unrestricted money, those unrestricted dollars and just spend them on any particular year. You can spend some of them and it's a lot, it's a little bit complicated to talk about that in such a short time. But even those unrestricted funds are not necessarily available willy-nilly to just use in any particular way. Most of the time, a way that an endowment is used, and I should say probably, as far as I remember, all of the universities and colleges that we work for will take, will take a percentage of the endowments, the interest, for example, and use that each year in their budgeting. So they'll expect to have some kind of a cash flow from the endowment just in ways in by way of the interest from that endowment. And so it's really the money that they can use, like the actual cash that they can use from the endowment is a tiny percentage of the total endowment.

I want to go to the article you wrote in May of last year, 2023. And again, you wrote this with Mr. Sussman, and the title read Financial Reserves Build Institutional Resilience for College and Universities. And you cover a lot of topics in that one. But one of the things you noted was that one source of operating revenue, which the article kind of references in financial reserves, is from tuition and fees. And my question for you is, with the intense tuition discounting pressure all colleges face right now to get students to accept a college's offer of enrollment, to accept their financial aid package, how reasonable, from what you're seeing at Kaufman Hall and your own judgment, how reasonable is it to expect that the subset of small mostly rural private colleges can realistically expect to drive anything close to materially significant increases in their tuition and fee revenue?

So, the answer has to be qualified with your word reasonable. And as you look at those tuition and fees and what you mentioned about discounting, what that means is that is that colleges and universities will, in actuality, offer some aid, internal aid, to their students, to their applicants, so that the actual price that they pay on their tuition is much less than the sticker price that's advertised on the website. In fact, it's usually average around half, or, and in other institutions, even more than half. Even less than half, I should say, of the sticker price of the tuition. And so what happened, what has happened, and one of the reasons that these small rural institutions are in trouble is that they just discount more and more. And when you discount more and more, you do, you do get higher enrollment usually, but the enrollment actually doesn't bring in the revenue that's needed in order to keep the institution afloat. And so that's one of the reasons, and we'll talk about this a little bit more later, but one of the reasons that, that colleges and universities need to look at changing their business plan, business structure, and sometimes really changing the way they go about their processes, even academically, becomes absolutely necessary because they can't discount themselves out of this situation because there just aren't enough students who are able to pay the higher tuition price point. And so the discounting becomes kind of a— almost like something that universities and colleges really have trouble to get out of. Right.

And it's, you know, it's a function of supply and demand. You know, I've said many times that there are probably no programmatic changes these colleges can make because there are too many college seats and not enough students willing to pay the tuition fee to fill those seats. And that's very difficult to fight your way through that economic reality. I'm going to go to, uh, Lorinda, the October article you wrote, and the title was "Tuition Pricing: When the Road Less Traveled May Not Be the Best Solution." And one of the things you talked about was tuition resets. Now, for those that follow my podcast and my posts, I have taken a position on this, and But for your information, it's not a positive one. But what, what are you seeing at Kaufman Hall? Can you talk about what you're seeing at Kaufman Hall and the results, if any, on the impact of these tuition resets?

Yes. So we do have firsthand experience in multiple institutions about either doing a tuition reset or considering a tuition reset. And we just like you often read the research and the kind of results of tuition resets to see if those results are positive or negative. Another thing that we look at is there may be some kind of higher level, for example, law schools or med schools that specifically limit the number of students that they, that they accept. And so that's another way to kind of look at, at revenue changes. But what happens with tuition resets. And I have to say this in the simplest way, and that is human nature. And what I mean by that is that when you do a tuition reset, and then your admissions folks and recruiting people who are looking at, you know, bringing in the next incoming class, it's very much human nature to kind of slowly go back to those discounts that you had before. And so the problem is that when you can— when you don't have that very strict discipline over not taking those discounts again, it becomes like this— it becomes like this self-fulfilling prophecy where you get to more and more discounting again, but this time you're discounting off of sometimes half of what the original tuition was that you were discounting before. And so what happens is that you see an even worse result in a couple of years, 3 years, 2 years, 3 years, 4 years down the road than you had previously before you did the tuition reset. Now, I understand totally some of the very mission-driven reasons for doing a tuition reset. So for example, you know, to attract and enroll those students from from certain demographics that, that you weren't able to attract before, for example, or maybe to attract great athletes, or maybe to increase the, you know, the GPA or the test results or, you know, the, the retention of the students that you do recruit. But I do think that I, that, well, I don't think we see that there's a slippery slope. That has to do with tuition resets and that slippery slope of kind of human nature kind of slowly going back to those discounting points that you were at before or close to where you were at before becomes a serious problem in a few years down the road.

You talk about human nature. I'll share a quick story. I actually had a college president share with me that in conversations with his parents for his students, that they actually prefer a high price high discount model so that the families can tell their friends and families that my child got a $40,000 scholarship to go to this college.

Yeah, yeah, that's human nature too.

So a couple more questions left and we'll wrap this up. And of course, My College Viability app that we talked about earlier, and we can compare about 30 different IPEDS reports for public colleges, and that's enrollment and tuition and graduation rates and endowment and many other reports. Not quite that many for publics, but here's my question. In all the colleges you work with, both public and private, what's your perception of their internal ability, their own ability to track and analyze their competition, other colleges?

It's variable, but in general I would say it's pretty good. People would be surprised, I think, if, if, if they, you know, talked with colleges and universities every day like we do and also work with with them in very detailed analytics, they actually, most of them know, almost all of them know who are their competitors. They don't necessarily choose their actual competitors when you look at multiple variables, but they know their group of competitors and their ability to track and analyze their competitors is dependent on how much time they have, their employees have in order to do that. And a lot of times they don't have time to do that. What I should say, and what the most important point as far as this, this question in this discussion, is that although colleges and universities do know generally who their competitors are, they kind of put those on a shelf somewhere figuratively and don't really make that competition a part of their everyday kind of thoughts because everyone is so busy, and especially with, you know, with people, you know, holding multiple responsibilities at colleges and universities, they don't necessarily have time to think about that all the time. So the answer is yes and no. I think yes, they do generally know who their competitors are, but they don't necessarily do a lot with that. Interesting.

And then one final question. I'm going to give you godlike powers here, Lorinda, and whatever you say goes. And so here's the scenario I want you to address. You are the chairperson of a small college somewhere in rural America. And like many, the odds are stacked against your college for many reasons. And the guidance that you would give to your board and to your executive team and your faculty goes without question. What are the pieces of guidance would you give to each of those stakeholders, the board, the faculty, and others?

Yeah, that's a great question and a great one to end on. I'll be very brief and precise on this. Two things. First thing, act sooner than you think. That means, you know, you need to start— if you feel that your college or university is kind of going down that slippery slope of deficits yearly and not getting the enrollment that you need, but you're still doing okay, act. And here are the reasons. First of all, it takes longer than you expect to persuade your many stakeholders that change is essential. So many stakeholders, there's the board, there's the cabinet, there's the president, there's the alumni, there's the faculty, there's the staff, so many stakeholders. And I can give you an example of two different, two different institutions that we worked with, one of which realized soon enough, fairly soon enough, that there was a need to take action. And they, and they did. And over the last, you know, 2, 3 years, they've been very, very strictly working on the action that they needed to make. And they're still doing— they're still, they're still there. And they're still, they're still in, in business. A second one didn't realize or really wasn't able to make the amount of changes that were necessary because of the culture. And it's— I won't get into the long story there. But in general, the idea in that situation is that because when push came to shove, and those changes were absolutely necessary in order to survive, they couldn't do it. And so they closed. And so I think that the, again, the number one thing is Act sooner than you think you need to. The number 2 advice that I would give to folks in this situation is to change. And what I mean by that is to look at what the advantages you have, look at what niches you fill that make you better than anyone else in that particular area, and then make the changes bigger than you think. Because you have to take in, or you should take into consideration, the fact that higher ed is slow to change, slower than other kinds of organizations. And so, aim bigger than you think, because in the end, you may, from aiming big, you may come to the point where you're making changes that are big enough to bring yourself to continual sustainability. And I think that's really, that's really your goal. So, to summarize, first of all, act sooner than you think you need to. And second, make the changes bigger than you think.

And then, Lorinda, what's the best way for listeners to get in touch with you? And I'll make sure to include that in the show notes as well.

Absolutely. So either by phone or by email, and either one will work. So, Gary, I'll let it be to you to, to provide that information.

Cool. Lorinda Mulkey is the senior vice president of higher education at Kaufman Hall, has been my guest on this special episode of This Week in College Lorinda, I am grateful for your time and your expertise. Thank you.

Thank you so much, Gary. It was great to talk to you.