Small colleges refuse to grasp 'their true financial situations,' expert warns

Multiple factors combine to form a serious threat

Colleges are running on unsustainable business models—and faculty and administrators are remaining willfully ignorant—Aden Hayes, executive director of the Foundation for Practical Education, writes for Inside Higher Ed.

Inexpensive online programs, falling government funding, and shrinking demographics together form a serious danger for the hundreds of institutions that:

  • Enroll fewer than 1,000 students;
  • Have small endowments;
  • Depend on tuition; and
  • Have low retention rates and yield rates.

Recently, Marian Court College announced it is shuttering its doors.

One school closes, another lays off staff amidst recruitment crunch

"The shock is not that the college closed—it is that no one saw it coming," Hayes writes. Schools will continue to close, she says. "What all have in common is the lack of a full grasp of their true financial situations."

Administrators, trustees, and faculty members may say they "did not recognize the looming threat," lacked data, or failed to asked relevant questions.

Instead of hoping things will improve, faculty members should break from their tenure-track research and take the time to learn about debt overhang, bond interest rates, and deferred maintenance to better understand their institutions' situations, says Hayes.

Schools at the most risk have:

  • High acceptance rates paired with low yield and completion rates;
  • Large tuition discounts used to increase yield;
  • Falling enrollments; and
  • Increased numbers of administrative positions to comply with federal regulations.

Additionally, they have "hidden" financial issues, such as:

  • Low gains on endowment;
  • Dependence on endowment gains;
  • Spending all of tuition revenue each year;
  • Bonds due; and
  • Deferred maintenance costs.

Usually, schools respond to these changes by cutting services and departments, laying off staff, selling buildings, or reducing salaries. But those very changes could eventually mean a drop in credit rating and loss of accreditation—followed by closure (Hayes, Inside Higher Ed, 6/26).

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