This Week In College Viability (TWICV) for August 5 2024

Gary (00:01)
Hi, it's this week in College Viability for August 5th, 2024. Good day, everybody. Hi, it's Gary Stalker. You know, the end of July and early August produced a really slow news week in higher education. My Google alerts on the many higher education topics that I have alerts set up on, it produced more alumni obituaries than anything else. But then Forbes...

released their 2024 financial grades for private colleges over the weekend. Hallelujah. And I'll go into great detail about the article from Forbes and its meaning for higher education. The headlines Valprezzo eliminates over two dozen programs. Goddard College announces yet another sale of its campus to a local nonprofit. We'll talk about that briefly. Massachusetts starts free funding.

for community colleges starts this fall. We'll talk about the unintended consequences that will almost certainly produce. And then as I mentioned, we'll talk about the Forbes article in great detail. Stay tuned, we've got a lot of content coming your way and a lot of things to make you think about where higher education is headed in the coming months and years. Valparaiso in Indiana to eliminate over two dozen academic programs, and this is from Higher Education Dive.

It's also going to cut faculty positions but did not specify how many. Now it's the same story that we've talked about many times. The Provost, Eric Johnson, cited the university's declining enrollment in the fall of 2022. The NIAM prophet enrolled not quite 3 ,000 students and 10 years ago they had just a little over 4 ,000 students, so down a little over

So as we always do, let's go to the data. And again, this data is from iPads. The application I use is a 2024 college viability app that if you don't have a copy, you need to get one yesterday. So at Valparaiso for the periods 2015 to 2022, the last year's reported in iPads, the tuition fees are down over $30 million. They have a really strong, at Valparaiso they have a really strong four -year graduation rate above 60%.

almost all private colleges and public colleges don't even come close to touching that strong endowment of 300 million plus. Their unfunded institutional grants, call them discounts, was up 7 million. Now that's over eight years, so up about a million per year, not quite a million per year. I've seen a lot worse, but it's something to keep an eye on. And they knew they had problems because their total expenses over the last eight reported years were down some $14 million.

Now, I'm going to ask the why wait question because I ask it regularly for colleges that all of sudden think they need to cut back programs, lay off faculty and staff and other cost saving methods. But I sense from what I'm reading that Valparaiso tried. Tried to reign in costs. And the big picture issue here is this is a really high quality, really high quality private college based on its graduation rates.

but it's having the same financial challenges as the many, many lower quality private colleges, those that can't even graduate half their students in four years that I talked about previously. So it's not a surprise to me that

colleges unable to graduate students are having financial issues, but Valprezo is not one of them. They've got something good going and yet they still face financial challenges. They're looking at eliminating over two dozen academic programs. It concerns me they're not sharing what those are, but I think we'll see those come out in the coming weeks and months as well. Page two, Goddard College, goodness gracious. Goddard College announces.

yet another sale of the campus to a local profit. And you'll recall that previously Goddard had a sale and it fell apart. Interestingly, this time Goddard did not state the sale price. It was to a local nonprofit. And you'll recall that when they did swing and miss previously, the offer was about $3 .4 million and that fell apart for reasons unknown. And as I commented back then, the $3 .4 million seemed a reasonable offer.

that they are not sharing the amount this time concerns me that somebody is getting a deal good for them, but that the creditors at Goddard may not get what they expect to get from the sale of the assets of that college. A story in the athol, ATHOL Daily News is in Greenville, Massachusetts. Alexa Lewis posted this on August 4th. And the headline reads, a generational game changer, state funding free community college starting this fall.

So the story talks about the new Mass Educate. That's one word, Mass Educate, -A -S -S. It's included in the state's fiscal year 2025 budget, just one year. That's interesting. And it sets aside $117 million in change. Listen, to reimburse community colleges statewide for the tuition and fees of their students.

Now the reimbursed part is something I'm gonna keep an eye on because that means the costs that the colleges submit will be reimbursed. I didn't read or see any restriction on how colleges are gonna price their tuition. We'll see how this one falls apart. And no doubt that having the tuition costs at community colleges has great value for many students, for many good students. And the article does tell a couple of stories about some students who will benefit and good for them, God bless them.

It's not free. Well, it's free for students, for sure. There's no question about that. But it's not free for some high wealth taxpayers who are going to get a 4 % surcharge on their state income taxes to pay for this program. right. Politicians do that. That's what they're going to do. But it's not free for everybody. the look that I want to take on this is what's going to go wrong. So from a previous program for adult students, I think it was those over 25 years of age.

there was a 58 % increase in adult enrollment for a similar program for adults. And you get what you pay for. You know, you want an expensive car, pay for it. You want an inexpensive car, you pay less for it. With no cost to students, it's reasonable to assume that some number of them, I think a substantial number, will realize they have nothing invested, no proverbial skin in the game.

And they may very well, in some significant numbers, treat this freebie as such. It will be interesting to see what happens with the graduation rates, which are already pathetic across the country for community colleges. And let's take another look at this. What happens when the demand, temporary though it may be, results in higher wages for faculty? Other Massachusetts colleges start paying higher wages to keep their full -time and adjunct faculty.

It's reasonable to assume that the labor costs, the faculty labor costs throughout Massachusetts will go up. I wonder if that was included in the one year $117 .5 million allocated. And let's assume for a second that some percentage of these new freebie students have not developed the academic and intellectual wherewithal from high school.

to do community college work. What happens if the already pathetic graduation rates at community colleges in Massachusetts drop even further because they have more going in and the same number or fewer going out with a degree? Does the state of Massachusetts ask for its money back from those students who don't graduate? Well, you and I all know that's not gonna happen. And this is as much a social

welfare program as it is a career preparation program. Just like we see, just like many have written about other social programs, there are some who use the funds wisely. And that will certainly be the case here in Massachusetts. But there are many, many, many, who do not. And I don't doubt for one second that some small percentage of these freebie students will take solid advantage of this program. Good for them. Good for them.

They will go on to have careers, good careers, with good compensation, and will contribute to their communities. But please, the folks in Massachusetts and the political leaders in Massachusetts, don't believe this will solve the higher education problems in your state or anywhere else. Free just doesn't get it done. Page three, Forbes.

Every year Forbes puts out its financial grades. Now they usually do it in late winter, early spring. It's interesting they put it out in August of this year. And here's the headline. Deciding where to apply this fall? Forget your prospective college's football team. The financial health of your target school is more important.

than ever. Emma Whitford from Forbes wrote this. I'll have the link in the show notes for sure. And really, this is a validation piece. This is a validation piece for the work we do at College Viability and of course, at many other higher education data entrepreneurs and their businesses and their financial models and their visualizations.

And I'm going to go through this Forbes article in some detail, in part because it's behind a paywall and many of you won't have access to the content. So it starts off with, and I'm paraphrasing here, the financial health and viability of colleges is never mentioned on the list of must haves by college students and the families. It just doesn't and it still isn't. But Forbes says it should be, but it should be, say. For any student, Forbes writes,

Emma Whitford writes in forms, for any student who wants to spend their college days on the same campus, especially if that school is small to begin with, and I would add private, selecting a financially sound school is more important than ever. And of course, that's why I created the college viability app. Susan Schaeffer, who's the vice president and senior credit officer at the rating agency Moody's.

Talks about things we already know. America's thousands of colleges will be fighting to woo a shrinking pool of potential freshmen. It'll be much harder to meet the enrollment targets in the coming years. know that. We also know that the funding stimulus has dried up and inflation is raising the cost across the board for colleges. And Schaeffer adds that many schools are operating in a deficit. We know all these things, but it sets up where I'm going go with this. Now, before I go any farther, Matt Hendricks and I...

Matt is from Perspective Data Science. Matt Hendricks and I are starting a new video series every Tuesday starting August 6th tomorrow to more clearly show and analyze private college finances. The video that we'll do will include Matt's new visualization tool along with my college viability data. Matt's new visualization tool that shows close to real -time cash positions. Let me say that again. Matt's visualization tool because of the technology he's applied

shows close to real -time cash positions. And I talked about this last week. This is something that nobody else that I'm aware of, nobody else does. So let's look at some of the data from the Forbes story, from Emma Whitford's story. Of the 876 private not -for -profit colleges that Forbes analyzed, 511 have a primary reserve ratio of one. Right, that means they don't have much cash.

So of the 876, 58%, 511, couldn't cover their operating expenses in fiscal 2022 for even a year. 511 out of 876 private not -for -profit colleges could not cover their operating expenses for even a year in fiscal 2022. Now, colleges that depend on tuition fees,

To cover most of the expenses, we know are going to be the most vulnerable to the demographic shift, and Whitford talks about this. Just over 470 schools, she cites, 55 % on the financial grades list. 470 colleges rely on tuition and fees to make up 70 % or more of their core revenues. So no tuition, no fees, big time struggles. Again, we know this already, but just setting up where this article is headed and what I want to talk about.

Fred Prager, who's a higher education finance expert, and he's a senior managing director at Hilltop Securities, he's quoted as saying, and the fiscal, the financial cliff is associated, the Roma cliff is associated with falling off the edge, and you're going to have, Mr. Prager says, you're going to have eight years of hell. This is from Fred Prager, who's a higher education finance expert.

at Hilltop Securities. He goes on to say there's going to be a lot more closures, duh, and consolidation. And I've talked about both a lot, of course, because there's just not enough liquidity, not enough cash at these institutions, Fred Prager says, about the coming few years.

Now Ms. Whitford has two other sources that I'm gonna talk about. A 2022 report from the National Student Clearinghouse, its research center that looked at 467 college closures between 2004 and 2020. And it showed that more than 143 ,000, that's 143 ,000 students who were impacted by those closures of those 143 ,000 students, some 70 ,000.

just bailed on college. Less than half, 47 .1%, re -enrolled at another institution. This just reinforces what Forbes is saying, what I am saying, and what many others are saying in this day and age. It's not the college. It's not the college name. It's not the college sports. It's not the tuition fees. It's the college's financial health that should be at the top of the selection criteria list.

because many more will close, many more, many have closed already. And then the second source of misfit for quotes is from the government accountability office and found that students who transfer institutions, whether of their own volition or closure, lose an average of 43 % of their credits, almost half when they switch colleges. Now,

All right, and she quoted the source. I'm OK with that. My gut tells me that 43 % is a little high because I think the market is in the period, maybe in the process of adjusting after this GSA, Government Accountability Office report. I think that's high, but still a large percentage of credits have to be taken over when students transfer either from closed colleges or for other reasons as well. And the article suggests

even more applications, they step up to this, more applications are headed to the top 50 colleges. As the market, as students, as families become concerned about the financial health, increasingly concerned about the financial health of colleges, more of the academically and intellectually capable will apply to the top 30, top 50 colleges, the Ivies, the Ohio States, Illinois, Michigan's, USC's, Texas.

Maybe. I believe we will see a massive move to public colleges, both the land -grant colleges and the regional publics.

because the market, and it's probably true, because these publics are financially more secure, in large part because of their tax subsidies. And I do note in the college viability app, the public college version, many of them show, most of them show their operating revenues from tuition and fees has gone down, but they're still subsidized by tax revenues from a variety of sources. So the students who moving on to campus in the fall, in this fall,

will be part of the, in theory, graduating class of 2028. And again, we know from previous podcasts and all sorts of postings I've done that more than half of public and private colleges in the United States don't even graduate half their students in four years. That's the tragedy that nobody but me is talking about. anyone, Forbes says in their article, anyone who wants to spend their four years on the same campus with the same friends,

same professors, same programs would be wise to pick a college with strong operating revenues and balance sheets. Use the college viability app, it doesn't use those terms, doesn't use those revenue pieces, but it still shows the story of which colleges are financially healthy, which ones are not, and those at greatest risk of closure. One other topic in the story.

Mr. Prager talks about colleges waiting until the last minute to close their doors, shut their doors. And he talks about there's a natural force that exists on college campus. He says it's like gravity. It's immutable, Mr. Prager says, and it's called denial. Denial by faculty, says, denial by staff, by the board of trustees, by students, by alumni.

they just can't believe that the school is in the difficult financial position it's in. He concludes, the only thing he has seen, Mr. Prager, that shakes people out of this is the liquidity crisis. And by that time you can't make payroll. It's too late. And now here's the final fact.

Only private colleges with at least 500 full -time students were included in the Forbes financial grades. And in fairness to Forbes, including them in a really negatively skewed, the already bad data. So what I did, I went out to the college, the 2024 private college viability app, and I found 144, that's 144, 144 more privates with enrollment between 200 and 500. And there were many more with less than that, I didn't include those.

144. If those were included in the Forbes data, this would be a story even worse than Forbes already wrote. Many, many more would present with a bleak financial picture and bad Forbes financial grades. Credit to them for not going that low because already the story shows what a bad

bad financial shape the higher education scenario is in. Let's wrap this podcast episode up with this final quote from the Forbes article. About 55 % of the schools or more than 480 earned a C or worse.

20 as the X in pairs to only 20 % in the fiscal 2021. So almost three times more, see or worse in 2022. And this was a time when there were pandemic funds still available. 100, the article goes on 182, that's 182 schools earned a D, the lowest possible grades. They don't give Fs. That's up from 20.

In fiscal 2021, that's a nine times nine -fold increase on the number of private colleges who earned a D in the 2022 fiscal year of the 2024 report. And it's past time to think about this, long past time to think about this in the abstract. Colleges in almost exclusively private

in large numbers have closed and will continue to close. And the closures have been and will continue to be traumatic for the students, their families, the colleges, faculty and staff and communities. And as these colleges close, where will the students go? As a generally risk averse society, like I shared earlier, I believe a really large percentage will go to public colleges.

the land grants and the regionals. The public just will continue to recognize that publics are financially more secure. There will be some unintended consequences for any mass movement toward publics. I can't even begin to fathom the number and depth of those consequences, and I'm not going to do that today. I have written and talked about this previously, but let me say it again. The market opportunity for privates, those that survive,

will be in large -scale consolidation. Mom and pop mergers of one or two or three colleges will not be sufficient to get the academic and non -academic scale needed to compete.

10 or more private colleges will be needed to get to that scale. And probably the best model will be the one I've mentioned previously. It's being done at Linda Wood University. created a holding company model. Colleges join the university system. They keep their own identity, but are better positioned to scale costs and even revenue opportunities.

And on those many somber notes, let's call it a wrap. I'll be back next Monday with another This Week in College Viability podcast on higher education news and commentary. Thanks again for making time to listen. I'm Gary Stocker for College Viability. Until next time.