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An arching sign reads "Monmouth University" and is reflected in water in the foreground

Monmouth continues to develop its campus while operating with almost no debt.

Michael Corsey/Inside Higher Ed

Monmouth University has spent $168 million on construction in the last decade, building new facilities and updating existing structures—all without incurring debt.

With an endowment of around $135 million, Monmouth doesn’t have deep pockets. And it isn’t just the generosity of donors alone that has allowed Monmouth to add to its campus without taking out loans; it’s a steadfast commitment to operating with little to no debt on the balance sheet.

While most financially healthy higher ed institutions tend to carry some level of debt, Monmouth is unusual in resisting the urge to borrow even as it continues to develop its campus and invest in student aid. Monmouth counts only $1.3 million in debt, which officials said is part of a state loan subsidy program. Otherwise, the balance sheet is clear, which leaders say has long been a strategic priority.

Monmouth’s Approach

Bill Craig, the vice president of finance, has worked at Monmouth for more than 40 years. He said the university first developed its approach to debt about 30 years ago, when Rebecca Stafford came in as president in 1993. At the time, Monmouth had roughly $25 million in debt.

“Her philosophy was that we weren’t going to spend everything we generated in new revenues,” Craig said.

Monmouth began building contingencies into the budget that the university would then carry over annually, allowing the development of a healthy capital reserve fund. While the university didn’t cease borrowing—its debt climbed as high as $33 million in 2010—Monmouth began to focus on self-financing projects and leveraging internal funds, grants and gifts to fund development.

Craig noted the university paid off the $33 million by dipping into funds that had been set aside, which were buoyed by donations. But officials also succeeded in “not adding debt” as they continued to make payments, he said.

When a search firm first contacted President Patrick Leahy, who was leading Wilkes University at the time, and encouraged him to apply for the top job at Monmouth in 2019, he was struck by the lack of debt he found while researching the institution.

Before he visited Monmouth, he assumed that would equal an underdeveloped campus. Instead, Leahy was surprised to see the facilities in good order. Now, as president, Leahy calls the lack of debt a “great strategic advantage” for Monmouth.

“We didn’t trade off on not developing the campus, which we need to do in a competitive environment,” Leahy said, as he ticked off upgrades in recent years, including a science building opened in 2018.

The approach—simplified—comes down to priorities, patience and strong philanthropic support, Craig said. He suggested there is a mix of financial and philosophical factors at play at Monmouth.

“First, I think that you need a buy-in from the Board of Trustees. There needs to be support there for taking this approach,” Craig said. “Then you have to set priorities, and you have to be willing to live with your priorities. There also needs to be patience. Some of these projects took us quite a number of years from the time that we first thought of it to the time that we completed them.”

The approach also requires discipline for a college to pay itself back after it dips into reserves. Ultimately, Craig said Monmouth has treated that funding mechanism “like a real loan.”

Like many small, private institutions in the Northeast, Monmouth is dealing with challenging demographics that have led to a slight undergraduate enrollment slide in recent years. Leahy noted that has meant operating with a smaller surplus, but the university continues to put funds away nonetheless.

Given the trials and tribulations of neighboring institutions, Leahy feels confident in Monmouth’s direction. He pointed to a recent $21 million donation to endow a scholarship program that will allow the university to expand its financial aid in a difficult enrollment environment.

Outside the university, others have taken notice of Monmouth’s sound finances. A news organization’s 2022 analysis of fiscal health among private universities in New Jersey declared Monmouth to be the second-strongest institution of those examined, trailing only Princeton University, an Ivy League institution with an endowment recently valued at almost $36 billion.

The Risks of Debt

Monmouth may be debt-averse, but most universities aren’t.

Colleges often carry debt loads that are paid off over time, though debt has also sunk some institutions. Cazenovia College, for example, defaulted on a $25 million bond payment last year, which ultimately led to its closure when it was unable to reach an agreement with its creditors.

Similarly, the debt load at Iowa Wesleyan University caused Saint Leo University to walk away from a potential merger in 2020. Iowa Wesleyan, which had initially borrowed $21.4 million from the U.S. Department of Agriculture, announced it would close earlier this year, citing enrollment challenges and a decline in fundraising. Iowa Wesleyan University’s campus will now become the property of the USDA.

But debt, managed well, isn’t necessarily a bad thing, experts say. It can often help institutions advance their goals or even keep them afloat through lean times as they work to generate new revenue. Still, too much debt can harm institutions.

“The rule of thumb is that a school should not have more than 50 percent of its annual revenues in long-term debt,” Jeff Spear, founder of consulting firm CFO Colleague, explained via email. “And, debt service (principal and interest) should not exceed 4 percent of the annual operating budget. Buildings built with debt add operating costs, increase depreciation expense, add interest expense and take away from spending on the educational mission of the institutions.”

Borrowing also carries certain risks.

Spear noted that when colleges borrow from a bank, they are often required to set cash aside “to cover debt payments or to ensure that they have enough cash for a number of months.” Those funds are then unavailable to the college. And there may be added fees and high interest rates.

“Debt needs to be avoided, particularly during these difficult days,” Spear said.

Spear added that Monmouth has managed to fundraise successfully for capital projects to keep debt down, and its tuition discount rate also clocks in under the national average. He credits the university with strong philanthropy and sound fiscal management.

“They are just well managed and have a solid donor pipeline,” Spear said.

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