This Week In College Viability (TWICV) for April 15, 2024

Tax Day 2024 has arrived, and so has the April 15th This Week in College Viability podcast episode. Hi, it's Gary Stocker back with more higher education news and commentary. This week's top stories include why, why are financial statement auditors not giving us a heads up on troubled colleges? I will share the results of my research on recently closed colleges and what is not in their audited financial statements. We'll talk about if a college is an actual college or it's just a tuition collection agency. Keystone College is our case study.

There is some delusion from Notre Dame College supporters, justifiably so.

I'll talk about that. Northland College, bad educational leadership. I have some details with that. Reporters is next door. Reporters still don't get the financials, okay? Colleges they cover. I've got some tips for them. And the college closing crisis finally makes it to CNN. These stories and more on this episode of This Week in College Viability. And as always, we start off with layoffs, cutbacks, and closures. Goddard College closing— I had that story a couple weeks ago— due to financial struggles and declining enrollment. As always, I will have the links to all these stories in the show notes. And before I go on, thanks to those of you who send me these announcements, like the college closures or the layoffs, the cutbacks. I do have a Google alert, really lots of Google alerts for college closures, but your links usually beat Google by a few hours. So I'm grateful for those of you that send me those links. Please feel free to continue to do so. The best bet is probably through the LinkedIn messaging system. Next is Cleveland State's board signs off on next step for faculty and staff buyout offers. University trustees approved plans to tap into reserves to cover those costs. And that's a story from Signal Cleveland and Amy Morona on April 9th. Eastern Gateway College— I believe that's in Ohio— to begin dissolution in June.

That's a continuing story.

There have been issues over the last many months. I think I missed this one a little bit earlier on. And then finally in this section, University of North Carolina Asheville makes staff cuts as the $6 million deficit is expected to grow to $8 million. And that story is from Ira Seaton in the Asheville Citizen-Times on April 12th. And of course, the link will be in the show notes. To get the commentary started this week, I want to again talk about going concern.

And I referenced this a couple weeks ago, and this is from thestreet.com. But a going concern—

a little academic lecture here from the college professor— A going concern refers to a business having the financial resources to continue operating for the foreseeable future, and that's usually the next fiscal year.

So what is a going concern?

Again, this is from thestreet.com.

A going concern is an accounting term—

it's kind of inside baseball—

an accounting term that refers to a business's ability to remain operating with available financial resources, at least in the short term, and without the immediate threat of shutting down or having to liquidate its assets to meet its financial obligations. When a company prepares its financial statements— this is the company itself and its auditors— it's assumed that that company, in this case colleges, will continue to operate in accounting parlance, accounting parlance, and accounting terms as a going concern. That means it'll stay open.

Going concern means a college will stay open, and the default is auditors assume that a college will stay open.

If auditors have concern about a college staying open, they're supposed to note that. So PricewaterhouseCoopers and Librand, the website PwC, they say the emergence of substantial doubt about a reporting entity's ability to continue as a going concern is the trigger for providing footnote disclosure. Notes, really, for each annual or interim reporting period, management—

college management in our case—

should evaluate whether there are conditions that give rise to substantial doubt. That's important. Substantial doubt within one year from the financial statement issued. So here's the research. Here's the going concern story. This is research I promised a couple weeks ago from bestcolleges.com. I looked at the 2022-2023 audited financial statements of 14 closed colleges— now those are colleges that are closing in 2024 already, or in the future, or planned for 2025— of those 14 closed or closing colleges, 9 closed with no financial statement reference to a going concern warning. In other words, the financial statement did not say we have concerns about this college staying open, and it closed. But the financial statement didn't note that. There was— there were 4 cases where the going concern was noted, but only after the college had announced their closure, nothing beforehand. And then of those 14, just once in those 14 was going concern, staying in business, noted before the closure announcement. I believe that was Southern Birmingham College down in Birmingham, Alabama. And I did a little bit more research, and I looked at 5 troubled colleges. Now I know who they are, but I'm not going to use the names yet. And of 5 troubled colleges that I looked at, the growing concern was noted in the financial statements of 2 of them.

I'm going to do a release on one of those soon.

And the growing concern was not noted— there are no issues in colleges clearly in financial distress— in 3 of those financial statements. So here's what I offer. Here's what I would offer. While few students, few faculty members, few faculty, staff, board members, or community community leaders read college financial statements. Those of us who do read them and report on them have some concerns. So my question is to those good folks and organizations that audit the financial statements of private, mostly, and public colleges: how can a college close and your audited financial statement not give us a heads-up warning that that college may not continue to stay in business as a going concern, period.

Sheesh, single sheesh.

Keystone. Keystone College submits required closure plan as a precaution. This is from Joshua Oculum on Friday, April 12th from Fox 56 WOLF-TV. And students quoted in the article—

I'm going to read this verbatim for the most part.

Students at Mr. Oculum from Fox 56 said, students we spoke to said they were concerned when they got this letter. There was a letter the college sent out about a teach-out agreement. They were concerned when they got the letter but understood it as a precaution. It's okay, like I get it, they're taking precautions just in case were it to close down, but I don't believe it will. I like Keystone. I think it's a good school. And there's a freshman quoted. I'm not going to use the name.

You can look at that on your own.

The student continues, at the point in, at this point in time, I'm just going to wait until it gets confirmed or denied. But as of right now, I'm not too worried about it. To the delusional out there, including the student and others, let's go to the data. We always do that at College Viability. And I'll start off with a biggie. In 4 years, about 30% of students at Keystone College graduate in 4 years. If you and I were to walk on campus and count the first 100 students that we see, only 32 would graduate in 4 years. And what's even worse, only 44 would graduate in 6 years, 2 more years. Not even half the students at Keystone College graduate in 6 years. That's That's not a college. That's, that's a tuition collection enterprise. Some of the data highlights, you know, their expenses are higher than their costs. Their FT enrollment is down 300 students over the last 8 reported years. They admit 82% in 2022. That falls in the category of have a heartbeat, will admit. The admissions yield is still down 14%. Their full-time retention rate is a pathetic 64%. Their average net price is down over $4,000— good for the students over the last 8 years, not so good for the college. Their total tuition and fee revenue is down over $4.5 million over the last 8 years, and their endowment for college is not even couch money at $4.5 million and change. Page 3: Notre Dame College release states that there is no pathway to keep the school open, but supporters still believe there may be. This is from Jeff Piotrowski, uh, special to cleveland.com. And there's apparently a group associated with Notre Dame College— I think it's mostly alums— this group is trying to raise either $14 million or $25 million, no one knows which is needed, to cover the debt that Notre Dame College has. Now, lots of back and forth in the story, and the link will be in the show notes. But here's the statement from Notre Dame College. The sum of money, whether it's $14 million or $25 million, that sum of money, however, if they were to even raise it— and they haven't, the bank is pushing back quite a bit, as the story suggests— it gets us past the current crisis but would not guarantee that the school would be able to remain open in the future. After years of efforts— but I'll add in really short notice to the students and faculty— after years of efforts No pathway remains for Notre Dame College to stay open after this school year. We remain focused on supporting our students through this time of transition, the statement ends. It's not just Notre Dame College. I just got off the phone before recording this podcast with an alum of a college that's not gonna make it, and they're trying to find a way to save the college. And as I usually am, I was blunt. And I shared, it's over, over, but you know, it's all over with the announcement. And that's the same case. Well, Notre Dame College has made the announcement, folks. There's two— I'll talk about this briefly later on. It's back to economics. I've talked about this time and time again. There are way, way, way too many college seats out there and not nearly enough students willing to pay for those seats. You cannot alter the basic law of supply and demand.

There are no programmatic changes that will materially impact new net college revenue.

And in the category of educational leadership— bad educational leadership, I won't even use the word I have in my notes here—

Wisconsin College— of course we're talking about Northland College— teeters on the brink This is in Northland, Wisconsin. And they're just throwing it against the wall at Northland College. The folks were blindsided by the pre-closure announcement. And so campus dorm, they're trying to convert, you know, these folks are trying to look at converting campus dorms to public housing, maybe cutting some faculty positions and reassigning others. They have been positive and productive in conversations taking place. Among the board, leadership, faculty, and campus groups, the president of Notre Dame College says they're listening and when they get a chance, they'll give us an update. And this is probably the same kind of stuff that should be in a handbook. Maybe I'll create this handbook. And the handbook would read, the title of the handbook would read, What to Say When Stalling Before Your College Closes, because that's all that's going on here. This is the same thing I have heard, we have heard from almost every other college that ultimately closed. Please, please, please, to the folks at Notre Dame, to the folks at Northland College, the light switch is over there by the door. Please turn it off and let your students and faculty and staff and community get on with their lives, get on with their existence. Too many seats, not enough students willing to pay for those seats, and no amount of couch money cost-cutting, quarters in the cushions, will change that economic law of supply and demand. Page 4: The financially distressed New Jersey City University needs a partner, but which university can afford to take on the school? And this is really a story mostly about reporting.

And this is from Joshua Rosario in the Jersey Journal on April 14th.

The link out that'll be in the show notes is behind a paywall, so heads up on that. So New Jersey City College, City University, financial trouble has been on the radar list for a while, and there are options. And, and Joshua Rosario reports 4 options: Keene College, Montclair University, I believe, and Rutgers University. Rutgers, I'll put put off right away. If they want a charity case, they can have New Jersey City University. They're not going to want to do that.

So let's focus initially on two of the recommendations from—

that come out of the end of the story. And these are from experts. I'm going to have to use the modifier 'leads' because they're not doing their homework. And let's focus on New Jersey City University and Keene. Both, as you've heard me say many times before, have low graduation rates. They have— they both New Jersey City University and Keene both have decreasing undergrad and grad enrollment. Their long-term debt combined is more than $400 million. Retention rates are in the mid-70s, not awful but not good.

Total operating revenue decreased $16 million between the two, and combined state appropriations were up, increased a combined, let's call it, $10 million from 2015 to 2022. Now Montclair was the other one, and they're in better position for sure.

Um, their FTE, their full-time equivalent enrollment and grad enrollment, is up. Their 4-year graduation rate is at least approaching 50%. Their state appropriations, interestingly, are up $25 million compared to $10 million for the 2 colleges above.

And interestingly, expenses are also up $58 million at Montclair. I don't know what's going on there. And they've had enrollment growth that's only been modest.

And finally, the non-operating revenue to operating revenue. For every dollar of operating revenue that Montclair gets, they get 95 cents from the, from public agencies, from the government.

It is $1.44 for New Jersey City University and Keene.

So for example, for every dollar, for every dollar in operating revenue that New Jersey City University gets, they get for $1.44 in revenue from the state.

Now, long-term debt was featured in the story.

Uh, New Jersey City University is at $154 million.

This is long-term debt, not short-term.

Kean is at $274 million. And, and here's what I really wish from this. This is a reporter story. I really wish that the three experts— I guess, I guess I could use the word allege based on the work they didn't do— the 3 experts quoted in this article, I wish they'd actually look at the financial picture of these instead of regurgitating textbook clichés. Reporters, if you want an objective look and be able to compare these colleges, drop me a note at gary@collegeviability.com. I'll send you a courtesy link to the College Viability app so you can compare the colleges. This one doesn't meet the threshold for a geesh, but, but I'm tempted. St. Norbert College, back in the podcast today. St. Norbert College explains new program offerings amid enrollment decline and budget deficit. This is from Andrew Merton in Fox 11 on April 9th. And here's all— they listed 12 new majors that St. Norbert is going to start to rescue themselves from oblivion. And the 12 majors are the majors you see most every college in trouble list. As I have shared before, there are— I'm going to say no, there are no programmatic changes that will materially impact the need for new net revenue The only guarantee for these 12 new majors is startup costs, whatever they may be. And it's not going to work. It hasn't worked other places. It's too late. The die is cast. There are no programmatic changes. It goes back to Economics 101, law of supply and demand. You can't change the laws of economics with new majors. And then at last, CNN— Althea Jones on CNN notes in a headline that small private colleges are struggling to keep their doors open as declining enrollment leads to financial instability. Thank you, CNN, for jumping on the bandwagon. The story itself is trite, but the fact that it posted on CNN is a big deal. The wave is out there. I'm going to talk about that as I wrap things up here in a minute. The wave is out there and it's, it's crashing down as we speak. And an editorial. This is from the Bar Montpelier Times, August, on April 13th. And the editorial reads, news this week is further proof that higher education is in crisis. We can talk about the CNN story from before. Boards and— and let's talk about Goddard College. Boards and administrations have tried for decades to find ways to keep Goddard College sustainable, but it couldn't beat the inflationary pressures demographic changes and shifts in educational preferences that it and other colleges have faced. Schools have grappled with the shift toward more career-oriented training and a decline in the number of college-age students. I couldn't say it better myself. It's not just Goddard. It is small private college after small private college, and I'll talk about that more in a minute. Wheeling University president suspended with pay. And the Wheeling University— this is Wheeling, Virginia, West Virginia— a university board of trustees announced that President Ginny Favetti was relieved of duties, and they had issues with the Higher Learning Commission in 2021 for not having sufficient fiscal resources. There you go, like, get rid of the president, that'll fix things. That was a sarcasm alert, by the way. Birmingham Southern. For those of you at colleges who— and you just got a bad feeling in your tummy that things are not going well— here's something that should spur you to action in some form or fashion. Birmingham Southern announced their closure a couple weeks ago, and the headline by Hannah Denham at alabama.com reads, Birmingham Southern to Lay Off 213 Employees 'Without severance pay, no funds are available,' the headline reads. So let's wrap this episode up, and I want to remind the listeners— first of all, thanks for listening—

I'm going to remind you of the two consolidation phases that higher education is going through. The first one is the closure phase. We're in it now.

It's probably been going on since sometime around 2017. And it's noted by the closure of private not-for-profit colleges. I'm leaving the for-profits alone, I'm leaving the publics alone.

It's noted by the closure of private not-for-profit colleges to the tune of about one per month, not quite one per month, since 2017.

That phase of small college closures is probably going to be with us for another year or two. Best guess, best educated guess, because I'm, I may be the only one that looks at this stuff on a on a macro basis, day in and day out, week in and week out.

The second phase of this consolidation phase will start the large-scale merger phase. Many colleges in this phase that barely survived the closure phase that we're in now will move to consolidate their academics and operations, and I'm predicting into mergers of 10, 15, 20 colleges just to get to scale. And I'll make the point that geography, I believe, will have little if any bearing on the merging colleges for obvious reasons. Technology makes proximity less important today than it did 10 or 20 years ago. These colleges in this second phase will want to make sure that they are protected in the next phase of college closures because there will be another one. They want to make sure that they are protected in the next phase of college closures and the model of stand And they don't want to be part of the model of standalone private colleges that will be coming to an end. You won't see any 500, 1,000, 1,500, or very few 1,000, 1,500 student-enrolled colleges in the coming decades. Am I correct?

Probably, probably.

Here's why, and this is standard supply and demand. We've talked about it many times. Too many too few students willing to pay for them. And every other industry I can think of has had substantive consolidation in the form of mergers and acquisitions. Now colleges will probably have very few acquisitions. They just don't have the cash to do that, unless industries or companies who want to control their pipeline of future employees want to get involved and they want to start to acquire colleges, educational institutions, to create sort of a a vertical market, vertical control of their future talent. Stay tuned, stay tuned. A fascinating period of higher education is in front of us now and will continue for many, many years ahead of us. Until next Monday when we do it again, this is Gary Stocker with College Viability. Thanks for listening. Let's do it again next week.