TWICV special edition with Dr. David Evans

It's This Week in College Viability, a special edition with Dr. David Evans. We'll introduce him here in a second. Hi, my name is Gary Stocker, and of course here at This Week in College Viability, we do our regular Monday news and commentary stories, and we often have special guests, which we have today. And our special guest is Dr. David Evans with a history at Southern Vermont College. Dr. Evans, welcome to the podcast.

Thanks, Gary. I'm really glad to be here. This podcast is full of important information and full of important insights, so I'm glad to be able to be a part of it today.

Well, excellent. So let's jump right in. It's not really an elephant in the room, but Southern Vermont College was really part of the leading edge of what has become a regular occurrence, sadly, private not-for-profit college closures. Yours at Southern Vermont was in 2019. Now, you had the benefit of a few years, Dr. Evans. Talk about that historical perspective. Talk about your assessment of higher education as we start the 2024-2025 academic year.

Sure. Well, Vermont has been a demographic disaster for quite a long time. Lots of outmigration. A lot of the residents of Vermont are part-year residents who live there for recreational reasons. That sort of thing. So the declining population there was really an issue and kind of ahead of the demographic bust that's supposed to come in a year or two. So that, that was part of it for sure. The other thing about Vermont in general, which leads into the broader context of the US as a whole, is a lot of the small colleges in Vermont, there were a lot of small colleges in Vermont, there are quite a few fewer now than there were 10 years ago. But the, the problem there was that most of the schools in Vermont are very small scale. And so even a small dip in enrollment generates tremendous problems with cash flow and finances. And so, so we were at the leading edge of that because all the schools involved, and this was SVC and St. Michael's and Green Mountain and Goddard and all the others were, you know, just a few students would start making a difference. And so what we're seeing is that is spreading throughout the country where schools that have been at least functionally able to continue are having these small dips and are in situations where even a few hundred thousand dollars makes the difference between going forward and closing. And so we're seeing that all over the place now, especially again in the Midwest and in the Northeast where the demographics are really bad. So we just experienced in Vermont what is now happening everywhere just a few years earlier. And I am a little surprised in the current circumstances, I'm a little surprised that we are not having a larger wave of closures with the expiration of COVID money and particularly with schools that rely a lot on auxiliary revenue. And this is mostly housing because at SVC, for example, our housing revenue was pretty close to half of our revenue. And during COVID if we'd had to refund our money, our housing money in the spring of 2020, I think that probably would have gotten us, even if we hadn't already been closed, because we would have had to refund more than $1 million in auxiliary revenue that would have ended our cash flow. So I think we may start seeing a little more of that this year. I mean, there was a little bit of a surge last year But I think there may be a little bit more coming this year, which will very much bear watching. Yeah.

And I said many times in the last many months that about 1 per week private nonprofit closure this year, I think it's going to bump up to about 2 to maybe 3 per week for a few months, in large part because of the FAFSA debacle.

Yeah. Yeah. And here at my current position, which is a very small public university in Oklahoma, we have had some impact from FAFSA, but the university is pretty affordable and we have a lot of aid that is awardable without FAFSA. I mean, we have a lot of Oklahoma money and things like that. And so we've had a little bit of an impact, but I think schools that really rely especially on discounting and on Pell, there's going to be a lot bigger problem. Yeah.

Now, your creditor when you were at Southern Vermont was the Northeast Commission on Higher Education. And I regularly challenge all creditors, not just Nechi, as not being much more, Dr. Evans, than I-dotters and T-crossers. Yeah. They, Nechi back in 2019, in February 2019, said it would take up the matter, it's February 28th, to a 2019 meeting, noting that Southern Vermont College risked not meeting institutional standards for institutional resources.

Right.

It appears to me that Southern Vermont was caught by surprise. Is that accurate?

Well, this is actually kind of a complicated question. What surprised me and my leadership team, and I had a great CFO, who is now, by the way, the mayor of North Adams, Massachusetts. So she ended up doing something very interesting after. What surprised me was that they leapt straight from just monitoring to withdrawal of accreditation. We were never, never on probation. And I initially thought, and she did as well, that we would be probably put on probation. Looking back on it now, what I think probably should have happened is that they should have put us on probation earlier. I mean, it's pretty clear that they should have put us on probation earlier. And I think they were at this point, I mean, this was early in this whole situation, as you've suggested. And I think they were pretty reluctant to put institutions on probation because that would possibly hasten the demise of some of those institutions.

Absolutely.

Which it might have done. But honestly, in my situation, or what I, looking back on it now, think is it might have given me a little bit more space to deal with our board, for example, and have a little bit more direct conversations with the board about the situation. And honestly, I mean, that was partly, that was my mistake. I mean, I will, I will own that. I should have I should have done it anyway, probably. But I think that Netschy should have come in a little bit earlier and waved the flag a little bit earlier. And that it is possible, although I would not bet on it, that that could have enabled us to do something better.

Interesting. Now let's go hindsight because we all know hindsight is a fabulous tool. So in hindsight, You know, let's think about the responsibilities of those 6 regional higher education accreditors. You were dealing with NECHE at Southern Vermont. Would you give, what kind of guidance would you give those accreditors now in 2024 and 2025? Because there's still some hesitance for them to say you're not in good shape. And I often worry, are they protecting colleges and or are they protecting students?

They are a lot protecting colleges. They are also protecting students, but maybe not as well as they could. And you could see some of these, like with the Philadelphia Art School, for example, you know, that clearly was on some level a massive failure of the middle states. I think they do have the ability to do it, although I would say I've spent most of my life in net-she and HLC schools. Have only had direct experience with those, very little with SACS also, but they're extremely different organizations. I mean, NECHI is like a little village and the HLC is this giant conglomerate. So there's, there's a little bit of a difference. NECHI had something called the Annual Report on Finance and Enrollment, which they would require inquire of schools that they were concerned about financially. And SVC had that the entire time I was there. We'd been doing it before. And it was pretty elaborate. But I, but I don't think it was necessarily asking the right questions. And what I think it was, you mentioned a little bit about box checking earlier, and it was kind of a box checking exercise. And what I would say is what the accreditors need to monitor primarily is they need authentic, legitimate cash flow projections. I mean, I think that's the major thing that they need. They should be getting reports on any violations of loan covenants or bond covenants. And they should be probably working a little bit more closely with budget planning forward-looking rather than backward-looking. But I think that the thing at SVC, we had good cash flow projections because we were, you know, kind of living hand to mouth. I mean, we'd been living hand to mouth basically forever, but we were living hand to mouth. And so we had cash flow projections that I think we could have worked with and we would have been willing to do it, but we weren't going to do it if we weren't asked. You know, this is the other part of the problem, which could have enlightened Nechi more probably. Because again, it's like you're running your own personal budget, right? And if you are living paycheck to paycheck, you are watching that cash flow really closely. And we were always watching that cash flow really closely.

I want to go back to the UArts because you mentioned that a minute ago. University of the Arts in Philadelphia just closed suddenly late last May, early June. They gave like one week's notice. And then comment on this for me if you would. I'm increasingly believing, and UArts was part of my thought process, that when the history of this era of private, private non-for-profit colleges closing, it will come out that that bond issue and those broken covenants were kind of a behind-the-scenes factor in many, if not most, of these closures. What do you think?

That's absolutely correct. So I started at SVC in January of 2015. So I came in the middle of a year, middle of a fiscal year. And one of the first things that happened was when we closed the books in June, we were in violation of our bond covenants. And There are a lot of things that happen when this happens. For one thing, if you are in violation of bond covenants, it's almost impossible to do any kind of refinancing. So in terms of improving your cash flow through refinancing, that basically goes off the table. Another thing about it, and this was at least partly peculiar to SVC, although it wouldn't shock me if other schools were in this situation, we had a third-party guarantor on our bond and we owed at that time around $7 million, I think. And the third-party guarantor had a $2 million guarantee fund with our lenders. And so when we violated the covenants, we ended up having meetings with the bank and their lawyers and with the third party and his lawyers. And the problem with that is we were responsible for paying all those legal fees. And people who put up a $2 million cash loan guarantee have a tendency to hire expensive lawyers. So we had our legal bills, the bank's legal bills, and the guarantor's legal bills. And over the course of the time that I was there, from the summer of 2015 through the closure of the college, I haven't actually done the math, but I have a pretty good idea that we probably spent close to half a million dollars on lawyers for that situation. And that's money that just is otherwise completely useless. It doesn't pay salaries, it doesn't mow the lawn, it doesn't do any of those kinds of things. And So that was, I wouldn't say that was directly the precipitating cause of SVC's closure, but that was a really important part of it. And we couldn't get, not only couldn't we refinance our loan and, for example, take out the third-party guarantor, which would have been really helpful, but we also couldn't get any grants because nobody, no grant granting agency will will give you money in that circumstance. And so that was another part of the problem. I mean, we'd never been a huge grant getter, but there were things that we could have offset with grants. I mean, we had a historic building as the main building on campus, which was massively expensive to run and needed a lot of deferred maintenance. And we could have gotten historic preservation grants. It was on the National Register, so, or it is on the National Register, so we could have gotten preservation grants to do things, but that immediately was off the table. And so it's kind of a cascading problem. Once that starts happening, you lose a lot of flexibility.

And I want to kind of look ahead a little bit. And my operating premise is that we are in kind of in the high-volume wind-down phase of college closures. I think that the peak will hit in the next year.

Yes.

And it will wind down after that. So the next phase, I think, will be some significant consolidation.

Yes.

Because you and I and most of the listeners will know that very few colleges are engaged in any serious, substantial, materially significant negotiations or plans to consolidate. And David, I make the case, Dr. Evans, I make the case that Every other industry I can think of has gone through a period in its industrial cycle where there have been substantial consolidations. So specifically, my question is, I write a lot about this large-scale consolidation in higher education, 10 or more colleges, probably private, maybe some public-private combinations. Am I stupid or is that realistic?

You're not stupid at all. I mean, what I will tell you is that in Vermont, in the period that I was there, there were a lot of really serious conversations about mergers and consolidations and things like that. And the one that everybody knows about, of course, is the consolidation of the three state colleges and the Community College of Vermont. The first version of that, for example, however, did not merge the athletic programs. And so Lyndon and Johnson both still had their own athletic programs, which was not a good choice. I mean, that, that, that one, so that wasn't going to work. I mean, pretty clearly, I don't know how the current one is working, but that was a problem. But in Vermont, and, and I think this, this is probably true in a lot of places, except for example, in the Buffalo area, let's say, or in the Boston area, um, in Vermont, uh, one of the problems that we had and we talked about quite a lot among the presidents in the Association of Vermont Independent Colleges was just the simple logistics of it. You know, you're driving across the mountains in the snow for half the year. You know, it puts a lot of people at risk. Lots of challenges there. And that's just the kind of structural part of it. Then there's the ideological part of it, which is colleges tend to cling pretty fiercely to their identities, and which is completely understandable, right? I mean, that's, that's where they come from. But what that does is it makes things very, very difficult to think about. And you could see the controversy about Marlboro College, for example, which was just an extraordinary institution. And I knew the president very well. We were friends. And they just, there was no way to do anything with Marlboro College without just really irritating basically all of their constituencies, you know, and they were, and they were, they were losing a lot of money, you know, their endowment went down from $40 million to $22 million or something like that in a few years because they were just paying operating out of, out of the endowment. And Kevin Quigley, the president at the time, he and I talked about this a lot and he just said, you know, we just can't keep doing this. We're going to, we're going to run out of money. We're spending almost twice what we're bringing in. That was a consequence of their educational model, but, but it was just not doable. And we, we did, and there's an NDA, so I, I can't say who, but we had very serious conversations about a merger that I think would have potentially been really appropriate. But once again, we just, we couldn't make it work. And I think if we'd had more time, we might have been able to make it work. And I, but that was a situation where there was a new president at the other place and the previous administration would not have been interested in that conversation. At all. And the new president was, so we started right away, but it was at that point, there just wasn't a way to make it happen. So this is a very complicated thing, but I think you're right about consolidations when they're physically feasible. I'm a graduate of one of the Claremont colleges, which is not exactly a bunch of mergers, but it does do a lot of things that a merger would do. Lots of shared services, shared library, which is incredibly expensive, as you know, lots of things like that, which is, I think, enabled the Claremont schools to act even richer than they actually are. You know, but it's one of the reasons why they have, have kind of gone from strength to strength in the last 50 years is because they are splitting a lot of those expenses. So when there's a way to do it, I think it's smart. And as I say, for example, Buffalo could do this. But Iowa, where I've also spent a great deal of time, I'm not so sure. And again, it's physical distance, weather, you know, all those kinds of things that would make it hard.

Interesting. Kind of change the tone and direction of the conversation a little bit. Now, College Viability, which of course is my firm, I think is part of a growing business community of higher education, what I call higher education data entrepreneurs. Mark Salisbury at TuitionFit, Matt Hendricks at Perspective Data Systems, Ashley Kern at Sightline and others. And I make the case, Dr. Evans, that higher education is in its Moneyball era, just like the old Oakland A's started this way back in the 1990s, I think it was. Since many colleges appear to be unable to share financial data, I'll just leave it at that. Since many colleges are unable to share important financial data, do you see data entrepreneurs like I just shared with you impacting higher education like Billy Beane did for baseball and Bill James did for baseball back 20 years ago?

Yeah, I mean, I expect that there are a lot of small private colleges in the United States that wish they were the 1990 Oakland A's. But I think there's an opportunity there because very few small colleges have the overall capacity to do the kind of analytics. And I know people are very ambivalent about consultants, but I think one of the things you do with consultants is rent capacity that you can't afford to buy. And I think that that is something that's pretty smart. I think the challenge really is that financial data is sort of a lagging indicator because you're always looking back. And it goes back to what I said about cash flow projections at the front end. I think that we should all be thinking hardest about cash flow projections. And also back to your question about debt, another leading indicator there is whether or not you have a line of credit and whether or not you can still use it. Because a lot of schools struggle during the summer because I tell faculty a lot when I'm explaining budget to them, I say, look, imagine you got paid twice a year and your first paycheck had to last 4 months and your second paycheck had to last 8 months and they were both the same size. How would you do it?

That's good. I like that.

You know, one of the nice things here, I'm at a public school now. One of the nice things here is we get our allocation from the state monthly. They don't just give us a lump sum at the beginning of the year or a lump sum at each semester. We get a monthly allocation. So you have the cash flow situation is a little bit different. But I think that people who are looking at analytics have an opportunity, I think, to help change that. And I think it has also bringing in outside people to work with presidents and boards on thinking about these kinds of issues probably is good. Because again, as I say, even if you have a super good CFO, and there are a lot of really good ones, there are a lot of bad ones too, but there are a lot of really good ones. You know, if you have a 1,000-student college, say, that CFO is going to be doing a lot of things and deep, complicated, long-term analytic thinking is probably not at the top of the pile. And so I think there's an opportunity to do that and to do some optimization for sure. But the other side of this, and I just, sorry, this is a long answer, but I think that it's really important, is a place like Southern Vermont College with around 400 students, first of all, it doesn't have economy of scale. Secondly, it probably doesn't have a lot of free resources to pay an analytics person. And thirdly, there is honestly pretty much no way to cut the budget. I mean, we looked at it every year and there wasn't any place where we could go that would yield us, say, I mean, our total budget was about $12.5 million. There was no place we could go to save, let's say, $400,000. There simply wasn't $400,000 of excess in that budget. There just wasn't. I know people talk a lot about how we waste money, but there was not extra money in that budget. And so cutting our way to prosperity, which pretty much never works anyway, but it wasn't even an option. I mean, there was simply no way. I did cut my salary voluntarily. My contract said my salary could never be cut. I waived that clause and I cut my salary. A couple of the other senior leaders did as well. But the faculty had effectively had salary cuts anyway because they hadn't had raises for several years and that sort of thing. So there just was no capacity for any of this.

So Dr. Evans, let's head to the mountaintop.

Yes.

And you're going to go to the mountaintop. I'm not going to go there with you. And you're going to stand on that mountaintop and you're going to give guidance to every small— make it this way. Every college president— no, I changed my mind. Every small non-for-profit college president out there is going to— they're all going to listen to your words of wisdom. What are the top 2 pieces of guidance you would give them in large part based on what you saw at Southern Vermont and the 5 years since?

Yeah, I mean, the, the absolute core thing is liquidity. Everybody should be looking at liquidity. It's deficits matter and cause problems that we've already talked about and things like that. But the core thing is liquidity. And as long as an institution is liquid, you at least have a chance to institute some reform. So I think that's a really, really core part of it.

Interesting.

And that goes back to, like I say, the cash flow analysis, bond covenants, all those things are things that should be looking at. I think the other thing is that there's been a lot of talk on your podcast and elsewhere about the impediments to being honest about an institution's financial situation. And especially now, I mean, this has become significantly worse in the last 5 or 6 years because of the wave of closures that the market is much more aware now of the fragility of especially small private colleges. And I think consumers, which is to say especially parents, but also students, are looking at things like deferred maintenance. I mean, I think 10 years ago, if you told a bunch of prospective freshmen and their parents, you know, check out the tuck pointing on the brick buildings, they would have said, you know, what are you even talking about? But I think now people are really, really actually looking at that. But I think that at whatever level of discussion circle seems appropriate, I think that We need to be more transparent internally with what's going on. And again, at SVC, maybe we could have activated the wisdom of the community to do something. I'm not convinced. I mean, I've seen places where a group comes together and really does figure out a way to solve the problem. But again, the fact that we had almost no, during my entire time, we had almost no room to maneuver meant that there really wasn't a lot we could do. I hate to say that, but I think it's really true. And I hope it's not a cop-out, but I do think that, I mean, I definitely should have been a lot more explicit with my board of trustees than I was. I expected them to sort of know from looking at the materials and everything like that. So I never outright said, look, this is really, really difficult and problematic and we gotta think harder. If I were in the position again, I would do that. In my subsequent position, I was the interim president of the American University in Bulgaria. And I was there, I went for a year and I ended up being there for 4 years and 2 months. We were in a lot better shape financially, but I was much more direct there because I just, I didn't want to see that again. And I said, you know, these, as we were doing strategic planning and things like that, I said, you know, these are the things, this is what it's going to cost. You have to know that before you commit to it as part of a strategic plan. You really have to understand what the implications communications of this are. So that's something, and I'm doing that here too, you know, with our faculty. I'm trying to say, you know, we're a state institution, so it's a little different, but I'm saying, look, these are the things that we need to do. This is the situation, you know, let's do that.

So one of the things we were talking about before we started recording the podcast this morning was all of the, we have great enrollment public relations announcements that have been coming out. And I'm operating under a premise, and we'll see this develop here shortly, that there may already have been, Dr. Evans, a market shift from privates to publics because the students and families are thinking, you know, I've seen something about college closures and I don't wanna take any chances with that, so I'm going to state U. That's a gross generalization. And that's not really my question. If you're a parent, if you are a 17, 18-year-old thinking about that college choice, from your perspective, what guidance would you give future college students and their families as they consider private colleges for their education?

Well, one of the real problems, and you, of course, know this and have said this many times on your podcast and in your posts on LinkedIn and so on, is that all the publicly available financial information is a couple of years behind. And that's a real problem. So that's one part of it. So you can't really tell, and especially over the last few years when the impact of COVID has been very unpredictable. And you're right, I think we're going to see more of this during the course of this year. But there was no way to do— I mean, I remember sitting around doing budgets for academic year 2021 and 2021-22, and there was no precedent that we could use to plan. So that's a bit of an issue. But I would say seriously, look at things like deferred maintenance. I mean, you can tell if the bathroom, the public bathrooms are in good condition and, you know, the roofs aren't falling off and stuff like that. You can tell. I think that's part of it. I think asking the question at the admissions office isn't going to get you anywhere. I mean, there are a lot of good reasons for it. Maybe it's wrong, but that's not going to happen. So, but I think you can look at some other things and you can, I mean, asking parents to look at Form 990s is, you know, sort of insane because even if you've been living with them for a long time, you you're not going to be able to figure them out very easily. But I do think, and this is a place where Massachusetts has been kind of a leader. I think the states or the accreditors or somebody probably could do better on public information. But in the meantime, as I say, I think you can see if you go to a campus whether it's okay or not. Interesting.

I would not have thought of it that way.

Yeah. And I think that's one of the things. I mean, I suppose there are some very shiny campuses with a lot of bright new buildings and things that are having problems. But I think that, I mean, the schools in Vermont that I knew about, I mean, wonderful campuses. Green Mountain College had a beautiful, beautiful campus. But if you know anything about infrastructure, you could tell that it hadn't been very well taken care of. And those things I think are indicators. Other than that, I don't, I honestly, I don't really know because there's not a lot of transparency. And again, the transparency that there is is a couple of years out of date.

Yeah. Yeah. And that's a sad commentary. And I guess the last question I guess is now we haven't talked about it specifically, but this is an economic issue in my mind. There are way too many colleges and college seats and not enough students willing to pay whatever discounted tuition that is offered. So you really can't create massive new marketing programs. You really can't make programmatic changes to save things. What's— how do you save? I'll be honest. How do you save a small nonprofit private college, mostly in rural areas?

That's a really good question. And if I had the answer, I would be a wealthy consultant. I mean, I hate to laugh about that because it's really true. And the the problem, I mean, the core tragedy of all of this to me is that the colleges that are closing for the most part, and this was true at Southern Vermont for absolutely for sure, are the ones who are serving high-need students, the ones who are serving first-generation students, the ones who really, really can have an opportunity to thrive at a small place that has a degree of personal care for them. It is not so true at certain other kinds of institutions. And so this is the worst possible scenario for social equity and things like that that I can imagine. I think that nobody else is, there's not going to be another Southern New Hampshire University. That spot is taken or Western Governors or a place like that. So I think appropriate niches, one of my previous jobs, I was the Vice President for Academic Affairs at Buena Vista University. University in Iowa, which had a pretty solid endowment and a good adult degree program. But one of the things that they've done since I left was added things that are related to agriculture. And it's in Storm Lake, Iowa. It's out in the middle of northwest, empty northwest Iowa, surrounded by pretty much nothing but farms. And this makes a lot of sense, right? This is a niche that makes sense for them. Here at the University of Science and Arts of Oklahoma, we're working a lot more closely with the native tribes in our area, of which there are a lot, to try to find ways to serve them better and partner with them in various ways. That's another one that I think makes a lot of sense. So I think that's the thing that you need to do is find what you can really do that's different from your competitors, what you can really do that works for you. And that you have the resources to execute in a good way and do those. I think that's about it. And I think, again, I've mentioned Buffalo a number of times because I'm somewhat familiar with it. But if you look at Buffalo, there was all those small Catholic colleges up there, which are not massively different from the outside. And so, they're, some of them are just going to go away. I mean, they all, Medai, for example, already has. Um, but they're just not, their value proposition isn't clear to their audience. And I think that that, that's what you've got to do is make that value proposition clear to your audience and execute, execute, execute, uh, fix the things that you can fix, uh, and I mean, I hate to say this because it sounds so stupid, but just hope for the best. You know, do everything that you can that makes sense, but then you just also, some of these things are huge structural waves that are not going to go away. And we just have to figure out what to do about them.

My guest today has been Dr. David Evans, who lived the trauma of a private college closure 5 years ago. And it's just, has shared some perspective that I think, David, very few others have. Dr. Evans, thanks for making time for us today. Your perspective is important.

I'm really grateful to have a chance to talk to you because this is such an important issue in higher education. So thanks so much, Gary.

My pleasure. And until next time, my name is Gary Stocker with College Viability and This Week in College Viability.

Good day.