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

Gary (00:02.286)
Next 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 our 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 a 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 of 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 its 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, or 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.

Gary (02:25.102)
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 of weeks ago. And this is from the street .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 the street .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 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 Pricewaterhouse, Cooper's and LeBron 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 of 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 plan for 2025. Of those 14 closed or closing colleges, nine closed with no financial...

Gary (04:49.806)
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 did note that. There were four 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 five troubled colleges. Now I know who they are, but I'm not gonna use the names yet. And of five troubled colleges that I looked at, the growing concern was noted in the financial statements of two of them. And I'm gonna 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 and three of those financial statements. So here's an offer. Here's what I would offer. While you students, you faculty members, few faculty, staff, board members, or 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,

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? Jeeesh. Single Jeeesh. 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 said Mr. Oculum from Fox 56 said, students we spoke to said they were concerned when they got this letter, there was a letter that 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.

Gary (07:13.07)
They're taking precautions just in case, worried 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 quota. 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 four years, about 30 % of students at Keystone College graduate in four years. If you and I were to walk on campus and count the first 100 students that we see, only 32 would graduate in four years. And what's even worse, only 44 would graduate in six years. Two more years, not even half the students at Keystone College graduate in six years. That's...

That's not a college. That's a tuition collection enterprise. Some of the data highlights, their expenses are higher than their costs. Their FT enrollment is down 300 students over the last eight reported years. They admit 82 % in 2022. That falls in the category of have a heartbeat, we'll 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 eight years, not so good for the college. Their total tuition and fee revenue is down over $4 .5 million over the last eight years, and their endowment for college is not even couch money at $4 .5 million and change. Page three, 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 Yarkowski, a special to Cleveland .com. And there's apparently a group associated with Notre Dame College, I think is 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 this story and the link will be in the show notes. But here is the statement from Notre Dame College. The sum of money, whether it's 14 million or 25 million.

Gary (09:41.486)
That sum of money, however, if they would 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 a 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. It'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 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. Teeter's on the brink. This is in Northland, Wisconsin. And they're just throwing it against the wall at Northland College.

folks were blindsided by the pre -closure announcement. And so campus dorm, they're trying to convert, 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.

Gary (12:02.958)
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. Cause 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 supply and demand page.

for 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 that will be in the show notes is behind the 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 Joshua Rosario reports four options, Keene College, Montclair University, I believe, and Rutgers University. Rutgers are put off right away. If they want a charity case, they can have New Jersey City University. They're not gonna do that. So let's focus initially on two of the recommendations that come out of the story. And these are from experts. I'm gonna have to use a modifier ledge because they're not doing their homework.

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 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.

Gary (14:22.414)
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. Their full -time equivalent enrollment and grad enrollment is up. Their four -year graduation rate is at least approaching 50 percent. Their state appropriations, interestingly, are up 25 million compared to 10 million for the two colleges above.

And interestingly, expenses are also up $58 million at Montclair. I 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 public agencies, from the government. It is $1 .44 for New Jersey City University and Keen. So for example, for every dollar...

every dollar in operating revenue that New Jersey City University gets, they get $1 .44 in revenue from the state. Now, long -term debt was featured in the story. New Jersey City University is at $154 million. This is long -term debt, not short -term. Keen is at $274. And here's what I really wish from this. This is a reporter story. I really wish that the three experts,

I guess I could use the word alleged based on the work they didn't do. The three experts quoted in this article, I wish they'd actually look at the financial picture of these, but instead of regurgitating textbook cliches, reporters, if you want an objective look and be able to compare these colleges, drop me a note at garyatcollegeviability .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 jeesh, 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 the listed 12 new majors that St. Norbert is going to start to rescue themselves from a billion. And.

Gary (16:44.878)
The 12 majors are the majors you see most every college in trouble list. As I have shared before, there are, I'm gonna 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 gonna 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, laws 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 gonna talk about that as I wrap things up here in a minute. The wave is out there and it's crashing down as we speak. And an editorial. And 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, 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 inflationary pressures, demographic changes, and shifts in educational preferences that it and other colleges have faced. Schools have grappled with a 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. Withing University.

Gary (18:54.19)
President suspended with pay and the Wheeling University, this is Wheeling, Virginia, West Virginia, a university board of trustees announced that President Jimmy Favetti was related to duties and they had issues with the higher learning commission in 2021 for not having sufficient fiscal resources. And there you go, like, get rid of the president, that'll fix things. I 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 of weeks ago, and the headline by Hannah Denham, Hannah at Alabama .com, ale .com, reads, or 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 gonna 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 guest, best educated guest, because I'm...

I may be the only one that looks at this stuff 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.

Gary (20:57.902)
their academics and operations, and I'm predicting the 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 emerging 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, 1000, 1500, or very few 1000, 1500 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 college seats, 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 cast 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 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 Stalker with College Viability. Thanks for watching.

listening. Let's do it again next week.