This Week In College Viability (TWICV) for September 23, 2024

Hello and welcome back to another podcast episode of This Week in College Viability News and Commentary. How about for September 23rd, 2024? Hi, it's Gary Stocker. I, I'm going to start off with true confessions. I had to quit. I've got to quit giving up on sporting events when the outcome appears to be finalized. I walked away from the Colorado-Baylor football game Saturday night, the— on TV, of course. The Colorado team looked awful and was down 7 points with about 2 minutes to play. And of course, they came back to tie the game with a desperation heave in regulation and won the game. Colorado won the game in overtime. And then another game, Missouri just barely won a game that they were favored by 18 points. And Missouri is the home team here in Missouri. Coach Eli Drinkwitz offered this, "That's on me as the head football coach. I've got to do a better job of finding answers." Well, desperation heaves and finding better answers are part of this week's podcast. And I'll get to the desperation heaves in a minute. If college football coaches self-chastise and Eli Drinkwitz at Mizzou is just one of many each and every week that I hear and read to do this. You got to wonder why college leaders, their bosses, don't do the same thing. If, if revenue is down and expenses are up, graduation rates are awful, and an endowment has sprung a leak year after year just to keep the lights on, why don't I hear college presidents pull an Eli Eliudrin quits. College coaches, even, you know, barely, if they barely win or even lose, they regularly roll out the line, I need to do a better job of coaching. And of course, I understand in part they're trying to protect their players. So I, you know, I do this. I have some guidance for college presidents, for admission leaders, for provosts and PR folks at these colleges. Enrollment increases are not a win necessarily. Enrollment, as we talked about last week, is not fungible. It's not cash. It's really net tuition revenue that's increasing. That's a win. 45 to 50 graduation rates or lower are not wins. Shrinking endowments are not wins. Revenue and expense imbalances are certainly not wins. College coaches in all the sports I follow know they have to do a better job, and they're at least upfront about it. I understand they have the reasons for doing that, but you know, my experience, college presidents rarely, rarely engage in similar self-chastising calls for themselves to do better. They couch their language in the vagaries of future plans and blame their leadership shortcomings on the higher education industry, on competition, on the pandemic, and on anything, any other topic that seems handy. Not good. Not good for a lot of reasons. Hey, let's go to the headlines. St. Louis University goes from 2% cuts to 4% in a short period of time. When is a merger a merger or not a merger? And Hartwick College, I believe in New York, has— is the latest to try pricing transparency. This is, as we'll talk about, this is a desperation heave. This is a higher, higher ed Hail Mary, just like in football. And, and finally Are college bondholders getting more concerned about the finances of colleges? There were layoffs and cutbacks, no closures last week. There were some layoffs and cutback stories that were returned on my Google alert searches this week, but none of them really met the standards I have for use during the podcast, so I'm going to leave that section alone this week. I really anticipate a lot more of those in the coming weeks and months. Page 2: Ursuline College and Gannon University— Ursuline College, Gannon University— move forward with partnership talks. And this was in Signal Cleveland, and our friend Amy Morona posted this story on September 16th. And it's, it's some way too early M&A news, a merger and acquisition news, although it's That's not what mergers is, not what colleges are calling it these days. And I saw the same thing in a podcast interview I did with two college presidents in Iowa this past summer. Apparently, merger is a bad word among higher education leaders. These sneaky folks, these sneaky folks think strategic partnership, okay? Doesn't scare as many of their faculty, employees, and others in their world. Okay, this is America, we word stuff, we wordsmith stuff, I get it. So here's the news story. Ohio's Ursuline College and Pennsylvania's Gannon University, I think about 90 miles apart, took the beginning steps to launch what officials are calling a strategic partnership. Details were scant, of course. A news release touting the move Management by PR. A news release touting the move between the two Catholic colleges did not use the word merger. I don't think it's a four-letter word. No, one, two, three, there's six letters there. Instead, officials stressed they are in the beginning stages of figuring things out, though they did note there would be no immediate impact on students and faculty and other employees. So of course, faculty, students, others Here's what they're telling you: don't worry, be happy. I would sing that song, but that doesn't seem appropriate today. Don't worry, be happy, they're saying. If approved, the story goes on, officials said the move will create the largest Catholic university in the region. The partnering institutions— the strategic partnering, I should say— the strategic partnering institutions could enroll about 6,000 students and employ roughly 1,300 people. Now, I will grant you that 6,000 students is, is a low-end functional number for merger, a pretty low end, but it really still doesn't offer enough opportunities to scale either academic and more specifically non-academic operations with just 2 colleges. I've shared this before, it's still more of a mom, more of a mom-and-pop operation I still strongly believe scaled mergers need to be 10 or more colleges. And maybe Ursuline and Gannon are pondering that. I, I doubt it. It's going to happen though. It is going to happen. It may not be Ursuline, it may not be Gannon that pull it off. I can think of no other industry that has not undergone substantial and large-scale consolidations with millions of customers and tens of thousands of employees. And that's clearly not what we're talking about in higher education. The model in higher ed will kind of be like the one developed at Lindenwood University in Missouri. They developed, created a university holding company with individual colleges tucked in as standalone parts of the overall system entity. The colleges in that system maintain their identity, their name, their school colors, mascots, sports teams, and academics mostly. At the end of the day, though, there's a minor consequence. Their boards, while mostly standalone, still do and would report to the system-level board. I like this model, I like this concept, but I'm kind of in a position where I'd like to hear some challenges. Maybe there's something I'm missing on this. So if you have some interest in talking about this, drop me a note. To gary@collegeviability— that's one word— gary@collegeviability.com. And if you're interested, let's get you on the podcast. Maybe we can have a back and forth discussion about this type of model, good and bad, and see where that takes us. Again, gary@collegeviability— that's one word— collegeviability.com. Just down the street from me, or from me here in St. Louis, St. Louis University headline reads St. Louis University budget deficit will force all programs and divisions to reduce expenses by 4%. Now, this comes from— appears from the student newspaper, the University News at SLU, and it was written by Jack Sipple, CIPFL, uh, on September 19th. Now, SLU had some cost and expense issues a couple of years ago, and having not heard much since then, I, I, I think, I assume that they found a way to manage those. But why are they doing this? Why are they waiting so long and doing this at the start of a term? Now, they— Mr. Sipple, Jack, does not mention the demographic cliff in the story, but it's, it's, it's likely, it's possible that these types of financial challenges have been something like 18 years in the making, and now at the start of a term, there's a scramble to cut The story goes on for Mr. Siffle. It is unclear yet how these changes will affect faculty and students in future academic years. Don't worry, be happy. Details about figures and the decision-making process, of course, have yet to be released publicly. A budget deficit in the 2024 fiscal year will force all university divisions to reduce expenses by 4%. This is from Provost Mike Lewis. It was on September 18th. This— and they categorize this moderate— this moderate budget cut was expected. Okay, why are we waiting to cut? This moderate budget deficit was expected, caused by— here's the reasons— caused by a significant drop in new international student enrollment, increased gift aid. You would know, I know, that is unfunded institutional scholarships or merit aid or many other scholarships And most commonly, it's really just simple discounts. SLU forgo a lot of tuition revenue just to get students in the door. And also goes on to say, and it was due to high investment into faculty and graduate student research programs. Here's the catch, but the cuts are twice as high as what St. Louis University President Fred Pestello said in previous statements, having projected a 2%— not 4%— a 2% cut as of July and as recently as early September, earlier this month. The story concludes with St. Louis's total enrollment is 13,500+ students, the largest— I'm quoting— the largest enrollment at the university since 2000. And 12. This, this is where your college quality control specialist guidance expert— that's self-proclaimed— this is where I'm confused. SLU's own data submitted to the government, submitted to IPEDS, show that in 2015 they had 17,000+ students. So 17, 13, minus 2, bring up the toes, so That's the largest enrollment, 17,000-some in 2015. I'm confused where these numbers are coming from. I'm guessing they're just changing the definition of the terms to make it look good. I don't know that for a fact, but it doesn't make sense. It's not the highest. If we could just get colleges and even reporters to define their enrollment terms types, we could all have a better handle on real enrollment changes. I, of course, am not holding my breath on that one. And what's happening with reports on highest enrollment and now the 4% budget cuts? Here's my best bet. SLU— and I mentioned this briefly a moment ago— SLU had to give away the store more than they intended with tuition discounts, and they call it student aid. Okay, that's fine, we all spin. They had to give away the store with tuition discounts to get students in the door, to get those large numbers in the door. I, I just can't imagine if the enrollment news was that great and the tuition revenue that followed was equally great that there would have to be cuts, budget cuts at Saint Louis University. And it must be massive tuition discounts. I'm going to give you the numbers here in a second. And if reporters— if you know any reporters at the St. Louis Post-Dispatch or local television radio stations listening into the podcast, ask SLU and any other reporter across the country, ask any other college what their average tuition discount rate was for their fall 2024 freshman class. You won't get a straight answer, but it'll be fun to ask. All right, to the data. SLU is an academically fabulous and really strong college. Their 4- and 6-year graduation rates slash at 73% and 82%. Really good. Very few are at that level or higher. But as we've seen recently, strong academics isn't— is not translating into consistently strong finances. So to those unfunded institutional grants discounts, from 2015 to 2022, SLU went from $119 million to $204 million. That's an $85 million increase over the period of the last 8 reported years, 2015 to 2022. That's a 71% increase. Now, if you're not familiar with SLU, their tuition is high, really high, but justifiable in the context. At least they graduate folks. But this, this, I've said this a couple times before, this might be a college trying to get ahead of the demographic cliff. Their timing is still a little suspect. You know, and even the Perspective Data Systems financial college benchmark that Matt Hendricks and I use show SLU to be in a much stronger position than most. And I know the president, Fred Porcello, has announced his retirement, I think, at the end of this academic year. So challenges await a really strong, really strong college in terms of academics and accomplishments. Page 3, Harwick College, on the other end of the spectrum. On the other hand, as Tevyev said, in Fiddler on the Roof. On the other hand, Hartwick College, New York, I believe— Hartwick College pricing transparency. This is an internal story. Others have done this. I've talked about this before. Hartwick is announcing a new list price that is effectively the same as their old list price, less about 50% in discount. So to use numbers, these aren't the exact numbers, but it used to be a list price of $50,000 and they discounted down to $25,000, 50%. And now they're saying, hey, our new price is just $25,000, buy one and get one free today. This is just marketing trickery. History and research tell us that at best there might be a short-term bump in enrollment. And as you'll see momentarily, hard work needs much, much more than a short-term bump. Ladies and gentlemen, boys and girls, This is a desperation heave. This is a high-end hail higher education Hail Mary pass. And I'll be honest, this is a— this college, I'll tell you why here in a second, this college is not a consideration-worthy college right now. To the data we go from Matt Hendricks' Perspective Data System, the data from perspective out of science. From 2016 to 2023, the net income margin at Hendrix is lower than most colleges that already closed. Their operating cash flow at Hendrix College is trending much lower than colleges that have already closed. Their ratio of endowment value to expense is somewhat better than closed colleges, nothing exceptional. Their percent of endowment used for expenses Now most colleges draw in the 4% range, 4 to 5%, 3 to 5% range per year. In 2016, Hendrix did 5%, about average. From 2019 to 2023, they went 10% withdrawal from their endowment, another 10%, 17%, 17% again, and then 2023, whatever was left of that, endowment, 34% draw on their endowment for expenses. I have never seen that high of a draw against endowments before. I should really stop right there. I shouldn't even do the college viability stuff. If that isn't big enough reason— if those aren't big enough reasons to question the viability of Hartwick, I give up. I'll turn off the podcast and never do this again. But hey, let's look at the— let's look at the College Viability App. Endowment is down $5 million. Duh, I would expect that. It was $65 million in 2022. It's above our threshold, but it's being drawn down a lot. The enrollment was down 280, not massive, but still down. Then total enrollment was about the same. The 4-year graduation— 4- and 6-year graduation rates, that's 50 and 55%. Not good at all. Tuition and fees were down almost $9 million, $8.7 million. Their unfunded institutional grants, those tuition discounts, were down not much, $700,000. And their 2022 revenue expense ratio was 64.5. So for every dollar in expenses, Hartwick College in 2022 generated 64 cents— 64.5 cents in revenue. Total rev was down $11 million. In the same time period, total expenses increased almost $8 million. And as Matt Hendricks is fond of doing— and let's go to the accrediting agency, Middle States— the last accreditation for Hendricks was in 2019. There was a statement on the website from, from January 4th, 2024. All they did was approve a nursing graduate program. The last sentence in that approval was to note that the commission reserves the right to rescind this action if any developments reveal additional information that might have affected the commission's decision. The next evaluation visit is scheduled for 2027 and 2028. 8. Do the math in your own head. What developments do they want? What, what triggers do they need to see at Middle States to warn students and faculty and staff and community that this one's not going to make it? Yet again though, Middle States, yet again Middle States is asleep at the financial health wheel. Protecting colleges more than the students that they serve. So let me help. You know I'm a helpful kind of guy. To students and families and faculty and staff in the greater Hartwick College, New York College community, what I said at the top of the story, I'll say at the bottom. This college is not a consideration-worthy college right now. Believe me, don't believe me, the tuition reset is a joke of an effort to try and drive new tuition dollars. Revenue in my mind is a secondary concern. The big issue is that college can't keep its expenses in line with its revenue. You know, I haven't done geesh for a while. This is a double geesh, not only for Hartwick College, but that their accrediting agency is, is I gotta think they know, they're just not acting, but that's just educated speculation on my part. Got a note from Alby Salsa, who's a LinkedIn connection, and it's a story about sports and what he tried to do. I think he was citing another research. Um, yes, what impact does a successful football program have on enrollment growth? And there's a correlation he found. Here it is. He looked at the top 10 winningest big school FBS programs from 2000 to 2020. And he found that if you were not a top 10 winning football program, your enrollments have dropped about 3%, 2.8%. If you had a top 10 winning football programs, top 10 winning football programs, your enrollments from 2000 to 2020 have grown by 14.1%. Boise State in that 20-year period had the highest winning percentage of any FBS program. They had a whopping 80, 83% winning percentage. Their enrollment at Boise State University grew 18, almost 19%, from 2013 to 2022. Page 4, Matt Hendricks, good friend from Perspective Data Science, notes that bondholders in higher education might be stepping up their game. We've talked about bondholders quite a bit on this podcast. He cites and then shows part of bondhold— parts of a bondholder's updated requirements for college. He named the college. Here's what it included. The bondholders for this unnamed college— he knows the college, he just didn't post it, that's fine— unaudited financials. They wanted to see student enrollment stats. That's interesting. Year-over-year student demand reports— I don't know what that is, but it's interesting— next year's budget and assumptions behind that— that's always important because Lord knows what kind of dartboard numbers are thrown out there— and updated financials compared to the budget. None of these, Matt notes from this story, none of these were part of the original set of covenants. Now this makes sense, and as I have shared at least a few times on this podcast and other places. When the story is finally written on this higher education period of closures, we will read by someone somewhere, somebody's many places, that it was the bondholders. At the end of the day, it was the bondholders lowering the financial boom on these colleges when they couldn't make payments on their bond debt to the bondholders. Now Colleges don't want to admit they can't pay off their loans. They blame financials and enrollment and competition, the pandemic, and anything else they can cite that makes them appear victimized by circumstance. And let's go, you know, I've never had a state on my frequent flyer list on podcasts. Why Wisconsin's trying hard. This story is from Kimberly Withall, WTHAL, and Wisconsin News on September 21st. Enrollment declines at 5 University of Wisconsin System branch campuses. Now initially, she's— what she writes, this is Kimberly Withall. Initially, the UW System did not plan to release enrollment projections. They just said it would just report the enrollment data at the parent campus level, University of Wisconsin-Madison. But the media organization— I was media organizations and I was not one of them— media organizations, however, pushed for the release of the branch campus data, and the Wisconsin system provided it last Friday the 20th, I believe. And the media organization expressed concerns about transparency and the ability of prospective students to make educational decisions, and that's why I think the Wisconsin folks release the enrollment data. Now, it doesn't matter what the 5 colleges are. This is, this is a systemic issue in Wisconsin, and Wisconsin continues to be an interesting state for college financial challenges— closures, cutbacks, layoffs— for both public and private colleges. And wrap this up, and the St. Louis Cardinals were eliminated from the National League Central race, I think, leaked last week sometime. Bad year again for the Cardinals, because at least two in a row. And to try and stem the perception that it's not a bad year, the Cardinals regularly promote this, you know, I say we're up to August and September. The Cardinals regularly promote the number of tickets sold to a game, tickets that could have been bought months ago, not reporting the actual number of fans that showed up on game day to buy beer and hot dogs. And colleges are doing the same thing. They're reporting enrollment numbers. They're not sharing the revenue associated with those enrollment numbers. And we all know that the pressure on colleges to discount price, to discount tuition, is intense, despite the countless Google Alerts I get with colleges pronouncing their fabulous fall 2024 enrollment. I'm standing tight because, well, I have seen probably hundreds of these announcements. There are thousands of public and private colleges, and the focus should be just on private colleges now. There are thousands not saying our enrollment is great. And as we have heard from many sources, and I repeated this, about 1 private college per week has closed, has announced their closure this year. It's slowed down a little bit over the summer months. I still think come October that number is going to start trending up toward where we get to 2, and in a worst-case scenario, 3 colleges per week, probably all private colleges, 3 private colleges per week throwing in the towel. And before— it will be for the many, many reasons we've talked about on this podcast and in the other media that I've done. We'll see, we'll see for sure. Until next Monday, my name is Gary Stocker with This Week in College Viability. For College Viability, I'm Gary Stocker. Take care. Thanks for listening. I'm always grateful, and we'll get together again and chat about higher education next week on October— whatever October day that is next week— and we'll talk then.