The University of Wisconsin Board of Regents on Thursday approved a budget based on a $125 million cut in state funds to the system over the next year, The Wisconsin State Journal reported. Legislators and Governor Scott Walker, a Republican, have already approved a budget plan that cuts $250 million over two years and also freezes in-state tuition rates. The largest cuts are planned for the flagship campus at Madison. Most board members said that they had no choice but to approve the cuts. But one, Charles Pruitt, voted against the budget, saying that he wanted to express “profound disagreement” with state legislators who voted for the cuts in the state budget.
Moody's is considering changing the approach it uses to rate the financial health of more than 500 colleges and universities. The investors' service put out a call for comments on potential methodology changes on Wednesday.
If changes occur as proposed, Moody's predicts an updated formula will affect the ratings of about 5 percent of the postsecondary institutions it rates. The proposed changes include a scorecard that rates institutions based on their market profile, operating performance, wealth and liquidity, and the strength and diversity of their funding sources as well as their risk appetite.
Moody's rates 230 four-year public universities and university systems in the U.S., 275 nonprofit private colleges and universities, and 21 universities outside of the U.S. Combined, these organizations had approximately $235 billion of debt outstanding as of the end of the 2014 fiscal year.
The availability of subsidized federal student loans play a role in increasing tuition, particularly at less-selective private nonprofit colleges with relatively affluent student bodies and for-profit colleges, a study by researchers for the Federal Reserve Bank of New York finds. The study adds to a body of studies -- frequently challenged by higher education leaders and some economists -- suggesting that federal financial aid contributes to tuition increases by easing constraints on students and families.
Point Park University is laying off 32 employees, The Pittsburgh Tribune-Review reported. Officials did not provide details on what they called a “strategic reorganization” that “better invests and aligns resources to support the evolving needs of students.”
An article in The Los Angeles Times explores how the California State University System won an additional $97 million from the state this year. Much of the attention in the legislative session focused on the very public debate over funding for the University of California System. But Cal State took a more low-key approach, without threats of tuition increases. Instead, Cal State relied on lobbying by administrators, alumni, faculty members and students, creative use of social media, and also red "I Stand With CSU" socks (at right), which were popular with legislators.
Pennsylvania's State System of Higher Education is preparing to offer Cheyney University, a financially troubled historically black institution, a $6.5 million line of credit, The Pittsburgh Post-Gazettereported. The university's finances have been in doubt for a number of reasons, including a 36 percent enrollment drop in recent years. The line of credit is believed to be sufficient to help the university manage through early 2016. The university system and Cheyney officials are also working on enrollment and financial plans to give the university more stability.
Two neighboring performing arts colleges -- the Berklee College of Music and the Boston Conservatory -- are exploring a merger, The Boston Globe reported. Berklee, with an endowment of $321 million and more than 4,000 students, is the larger of the institutions. But Boston Conservatory -- with a $15 million endowment and enrollment of 730 -- has some academic strengths not in the broader curriculum of Berklee.
The announcement of the closing of Marian Court College, with faculty disclaimers (“didn’t realize it was as dire as it was,” and the president’s dreaming (“hopeful the college would remain open”), should pull us back to the realities that have been set out very clearly for years -- by the Bain Report, by Clayton Christensen, by Thomas Frey, by Nathan Harden, by dozens of others:
Many, many colleges are working with a business model that simply cannot sustain them, and tinkering around the edges with defective enrollment management software, combined majors, a part-time (as yet unaccredited) M.B.A., or Saturday classes is almost a distraction from the main challenges of shrinking demographics, low-cost online instruction and skills validation, and the imminent tightening of government money that has been pouring into the mix.
The problem is compounded because so many college leaders can barely discern the symptoms of the malaise and are blind to their underlying, rampant and immutable causes. It is only natural that those who have trained to manage the status quo first and foremost long for its return. In no other industry -- with the possible exception of organized religion -- is so much wealth entrusted to people so unequipped to manage it.
The shock is not that the college closed -- it is that no one saw it coming.
But Marian Court was not unique. It was among the country’s vulnerable institutions, and there are hundreds of them: tuition dependent, with enrollments under 1,000, small or shrinking endowments, significant tuition discounts, high admission rates with low yields, and low retention rates.
St. Bridget’s also fits these metrics. It is a private, coeducational, not-for-profit liberal arts college in the Northeastern U.S.: a fictional composite based on real institutions like Marian Court -- some now closed and some that will close, although they don’t know it yet.
What all have in common is the lack of a full grasp of their true financial situations.
As at St. Bridget’s, at many institutions the administration and even the Board of Trustees will claim they did not have all the necessary data and did not recognize the looming threat to the college until it was too late.
And faculty -- who work with research and analysis every day in their professional lives -- may not have asked the right questions, or did not insist on honest and complete answers.
How many could not bear to put aside that tenure-track research on Theosophy or the ring-tail lemur to learn about boring subjects like deferred maintenance, debt overhang and bond interest rates? Surely some were living on hope: “next year our enrollment numbers will be up,” or “we’re in line for that federal grant that will help us attract veterans.”
Others may simply have been in denial. (How many women’s colleges have stated categorically, “We are not like Sweet Briar”?) But questions of financial health are of vital concern not only to presidents and chief financial officers, but to all whose lives are tied to the college. And any lack of focus is doubly distressing because there exist rough but impartial guides and stress tests that are open to all and can indicate, in general terms, a college’s level of strength or weakness.
But until all constituents consider the future of the campus to be their future, we will see more cases -- certainly dozens, probably hundreds -- like Marian Court (and St. Bridget’s). And more academic professionals will be reading untimely and distressing letters like this one:
From the President of St. Bridget’s College to the College Community
Regrettably, I have bad news about the financial situation of our college.
You all know of our difficulties. Reflecting the numbers from earlier years, last year we accepted 75 percent of all applicants, but only 35 percent of those accepted actually matriculated. And we lost 23 percent of those after their first year.In order to attract qualified students to St. Bridget’s, we had to offer discounts averaging 51 percent of tuition and fees.
In spite of our best measures, our enrollment has dropped by 38 percent over the past five years. Nevertheless, the structure of the college remained the same, and we added some administrative positions to stay within best practice and the law mandated from Washington.
When I took office eight months ago I discovered that the college’s finances were not as they had been painted.On the surface, it looked like we were breaking even: just covering our expenses with tuition-derived income.
But we were misleading ourselves.
During our past fiscal year, while the U.S. stock market rose by nearly 14 percent and the average college endowment earned 15.5 percent, the St. Bridget’s endowment showed an increase of only 2 percent.
In fact, we were spending all tuition revenues and nearly all the income generated by the endowment to keep the college operating. For the past three years, as enrollment dropped, we depended on earnings from our endowment in a strong stock market just to stay alive.
We don’t know if the past president understood this, nor do we know if the question was ever raised in a board meeting.
But now the stock market is weakening. As I’d like to think you all know, following five years of nearly free funds, the Federal Reserve has decided to tighten money supply and raise interest rates. The stock market is losing momentum; our endowment is generating a fraction of last year’s income; student loans will become more costly; and even fewer parents are comfortable borrowing $25,000 to $30,000 per year for a St. Bridget’s education.
We now find ourselves with an operating shortfall of nearly $4 million for this fiscal year. We also have bonds coming due in the amount of $1.5 million, and deferred maintenance on our physical plant that will cost upwards of $750,000. If we pay all this out of our endowment, we deplete that fund by more than one-third and severely limit its ability to generate income in the future.
Moreover, within our current structural model it will be impossible to find savings of $4 million beginning in the next fiscal year, in order to urgently balance the books. To accomplish savings of this magnitude will, at very least, require radical and immediate surgery. This would mean:
Eliminating some departments
Eliminating some programs
Cutting administrative staff
Reducing remaining faculty and staff salaries by at least 20 percent
Eliminating all college contributions to retirement and tuition plans
Selling some of the college buildings
Reducing student services
Taken together, these measures might put our accreditation in jeopardy. Our bond rating by Moody’s might drop even lower, and we would be forced to pay higher interest rates to borrow or to roll over current bonds.
It is with this reality in mind that the Board of Trustees meets this weekend to make major decisions that will impact the future of the college. I ask for your support and understanding in these difficult times.
Aden Hayes is executive director of the Foundation for Practical Education.