This Week In College Viability (TWICV) for June 24, 2024

Gary (00:01.171)
It is Monday, so it's another podcast episode of This Week in College Viability. Good Monday to all. I am Gary Stocker, working hard to be your college financial quality control resource. I wish there were an acronym for that. Hey, top headlines this week. Cash is king at Lindenwood University.

The second story that I want to talk about, will we do protests really impact enrollment that much? Emerson College says it does. The University of the Arts in Pennsylvania is, the closure is still a mess there, we'll talk about that. Ryan Craig, who has one of the best higher education newsletters out there. His newsletter over the weekend was entitled, The Financial Responsibility Emperor Has No Clothes. I'll spend a lot of time on that. And finally, college sports is not.

is not a cure -all for enrollment and financial issues. Concordia College in Ann Arbor, Michigan is eliminating all of their sports after going all in in years gone by. Let's start off as always with layoffs, cutbacks, and closures. The headline reads, Lindenwood University to layoff staff and cut positions amid enrollment fears. It was from Blythe Bernard in the June 21st edition of the St. Louis

post -dispatch at Lindenwood University, indeed laid off 12 staff and two faculty members in part of an effort to cut 10 % of the operating budget. The story also reads another 40 or so open positions at Lindenwood will not be filled. Now, full disclosure, I'm an adjunct at Lindenwood University. I know a number of the leaders there, but my own analysis doesn't need those relationships. This is a college.

This is a college getting ahead of the FAFSA impact. News reports from across the country suggest the deposits are down about 10 % from this time last year in many, many locations. Cash is king. We're seeing the colleges that are closed do so because they run out of cash. And this university, Lindenwood University, is preserving its cash now.

Gary (02:13.811)
So it doesn't have to beg or borrow like so many private colleges have in the past and I fear in the future as well. Now, Leonardwood University has $200 million, not quite, $200 million in unrestricted cash. It's got small, if any debt. In 2022, there are 5 ,000 plus students and they already have a holding company set up to scale the academic and non -academic operations of colleges that will provide value. And I know for a fact from my relationships that they seek those kinds of partners.

all the time. I really believe almost every private and many public colleges would do well to preserve cash now like Lindewood is doing in the face of what is almost a certain negative enrollment impact from the FAFSA debacle that's coming our way this fall. Here's what's going to happen. Here's what's going to happen this fall. Those whose undeclared strategy is hope and hope some more

will find themselves scrambling to preserve cash, just like Lyndenwood is doing now, only they're not scrambling, they're getting out ahead of it, they're proactive to be trite. There will be, in my opinion, there will be few who follow Lyndenwood's approach, but not nearly enough. Hampshire College out of Massachusetts.

cuts staff benefits citing financial problems. Now this is from WGBH TV and radio, Kirk Carapazza. WGBH .org is the news source. Of course, as always, I'll include the links in the show notes. Hampshire College announced cuts to staff benefits just months after the school's leaders said it had recovered from enrollment and financial problems. Five years ago, some of you may recall Hampshire's money problems forced it to consider either a merger or a potential closure.

documentary filmmaker Ken Burns of Civil War and I think an MLB documentary, and other alumni tried to stem the crisis by raising funds. And it did temporarily, it looks like, secured the college's future. Now the college is suspending staff retirement contributions and implementing a year -long pay cut for senior leadership.

Gary (04:29.139)
The college said the measures are necessary due to slowing enrollment and federal delays in processing the FAFSA. Now, all right, not big cuts. I'm sure it's not pleasant for the folks involved, but it does kind of reinforce the notion that I see way too often in higher education that colleges will take a morsel of good news and make it seem like a feast. And that's what happened here.

at Hampshire College, and we've seen other places as well, and that's not good. Emerson College reveals low enrollment numbers, partly the headline reads, partly due to pro -Palestinian protesters. This comes out of Breitbart .com and Elizabeth Weibull on June 19th. And I guess the college is saying it's enrollment deposit devise passed, all right.

and they share that the enrollment projections are significantly below what we had hoped. This is from Breitbart and Elizabeth Weibull. The email also, the emails to faculty and staff, attributed the low enrollment numbers to multiple factors, all right, which included data showing national enrollment trends, along with student protests and negative press and social media generated from those demonstrations and arrests, among other reasons.

However, due to the low enrollment numbers, the communication went Emerson College will be conducting layoffs. Now, I don't know. This is a nicely spun, nicely written article trying to cover all of the bases, certainly enrollment issues associated with demographics, with FAFSA, with general downward trends in higher education. It seems like a leap to think that social protests

or a serious contributor to enrollment and revenue shortfalls. Certainly some folks got ticked and said not sure, but I can't imagine it's a big deal. It's possible, reasonable that the leaders at Emerson are looking for a potential scapegoat in the event things go really badly with enrollment and revenue this fall. Time for a closure, Union Institute and University based out of Cincinnati, I think with a couple of other locations. Interesting approach, they resigned their accreditation.

Gary (06:51.155)
And the headline reads, resigns accreditation likely to close later this month. And this is from Chelsea Sick at S -I -C -K at WKRC, Local 12 on June 18th. This is in Cincinnati. And indeed, Union Institute and University did close, announced its closure this past Friday. That would have been on June 21st. The financial leadership history at Union has been a mess for a long time. I'm not gonna go into the details.

And this one has been a no brainer prediction for quite a while. Onward we go with terminations, cutbacks, layoffs, and closures. Cornerstone University, it's an interesting headline. It's from John Fay at currentpub .com. And the headline reads, Cornerstone University, response to our story on faculty cuts and the termination of humanities and arts programs. All right.

I went to the data and the College Viability App, the 2024 version, Private College Viability App, the executive analysis version, and the data from Cornerstone from 2015 to 2022 from the National Center for Education Statistics and its iPads database enrollment is down 600 students.

about 31%. The four -year graduation rates are hovering around 50%. Not great, but I've seen a lot worse. Interestingly, their revenue to expense ratio was 1 .05, which means for every dollar in expenses, they had five cents in extra revenue. They had a dollar five cents in revenue for every dollar in expenses. And the tuition and fees was down about 4 .2 million. So probably not doing a bad job managing revenue and costs, but yet they are...

Terminating a lot of programs, not new. And the financial statement, I looked at that. It's not bad. By reading all the articles, my read, my take on this is the leadership debacle. I think I'm going to use the word debacle a lot this year. The reporting reads like a soap opera series. Maybe they'll make one to drive some revenue. I'll keep half an eye on this, but I don't know that Cornerstone U is part of any particular financial trend. And then finally,

Gary (09:04.115)
Page two, trusting God, furloughed employees, guide Clark Summit University through a financial crisis. And this has both interesting and kind of impressive news. This is from Sarah Hoffius Hall, WVIA News. This was on June 16th. And what's happened at Clark Summit is they furloughed everybody. All right, before we go on, the data says down 400 students, down 36%.

Tuition fees flat for the last eight years, actually down about 800 ,000. Graduate students down about 30%. And the endowment is not even couch money for higher education, it's 2 .6 million. Retention is not good at all, 60 % on average over the last few years. And the four -year graduation rate, the data was so bad, it was all over the place, from decent to pathetic. I don't think they're submitting that correctly. So I don't consider their graduation rates reliable.

And then one thing that I do want to comment on, two things that I do want to comment on. In the story, in the story from Sarah Hopfius Hall, WVIA News, she talks about the University of Shorites. The University also plans to launch programs in growing fields, including cybersecurity and computer science. All right, aren't we all? And the folks.

The folks at this university at Cornerstone acknowledge they don't pay market rates. Well, that's good to acknowledge that.

I think when you talk about adding programs like cyber security and computer science, right after you have furloughed all your employees, you're not really recognizing the cost associated with that and the revenue stream. If there is any materially significant revenue stream, it will be a long time in coming. In my mind, it's delusional management. It's cost versus revenue versus quality. But another gist of this story,

Gary (11:04.339)
is about the good people and employees of Cornerstone. They're engaged in an act of faith, and this is a religious organization, a religious college. They're engaged in an act of faith to try and keep their college open. Absolute best wishes to them. What a moving story that is that they're trying, and the story includes all sorts of individual stories about employees stepping up to keep the college going this fall. In this market,

I just don't know that it's realistic. All right, it's time for the first story of many, of three I have, on the University of the Arts closure. In middle states, it's a crediting agency, will extend UArts, that's a nickname for the University of the Arts, will extend UArts accreditation in a very limited circumstances and student academic records will be preserved, officials said, and for the most part, that means diplomas.

for those graduating this year have been sent out. And then in June 14th story, this was from Kristin A. Graham in the Philadelphia Inquirer, and they've been all over this story at the Inquirer. Here's the headline, University of the Arts lacks the cash to pay employees money it owes them under federal law. Now, it's been almost a month, almost a month since the Middle States Commission,

on higher education in the middle states, let us know that the University of the Arts in Pennsylvania was having its accreditation pulled.

It has become so bad at UART in the closure process that Middle States felt obligated to go to the college to host what I'm going to call a lack of information sessions with students. Such an action in my history, my experience and my understanding, such an action is unprecedented. And maybe, this is educated speculation on my part, maybe Middle States is feeling guilty.

Gary (13:03.987)
but not giving UArch students and faculty a viability heads up. I'm gonna talk about that in more detail a little on. And now, of course, we find out that UArch does not have the money to pay faculty. In a statement from the college and the article in the Philadelphia Inquirer reads the university lacks the cashflow to comply with laws requiring 60 days of advance notice, they gave seven, and pay before mass layoffs, union officials said in a statement. UArch laid off 613.

employees the day the school closed on June 7th. And remember, an announcement of the closure was given, I think, on May 30th. It's unclear. The article goes on when and how much those employees will pay. Now let's step through. I'm going to do a little math here, a little college math. Let's step through what we do know because morsels have come out. The debt was $40 million. This is the source for the board member, unnamed board member at the University of the Arts.

The school's bond holders from the story have moved to a different trustee for its $45 million in bond debt. Now this is the first public sign of a financial maneuver since the institution, since the college closed. A bond trustee is a manager that oversees the bonds and acts as an intermediary between the borrower of the college and the bond investors.

The new trustee, the UMB bank, is known for dealing with financially troubled borrowers. So here's what I believe has happened. Just trying to do some college math here. I'm guessing the college violated some of the covenants, some of the rules on the bonds. And this is a case where the bondholders called the 45 million that I talked about a minute ago. They called the 45 million due to be paid immediately. Bondholders can do that. They don't always do it.

and the college only had about 5 million. Again, that's educated speculation on my part. And thus they were short $40 million. Maybe I'm right on that, maybe I'm wrong on that, but the math does seem logical if nothing else. But here's the big worry, really big worry. How many more times will we see this chaotic closure process in the coming weeks?

Gary (15:26.099)
and months. Big, big concern. Page three. Ryan Craig, like I said at the top of the show, has a newsletter called the Gap Newsletter. I think it comes out every week. I'm not positive about that. But the June 21st one is entitled, The Financial Responsibility Emperor Has No Clothes.

Now there's no link for this because this is a newsletter. If you want to read the article, search for Ryan R. Y. A. N. Craig C. R. A. I. G. Gap Newsletter and you can sign up for it. I guess you can get previous articles, previous newsletters. And I'm going to have a full -fledged blog post on this later. I went through every line of Ryan Craig's work and I'm going to expand on that in a blog.

And while the specific case is again back to University of the Arts and how did it lose, how did it crash so quickly? The bigger story that Ryan Craig notes is the failure of three oversight authorities, the University of the Arts Board, Board of Trustees, it's accreditor Middle States who did the lack of information session and the US Department of Education. It was interesting that Middle States, Craig noted,

was only upset because University of the Arts didn't close down the right way. If they had a clue that the collider was about to run out of money, they didn't share that with anybody. And Craig called its concern about the way closure was handled a petty inconsequential argument from middle states, again, the accrediting agency for University of the Arts. Now, I've talked about this many times before.

And I believe this is further evidence, not just first time evidence, but further evidence that we have arrived at the point where there is no reliable source to provide a timely assessment, timely analysis of a college's financial health. This is clearly, clearly where an independent financial health...

Gary (17:29.843)
and viability sources needed. And of course, those of you that follow me know that's why I created the College Viability app and there are versions for both leadership, faculty and staff. And the one I sell the most of is for students and their families. That makes a lot of sense. Something else that I want to throw out on the table. It's kind of a connection between other industries and more private industries. Why don't we start looking at

either from the accrediting agencies or legislation, I'm not sure of the source, looking at colleges, requiring colleges to issue quarterly financial statements. It's done in all for -profit businesses, quarterly financial statements. They have phone calls for the big shots to talk about what has happened, what they think will happen in the next 90 days or so. And I understand that there are financial stakeholders in for -profit businesses, but there are...

lifelong, I guess, lifelong stakeholders in colleges. It's generally acknowledged that that investment in colleges is one of the biggest investments that many, if not most of us will make. So in the coming days and weeks, I'm going to be introducing Matt Hendricks, Dr. Matt Hendricks to you. Dr. Hendricks has developed a resource that addresses the very weakness that Ryan Craig

notes for boards, boards of trustees, accrediting agencies, and the feds. He's tracking something that they either don't track or just ignore, cash. I talked about that earlier. My college viability app shows eight years of trends. Eight years from, and right now the version has data from 2015 to 2022. That's the last, 2022 is the last year of data reported. Ridiculous.

that we're already two years behind, but that's always the way it's been. I don't like it, but we live with it. Matt, Matt Hendricks has developed a process that brings multiple data sources from across the web to highlight a college's financial health compared to its peers. Now that's what the app does, but my app and his app combine.

Gary (19:46.483)
to provide the type of independent analysis that has been needed for a long time. And again, you're gonna hear more and more about Matt Hendricks and his app in the coming days, weeks, months. And I guess here's why I'm right. Here's why I'm right on track. And I give us back to Ryan Craig's excellent article. 34 schools, he writes, that have announced closure or significant cuts this year, only three

We're subject to additional scrutiny by the education department, the federal department of education. The scrutiny is called heightened cash monitoring, HCM. For the rest, it's been business as usual, Craig writes, including university of the arts. He writes that there are more important problems to solve, or the more important problem to solve is just how blind...

is the Department of Education, and I would argue the crediting agencies, when colleges are clearly showing signs of closure or acute or even chronic financial distress. Craig continues, the education department's financial responsibility, emperor has no clothes, that's the title, and neither he continues, accreditors nor boards of trustees are filling the gap. I guess that's up to me, I guess that's up to Matt Hendricks.

I guess that's up to the private market. And accreditors, Craig writes, only demand that colleges provide an audit alongside a multi -year budget. I guess I don't look at them because clearly they're not providing any kind of consistent warning across the country. Now, Middle States has been the focus this week, but there are, I believe, five or six other regional accrediting agencies across the country. We'll see what happens in the coming months.

And I guess, Craig writes this, presumably accreditors are depending on the financial wizards at the education department to make sure schools don't go under. And Craig writes, while boards are supposed to have financial experts, particularly on audit committees, when expenses, he writes, begin to outpace revenue, it's natural to want to kick the financial can down the road.

Gary (22:01.491)
rather than asking difficult questions and making friends uncomfortable. Page four. A small university, this is Concordia University in Ann Arbor, Michigan. A small university with a heavy investment in intercollegiate athletics shutters all its sports programs.

And this is from Steve Dittmore in his Substack post, and I'll have the link in the show notes. Mr. Dittmore, Mr. Steve Dittmore, Dr. Steve Dittmore, excuse me, cites a list of colleges that closed here in the last year or so with a high percentage of athletes as students. The average of these closed colleges in Dr. Dittmore's list was about 44%. So for every 100 students in these colleges, 44 of them were athletes in some form or fashion. Dr. Dittmore continues, institutions need both

athletes and non -athletes in order to operate. The criticism of division one, NCAA division one, is that students pay fees that go to athletics. All right, that's pretty well acknowledged. In some respects, Dr. Dittmore writes, D3, and I think all colleges at all, NCAA levels and NAIA levels, are doing the same thing. They're bringing non -athletes to campus and effectively they're subsidizing the tuition of athletes. I've talked about this before.

tuition dollars go into the same pot as athletes and getting its operating budget out of that pot is very difficult. There is, as I've said before, there is a cost factor for athletics that I think is being ignored. They're so focused on bringing in new students so they can say my enrollment is up. Each sport, each sport really needs to be viewed with its own P &L, its own profit and loss, including allocated costs.

Allocated costs for the president and the maintenance and all that kind of stuff. Many colleges can live with sports teams losing money. Probably most do outside of the power four, but they should, in my mind, be able to account for those losses by sport. And then another topic for another day, and I've been thinking about this one for a long time, could athletes, excuse me, could athletics...

Gary (24:14.035)
be the downfall of non -powerful colleges. And I'll get that on the podcast somewhere down the road. That's a wrap. It's very difficult, very difficult to see a strong fall enrollment for almost all public and private colleges in the United States. There's some anecdotal evidence that publics are faring better than privates, but we really won't know until early this fall.

more colleges will certainly close. And it's not just Gary Stocker saying that. And many more will continue with cutbacks and layoffs. The UArts debacle, University of the Arts debacle really concerns me. It is evident that this particular college did not have the management nor leadership chutzpah to win a college. I am concerned based on the reading, research and experience that I have. I'm concerned.

that the chaotic closure process there might start to become more common. The short notice closures, like UArts and Wells College and others, the short notice closures are starting to happen more often than closures that are announced with dignity and giving our students and faculty some lead time to move on to other opportunities. If college closures become a national embarrassment, how will that impact the industry?

How will that impact the students? How will that impact the many, many, many higher education stakeholders? And there will continue to be many colleges, many strong colleges like Lindenwood University that are financially strong and have the capacity to take in the students from closed colleges. No question. But if a public perception continues to develop that college is a financial risk for too many students,

The consolidation that I and many others have talked about in the form of closures and mergers will speed up very, very rapidly. Stay tuned for much, much more in the coming weeks and months. Hey, Gary Stocker, it's over for College Viability this week. Let's do it again next Monday. As always, I am grateful for your listening. If you have questions, send them to me at gary at college viability, one word, collegeviability .com. And I'll be certain to put those at the top of the list.

Gary (26:37.715)
for each and every week. Until then, Gary Stocker for College Viability.