This Week In College Viability (TWICV) Special: Will a Federal Bailout Save Private Colleges?

Gary (00:02)
Hi, it's Gary Stocker. Welcome to a special podcast of This Week in College Viability. It is our first panel discussion and it's on a topic that may come streaking into our higher education vocabulary this fall and the streaking phrase may be federal bailout. And the experts and visionaries that have joined me today are Joe Salustio, who is with Ellucian and is well known for his the EdUp Podcast Network.

He was really the first I saw to suggest a federal bailout of colleges as a possibility. Joe, welcome.

Joe Sallustio, Host and Co-Founder @ The EdUp Experience (00:39)
Thanks for having me, Gary. And it's great to see you. And I think I'm supposed to say that I love you, man. You're doing a great job out there.

Gary (00:45)
Never ever practiced that one before. Sarah Holton is the founder of High Level Leadership and is an Associate Dean of Arts and Sciences at Carroll University. And Sarah is one of the best podcast question askers in the business. Sarah, always a pleasure.

sarah holtan (01:03)
Gary, I take that as a true compliment from you and I hope I live up to that today. I'm looking forward to the conversation.

Ricardo Azziz (01:03)
I think that as a compliment from you and I hope I live up to that today. Looking forward to the conversation.

Gary (01:09)
Excellent. Dr. Ricardo Aziz, I looked at your bio, Ricardo, and there were 4 ,000 words describing what you do. And among your many, many gigs is you are the director of Center for Higher Education Mergers and Acquisitions and a principal at SPH Consulting Group. Ricardo has one book on higher education mergers and acquisition, and I believe has another book coming out soon. In my mind, the top higher education &A guru in the country, Ricardo.

You have busy days. I'm grateful you made time to join us.

Ricardo Azziz (01:41)
Gary, thank you for having me and some would argue that I just have difficulty holding a job. So there you go. That's why it's a big resume.

Gary (01:50)
And Brian Rosenberg, Dr. Ryan Rosenberg was the president at McAllister College in Minnesota, I think for 21 years, Brian, something like that. He published a book late last year with what I think is the best title ever. And the title of that book, whatever it is, I'm against it. Brian, how are you going to top that with your next book?

Brian Rosenberg (02:12)
Gary, I guess I'll go and watch some Marx Brothers movies and see if I can find another great Groucho quote. Maybe it'll be, I don't want to be a member of any club that would have me or something like that.

Gary (02:26)
And by the way, to the listeners, I will have full bios for all of our participants in the podcast show notes. And here's our warmup question. And it's a biggie and it's kind of the elephant in the room in addition to the podcast topic of bailouts. And it's fair. It's reasonable to say we have a FASTA debacle and we've had it for the better part of the year. And Brian, I'm going to go back to you.

One private college closure per week. There's a downward trend in higher education. The FAFSA debacle. From your perspective, Dr. Rosenberg, best case and worst case scenario for this fall and maybe even next spring.

Brian Rosenberg (03:00)
best case is I think we see some stabilization in college enrollments, in the fall. There's some evidence that they're ticking up a little bit at community colleges after a long, long decline. and, the decline in general enrollments at least seems to have slowed. So the best case would be that things are no worse than they are now. the worst case is what I suspect is more likely to happen, which is that.

Ricardo Azziz (03:02)
.

Brian Rosenberg (03:30)
The FAFSA debacle on top of all the other demographic and economic challenges is going to lead to some big enrollment in economic challenges at colleges that are already very, very challenged.

Ricardo Azziz (03:31)
the staff said the back on top of all the other demographics around the challenges.

Gary (03:43)
And Sarah, you're living this day to day at Carroll University. Best case and worst case from the FAFSA debacle in your mind.

sarah holtan (03:53)
The best case is that colleges will actually use this as an opportunity to be innovative and reduce their dependency on the timelines set by FastUp previously. So using this as just a springboard for how are we gonna serve our students even with timeline troubles. However, we still need the money. So I predict that many colleges will still be closing due to this lower enrollment.

Ricardo Azziz (03:53)
The best case is that colleges will actually use it as a problem.

So using this as just a springboard for how are we going to serve our students even with timeline trouble. However, we still need the money. So I think that many causes will still be closing in.

sarah holtan (04:20)
As Brian mentioned just now, I do see that there are some winners in this. And I think community colleges, technical college, vocational colleges might see an uptick in enrollment. The worst case is what we're all worried about is that people who need the most federal aid will be the ones most vulnerable and most effective. And they will hit those schools with missions to serve them the hardest. And so I do think that colleges will close to.

because of this. And so of course that impacts students, faculty, staff, community, other stakeholders, and the employment potential for generations.

Ricardo Azziz (04:49)
that impact students.

Gary (04:57)
Interesting, interesting. And Ricardo does this FAFSA debunked best case, worst case. Is there some, a merger and acquisition angle on this as well?

Ricardo Azziz (05:05)
Well, I think, you know, one of the things that we need to remember is that smaller colleges actually tend to be much more dependent on, say, Pell grant recipients, right? So about 60, in our analysis, about 60 odd percent of smaller colleges, less than a thousand students will be dependent on or have these students in their enrollment relative to maybe 30 percent or so for larger colleges, maybe over 20 ,000 students.

So this is going to impact smaller colleges more. It's another nail in the coffin, if you would. So this is going to be a major test. Many of our smaller institutions, and we could talk a little bit about why there are so many small institutions in the United States at some point, but many of these smaller institutions are quite fragile financially. They're, as I say, a ransomware attack away from closing. And this FOSFA issue is not.

helping at all. In fact, it's creating a massive amount of uncertainty. It's decreasing enrollment altogether. It's feeding into the general sense of distrust that is prevalent now in higher education and now even more. And as Sarah mentioned, this is going to impact the students that need it the most. So is there a merger angle? Yes, but we can talk a little bit about it in a bit.

Gary (06:30)
Sure, sure. And Joe, like Sarah, you've just come from living that FAFSA debacle on a daily basis. What perspective would you add to that whole scenario?

Joe Sallustio, Host and Co-Founder @ The EdUp Experience (06:39)
You know, it's definitely a confusing situation for most administrators for a couple of reasons. One, let's just, in my opinion, the best case is a little bit of shock and awe, right? We are so beholden in most universities to the standard term, right? Not to get into the weeds here a little bit, but fall, spring, fall, spring, fall, spring. That's the way typically that we act in higher education.

So those small colleges that Ricardo was talking about, a lot of them are on that standard term calendar. And so you hope that the best case scenario is a little bit of shock and awe that schools will become aware that they can take advantage of other ways of doing business like non -standard term, like a borrower based award year packaging, a financial aid, like subscription based financial aid packaging, more start dates, leaning on that 40 million students that have some college, no credential.

You have to do things in a different way in order to get that done. Worst case scenario. So shock and awe, in my opinion, is the best. Worst case, yeah, your enrollment's down. But that's what we know is going to be the worst case. Although nobody, and I don't say nobody, but many cannot see the full top line revenue coming in. If you can't see your top line revenue, you can't plan. You can't hire the employees that you need. You can't invest in new technology that you need to come out.

of this decline next year to make up for your 25%. So you think about what's the unintended consequences. You don't do anything because you can't do anything. And so you're perpetuating this death spiral, right? You have less enrollment. So you put in less infrastructure, you have less technology because you don't have the money. Then you have less enrollment and you have less technology and you have less money and so on and so forth.

So there's gonna be a general lack of investment that is the worst case scenario because you can't come back from decline if you don't invest.

Gary (08:43)
And Joe, let me come back to you with a question I've had for a long time. And it's a 30 ,000 foot question. And I'll continue to go around the table for the time being. And Joe, if there is a federal bailout, what might the timing look like? And would that really be a viable solution to the challenges that most colleges face?

Joe Sallustio, Host and Co-Founder @ The EdUp Experience (09:07)
Yeah, I don't know if it's a viable solution, but you know, the thought came up in my head because we've seen bell outs for lots of different industries. And this is really the first time the FAFSA has created ultimately what is a black swan event. Nothing like this has ever happened in higher education to the extent it has now. You have gainful employment running in the background. You've got the value conversation, the distrust, and you add FAFSA on top of it so nobody can forecast appropriately. And you wonder.

If the government kind of created this with the FAFSA with good intentions, by the way, FAFSA simplification was supposed to simplify this whole process. It didn't. It missed the mark a little bit, but it was supposed to. So you wonder if the government comes to the table and says we're going to. And you've seen a little bit, right? 50 million released to colleges that are struggling to serve lower economic students. You know, 100 million dollars released here. You wonder if there's more money coming and it's going to take a bigger name school.

that's really on the brink of closure to knock that into. I'm not going to I wouldn't say who that bigger name school is, but it's it's not going to be your billion dollar endowment school. They're fine, right? They're going to make it through this. No problem. But it's your well known smaller school that some politician went to that goes, we can't let this school close. They've been around for 250 years. We need to provide some government assistance. We're starting to see it. The seeds of that come. And I just wonder if it's going to get bigger if more schools continue to close.

Gary (10:34)
So Ricardo, kind of an adjustment to that question that I asked Joe. If there is a federal bailout and Joe's talking about seeds being planted, can it happen quickly enough to save those colleges that will be most impacted by the trauma associated with the decreasing market trend and the FAFSA debacle?

Ricardo Azziz (10:54)
So the short answer is no. The longer answer is I'm not quite sure and this is something that I think hopefully our podcast today in conversation will show us. I'm not sure that a federal bailout is actually what is needed, right? I mean, I think I'm in Birmingham, Alabama. We just went through a similar situation with Birmingham Southern, right? Birmingham Southern.

had politicians that were supportive of a school, a school with deep tradition in the community here, and a school that was able to get their legislators to approve a sort of package for troubled schools that seemed to be very directed to them, right? It seemed to be, you know, ready -made for them. But the problem was that actually in the end, when the state treasurer,

looked at the numbers, right, and appropriately said, is this good use of taxpayers' dollars, right? That turned out to not be the case. And I think we have to always remember, put ourselves, you know, as higher education leaders, we often lose sight of the fact that there is actually another constituency, right? I've had the honor of working.

with a governor's office directly. And what we always have to remember is that higher education is extraordinarily important. I think education is so important to moving a population forward, but there's also other needs, right? There's roads and healthcare and infrastructure and so on and so forth, right? And all of those require funding. So the question really will be, is a federal bailout actually the best use of a federal dollars?

paid by taxpayers to support many, many small colleges in our nation. And that's a discussion that hopefully this podcast will continue to talk about. But the question that I would answer if I were a federal employee is probably not.

Gary (12:59)
Yeah, interesting. I'm going to kind of change the question a little bit for both Sarah and Dr. Rosenberg. And of course, we're in the political season. And Sarah, knowing that there is a presidential election and all that goes with it this fall, do you think that impedes or speeds up the possibilities of any potential federal bailout?

sarah holtan (13:08)
Thank you.

I think it'll make the general population nervous. People always pull back during presidential years for making big decisions, especially big funding decisions. So I think it could make us really nervous and not want to take any action. And I want to play off something that Ricardo said, and he was kind of hinting at is bail out the right solution here. I'm going to say yes, but under certain conditions and not even framing it as a bail out.

Brian Rosenberg (13:29)
And I think that's a great way to do it.

sarah holtan (13:48)
because we've really used that previously more or less for for -profit companies. But I would like to call it as more of a relief fund. The government sort of put us all in this quandary. So if they put us in this quandary, they really should be part of the solution. So I would like to see us have some sort of relief fund for colleges, but I don't think it should be automatic.

Brian Rosenberg (13:59)
So, I hope that's helpful. I hope that's helpful. So, I hope that's helpful. Thank you.

sarah holtan (14:10)
I think there can be conditions that you put into place. I think schools that would like to apply for funding should have to demonstrate that the FAFSA delays was the actual cause of any financial struggles and lower enrollment. You can't say I need to use this funding for just general operations because we were struggling no matter what. I wouldn't want to see our taxpayer money go that way. So within certain conditions, I would like to see it happen because

we've met the threshold for a bailout anyway, right? If this many colleges start to fail, there's going to be widespread damage to our entire economy. This doesn't affect a very tiny portion of people or one small industry. This is widespread. And that's the threshold for a bailout anyway.

Brian Rosenberg (14:40)
that's not the answer.

Gary (15:00)
And Brian, I'm guessing as president at McAllister College in Minnesota for all those years, you dealt with the occasional politician, right?

Brian Rosenberg (15:07)
I did, yes.

Gary (15:09)
And the same question that I asked Sarah is the fact that this is a political season, does that increase the odds or decrease the odds that a federal government bailout or relief fund that Sarah described is likely or not?

Brian Rosenberg (15:25)
I'm not sure it's going to have a great effect one way or the other. To the extent that it does, I think it would be negative. And that's simply because I don't think higher education is particularly popular now with any constituency. I think that for a long time, as we know, Republicans have been getting more and more negative about higher education. And now with the protests that have gone on and the increase in costs of higher education, approval rates among Democrats are going down.

And so, but the only thing that the left and the right have in common is that they don't like higher education very much right now. And so, I don't think there's a big win in for either party or for either presidential candidate in saying we're going to do something for colleges, as opposed to say what Biden is trying to do with the forgiveness of student loans, which is a whole separate issue. Just on the subject of bailouts, I just don't see it. You know, bailout, you know, to,

Gary (16:17)
Right.

Brian Rosenberg (16:24)
pick up on Joe's comment, a bailout is meant to be a response to a kind of black swan situation, a particularly disruptive event, at the end of which you expect the business to get the back of some sort of viability. I think a bailout would be a bandaid and at the end of the time when the bailout runs out, much like the end of the COVID funding, we'd be right back exactly where we are. So I don't see it as any kind of a...

And then to pick up on Ricardo's comment, to be totally honest, if I were a legislator and I were looking at issues like healthcare, pre -K education, K through 12 education, honestly, I'm not sure that I would put higher education at the top of a list when compared to all of the other needs in our country. So I don't think it would be particularly effective and I don't think it would necessarily rise to the top of the list of federal priorities.

Gary (17:21)
So Brian, a question specifically for you and if any of the other panelists want to jump in, let's change this bailout role from a federal perspective to a state perspective. And for example, the state of Minnesota is where you were for all those years. Is there a role that you think maybe state governments should play in supporting either their state's public and or private colleges?

Brian Rosenberg (17:47)
You know, it's easy to point to the fact that in general state funding has gone down for public institutions and that's not a good thing. The problem is that there are so many demands now on the state budget that it's not simply a matter of adding money to one pot. It's a question of what pot you're going to take the money out of or whether you're going to raise taxes. If it were up to me, I would tax.

people at a particularly affluent people at a higher level so that we could pay for all of these essential social services, healthcare, pre -K, K through 12 higher ed. But if we're not, if we're just talking about moving around money in the existing pots, you know, the fastest growth in expenditures in the state of Minnesota has been on healthcare. And so yes, higher education support has gone down, K through 12 support has gone down.

Healthcare has eaten up a larger and larger percentage in the state budget. And unless we fix our healthcare system, that's not going to change. So I'd love for states to do more, but I'd love them to do it by bringing in more revenue, by increasing taxes. And that too is unlikely to happen in a heated political season.

Gary (19:03)
Yeah. And Ricardo, state governments, do they have a role in supporting financially challenged public and or private colleges?

Ricardo Azziz (19:10)
I mean, I think they do. And in fact, we've been arguing that for some time. I mean, very clearly, a college is a major economic engine locally. I mean, I think we've all talked about it, Sarah mentioned it. I mean, this is not just about a college, right, or tradition or heritage or alumni. This is about, you know, an employer that often is the largest employer in that small rural town, right? So I think it's important that states think about this.

But the question is really, is this a matter of the states infusing more money? Well, if you know, and we have the privilege of working with lots of colleges as we do consulting and what you often find is that even if you got a big lump sum of X amount of millions of dollars, that's not going to put you over the edge and into solvency for a long period of time, right? So what states really should do, and this is really the opportunity, the question that you asked at the beginning.

but as a reform university president, I choose to answer it when I want to, right? No, but the issue is, what is the opportunity? The opportunity is here for states to actually start asking, what's the plan? What's the plan, right? I mean, okay, we're gonna give you a short -term loan, what's the plan? You know, you thinking of closing, well, do that, obviously, think about it before you suddenly close, right? A few states are beginning to look at that, but they need to go beyond that. They need to start saying,

Do we need to begin to help these institutions think about consolidation, think about mergers, think about how they're going to face a future that clearly will have less students? This is not a pretend. This is clearly less students in a country that has massive excess capacity in undergraduate higher education teaching.

Gary (20:55)
Joe States, do they have a role?

Joe Sallustio, Host and Co-Founder @ The EdUp Experience (20:57)
Yeah, you know, I want to go back and then come forward if I can real fast, but back to what Brian was saying about the bailouts and I don't I don't know that I'm a huge bailout fan in general, but if you look at what happened during COVID, right when COVID happened, we were going to have schools with massive decline statewide, right? And as a consequence of that enrollment decline, which which happened, right? The enrollment decline had to happen first. And then the federal government said.

Here you go, right? Here's her funds. Here's your higher education relief funds that you're going to use to stay open so you get past this black swan event. If you look at FAFSA simplification, the timing of it, some of these schools have just come back and now they've hit this again. We don't yet know the results. This is why I think a bailout still has something like a bailout. Probably a relief fund, like Sarah was saying, is a real possibility is because when those numbers come in after this fall.

and you see those schools who have just rebounded after COVID go back on the decline, there's going to be some conversation around who, how did this happen? How do we get people back? You know, how do we get these schools on the right track after we helped them get on the right track the last time with COVID? Assuming there is money. Let's assume there is money. The closures are, we know they're disproportionately hitting some states. Pennsylvania is a really good example. I mean, that state has just got closure after closure, both public and private, so on.

And as we see the economic impact coming back around to Ricardo, some of these schools, you know, there aren't a lot of schools in some states. So when you have a closure, it really hits that economy hard. At some point, you'll have an untrained workforce. Closures are indiscriminate. Degree, certificate, for -profit, nonprofit, it doesn't matter, right? That's just what's happening. And so eventually, there's going to be a huge economic impact that's going to have to be addressed. And I, you know, I...

Brian Rosenberg (22:28)
Thank you.

Joe Sallustio, Host and Co-Founder @ The EdUp Experience (22:53)
If you pay attention to the regs of the accreditor, mergers are becoming harder to execute. Right. There's a whole lot more regular regulation around them. The timing of them. It's going to take sometimes up to two years to get through all the hoops to merge or to acquire. I don't know of a board out there, and I know a lot of board members and boards that are thinking in a minimum two years in advance.

There are some that might be thinking a year in advance, maybe two, but three, four, to know that you need two years to complete a merger and acquisition, that it's gonna be slowed down. It's gonna be a lot of questions. They were happening quick for a while, but it's gonna slow down. So then what happens, right? If there isn't a path to merge and acquire, because you could argue right now, well, let's not do a bailout. There's no reason for it. You could just merge or become acquired. But if we make that harder,

Gary (23:20)
Yeah.

Joe Sallustio, Host and Co-Founder @ The EdUp Experience (23:48)
If the government makes that harder, regulators make that harder, then what? You know, then there's a question. Do we just let everybody close that's going to close and have a reduced marketplace? Or is there an economic impact that needs to be supported? I'm not arguing for or against it. I'm just seeing the writing on the wall that it might be coming.

Gary (24:07)
So I'm going to go to Sarah and then to Ricardo. So let's follow up on this. So mergers and acquisitions, Sarah, you're living this day in and day out. Is that something that colleges, especially those in financial trouble, should have thought about a long time ago? What's your perspective on that? And then Ricardo, a follow up for you on the same topic.

sarah holtan (24:25)
Absolutely, generally speaking, if you are going to be a good merger partner for another school, you have to enter into those conversations and the preparation for it years in advance. Usually, as we know, schools wait too long to try and identify a partner to sort of come in and rescue them.

I will tell you it doesn't work. It hasn't worked. I hope to be proven wrong in the future that some struggling schools can find good merger partners. We'll take them on and restore them to the financial health, but we haven't really seen any evidence of that. And so I'm not confident in it. And I'll just tie back to the opening question really Gary about state funding.

I have some mixed opinions about that, whether states should come in and help with any bailout money. I think this is a federal problem at the federal level. I hate to see it get pushed to the state level. So I just would want to know more about that. I understand states have a very vested interest in it, but it sure seems like you're pushing it to a different.

Gary (25:31)
And of course, Ricardo mergers and acquisitions, &A is a large part of your world. What are your thoughts on this?

Ricardo Azziz (25:37)
So I have to agree with Sarah and Joe. I mean, Sarah is absolutely correct. I mean, institutions wait way too long. And this is one of the things that actually has been shocking. I mean, as having been a practitioner in the field, continuing to work with many, many presidents and universities, it's always amazing to me how the look at the budget is at the end of FY, you know, whatever the fiscal year is, right? All of us is June, right? And so if you happen to be talking to a board in September,

They have seven months of view. That's the runway. Very few of them have actually two years of budgets in the place. Nobody ever has three years into it. And so you're wondering how is it possible that you are running a multimillion dollar operation and don't have any kind of perspective. And so this is a big issue. We need to start thinking, we leaders need to start thinking about these opportunities well in advance.

Why? Well, we could allow them to close. You know, I'll remind everybody of the Flexner report in the early 1920s. I know that it's a little bit of time, but it's an interesting look at what happens in higher education in the United States, right? There were many, many, many small private medical schools at that time throughout the country. Flexner, a education leader, was asked by the government to actually put together a report.

on these schools and eventually this led to certain kind of regulations, certain standards that actually had 70 % of these schools closed, right? So it happened, it did happen. Lots of small schools closed. So there is precedent to this even historically in our country. And so the question is, we need to start having boards and leaders think well in advance to do this, or we allow massive closures to occur. And the...

Brian Rosenberg (27:03)
So, I'm going to turn it off.

Ricardo Azziz (27:29)
What is the problem with massive closures? Well, for one, you lose that particular local site. So, okay, maybe you can retain it in some other way. Two, you basically lose heritage and history. Well, maybe that's terrible, but at least you do lose that. So, it's any option that you can work on rather than closure will be in many cases, not all cases, not every institution should remain open, but in many cases, a better option.

Gary (27:59)
So Brian, most recently a college president, sounds like the theme here from the other three panelists is colleges need to look at a longer lead time to look at finances and much else. Is that realistic in today's world or not?

Brian Rosenberg (28:14)
I think it is. I mean, at McAllister, we used to balance each budget. And I had a great CFO. We used to balance each budget by balancing the budget three years out. And the way that we did that was take the current budget, plug in a set of really conservative assumptions about everything from net tuition revenue to fundraising to student count to health insurance. And we'd say, all right, the budget doesn't have to just balance this year. It has to balance three years from now.

And so if we had to cut something, we would cut it not when we hit a crisis, but two years before we hit a potential crisis. It is certainly doable. Of course, all these numbers are projections, but it's possible to make reasonably educated projections. I have seen some schools that are budgeting three, four years out. The problem is that they look at the numbers and the magical thinking starts.

you know, well, we'll just market ourselves better, or we'll tell our story better, or we'll start a new online program, and it'll bring in X dollars. And so they see the cliff coming, but they find it really, really difficult for reasons that are often emotional to process the reality of that cliff. And so,

that they see that there's going to be a problem, but they just don't want to make the kind of very difficult decisions that the problem probably warrants. And in my view, there are a lot of colleges out there on college boards that should have a closure plan ready. That is, they may not need it. They hope they won't need it. But looking at the numbers, they should have a closure plan ready. And when they...

when they hit certain markers, they should say, all right, we need to give students, faculty, staff a couple of years notice that this is coming. Very, very, if any schools have something like that, they don't want to confront it, it's just too painful.

Gary (30:29)
Joe quickly, you've got to follow up and I have another question associated with Brian.

Joe Sallustio, Host and Co-Founder @ The EdUp Experience (30:31)
I just want to say good Brian's like right on. In fact, he wrote a book about it. And it's just change management in higher ed. And I, I actually was speaking at the US Distance Learning Association annual conference just this past week. And I was talking about product lines in higher ed. If you look at any other industry, if you're in trouble, you have to innovate new through new product, you need a new product line, you're not going to sell a Corvette to a mom and dad with a family of five.

that needs to be carted around, right? You need a caravan or a SUV that's big enough to carry everybody. So if you're a higher ed institution and you're a board, we just stick with the same old product and we expect that the result is gonna be different. We need to explore new product lines and that's something that goes deep to faculty, to the way that we teach, learn, so on. It's not just about money and budgeting, it's about the product.

And it's about its viability in the marketplace. And if you can't transition and release new product lines because your old product doesn't have the same demand, then you're not going to be able to do all the other stuff that we're talking about. And that's one of the big hindrances I read.

Gary (31:47)
So, Sarah, I'm gonna go back to something Brian mentioned just a minute ago, and he said, many colleges should have a closure plan. And I wanna go to the, what's the new poster child for how not to close a college. In my mind, Mount Ida back in 2017 was the first poster child. And then it was last week at the University of the Arts in Philadelphia has put together a catastrophic how to do it wrong. Brian, that could be the title of your next book, How to Close a College Wrong.

They're doing it, they're just messing up in every way. And the story out yesterday was they don't even have enough funds to pay their faculty and it's gonna play itself out, I understand. But Sarah, what happens when the public starts to see more of these university of arts stories or similar stories play out? Are we gonna hit a tipping point where the customers, the clients, the students and their families are hesitant to even consider private colleges?

sarah holtan (32:44)
Yes, we've already hit our tipping point. I think we're living it right now. All of these external drivers, public distrust, all of this is adding up to people not wanting our product, as Joe was talking about earlier. Of course, Gary, I know you would tell us to have products with materially significant revenue, not just new programs. And so I appreciate that. And I also think that the public is not wrong to have this sentiment toward public

you know, toward higher education that we are not delivering on what we are promising. The schools that closed 2017, 18, 19, I'm gonna grant them a little forgiveness and grace. I think there were no previous models for this that we were learning from and we could see the impact of it. Now it's different. I think now there's no good excuse to not have a good closure plan when it's imminent or likely.

Brian, I'm sure you were referring to teach -out plans, placement for faculty and staff, all the other things that would make a closure less painful, not without pain, but less painful and more dignified. I just don't think we have any excuses anymore not to do it.

Brian Rosenberg (33:57)
Thank you.

Gary (34:03)
So Ricardo, I'm going to give you a chance to pick on Sarah here for a second. So Sarah seems to believe, and I agree with her, that we may have hit the tipping point where the market says, best case, I'm going to be very careful about choosing a small private college. Have we hit that tipping point, Ricardo?

Brian Rosenberg (34:16)
Thank you.

Ricardo Azziz (34:20)
I absolutely agree. I think we have hit the tipping point. I mean, I think that, you know, Brian's, and I'd like to hear a little bit more about him, but Brian's assertion that I'm going to be against whatever change is there. I mean, you know, it's true. I mean, it's always shocking to me as I walk into boards and I present my initial presentation of sort of where we are in higher education. They're like, wow, didn't know that. And I'm thinking, why? So there is this, this,

resistance to change, which is actually amazingly embedded into our field, even though we study high change, right, management. But I have to agree that we are now past that tipping point. We now have to face the fact that we have a large amount of smaller colleges in our country, and that is basically a product of our democracy.

And it's a product of our rural upbringing and it's a product of our history. So we need to understand why we have that. It isn't just willy -nilly. But at the same time, our students are choosing big institutions, right? I mean, if you look at the sectors, the only institutional sector by size that has grown in the last decade has been schools greater than 30 ,000 students. Everybody else has decreased. And so students are...

voting with their feet. We have less students. Sure, we have a whole bunch of potentials out there, but it's not looking realized. So yes, this is the tipping point and we better face that time.

Gary (35:59)
So Brian's book is important to note, you know, we have fun with the title. And clearly, you know, Brian, you had some comments on faculty moving slowly, I'll be nice, but a big part of your book was solutions as well. And that's what was an important part of the book. And I guess the same question in your mind, is that tipping point starting to be in the mind or in the mind of consumers for private colleges?

Brian Rosenberg (36:24)
Well, you know, if by tipping point, we mean that the supply and demand have to right size themselves. Yes. I mean, you know, there's something that economists call Stein's law, which is that if it's impossible for something to go on forever, it won't. And the reality right now is that there are just a lot more seats and there are students, particularly in that 18 to 22 year old demographic. And, you know, economics and demographics are forces that you just can't, you can't change.

And so schools are going to be closing and the market's going to have to right size itself. And I do agree that the ones that are most likely to close most vulnerable tend to be small, private, rural institutions. So we are seeing a non -trivial number of rural, smaller public institutions that are also closing or facing dramatic revenue shortfalls.

So I do think, you know, if that's the tipping point, we have certainly reached it. You know, to your point about what you can do about it, you know, I think we probably all agree on this call that colleges simply need to rethink the product that they offer. You know, the advice that I'm trying to give to colleges right now, I'm trying to get them to emphasize three things. One is to pilot and test new ideas.

Faculty meetings are where good ideas go to die. The last place you want to bring up a new idea is at a faculty meeting. Find the smart people, give them an opportunity to pilot and test. Connect with your local community. A lot of these small colleges are located in small towns, but they're really not engaged with the small towns. You know, the reality is that the curriculum of a college in Western Massachusetts, Western Virginia, and

Northern California should not look exactly the same, and they do. And then more experiential learning. Get out, break down the literal and figurative walls between the college and the community. Colleges that do that have some chance to turn it around. Colleges that continue to do what they're doing in these markets are probably going to, over the next few years, go away in larger numbers than we'd like to see.

Gary (38:44)
And we're calling on them to come to you in a second, but Joe, a follow up for you. You're just coming out of a role as an admissions leader in a mid -sized private college. Tipping point hit, yes or no.

Joe Sallustio, Host and Co-Founder @ The EdUp Experience (38:57)
I would say not quite yet. And the reason I say that is because the average consumer and I'm thinking about somebody in my family that I was guiding her through her child's university choice, had no idea what was going on in higher education for the most part. Yeah, I see the news here and there. Still looking at the same schools. And I'm going, no, no, no, no, no, no, no, no, don't look at that one. I know a little bit about that one or this one.

So, you know, I think that's why not to do the plugging here, but the college viability app is so important for families to be able to look at a school and say, like, how is it doing? So I'm not so sure the average consumer that is still looking at college is going, not a small college. However, I think to Ricardo's point, staying closer to home, bigger is safer, is really easy math, right? It's like, gosh, you know, if I see all these colleges closing, I know the university of so -and -so.

is not going to close. And it's by the way, it's about 30 miles away from my house right now. So after this great year of FAFSA confusion, probably stay closer to home. So I think we're seeing that regional enrollment take place. I don't know if the tipping points happened quite yet. I think these small closures are going to happen a lot more often here in the next couple of months as schools really see that revenue line come in. And I think it's going to be a lot more public.

a lot more frequent and it's still to come in my opinion.

Gary (40:28)
Carter, you had a follow up.

Ricardo Azziz (40:31)
No, as actually as Joe, Brian and Sarah have mentioned and you actually brought it up, I mean, universities, higher education in general has to reinvent itself and its product, right? The needs are changing, the way our students want to learn change and so on and so forth. We don't need to get into that today. But what happens, and of course Brian documented very well, is there is massive resistance to this, right? I mean, I always joke, our presidents joke that the best way to kill a project is to actually assign a,

faculty committee to it, because then it'll die in committee. But having said that, I also think it's really important that we recognize that the word transformation has been bandied around a lot. And I'm very leery of it, right? Everybody is transforming. In fact, every single school you talk to, whether they're about to close or they're fragile, whether they're growing, is always are transforming. And you talk about it. And I think really,

We have to be careful about this word because it isn't just starting a new course because what happens is you add a new course and then you forget to actually close the ones that are underperforming, right? It isn't just about a new online offering. It's not just about a new logo. Transformation is a much different topic and I'm afraid we are abusing that term to the detriment of people who are watching.

Gary (41:54)
Yeah. And I'm going to go one more trip around our virtual table here. And Sarah, I'm going to start with you. I'm going to give you a comment. It's going to be the same comment for all four. And I just like your thoughts on this. So the comment is a bailout, whether it happens or not, but a federal bailout might create a moral hazard where colleges start to rely on the expectation of government support instead of managing finances responsibly. Sarah, care to comment on that?

sarah holtan (42:04)
So, I'm gonna say, yeah, I think I'm gonna go with that. If you wanna go with that, go.

Thanks for watching.

Gary, to live up to my reputation, I actually have to question how the phrasing implies that the government didn't cause the FAFSA issues. So I think that colleges relying on this money was money they already had as a probably built -in entitlement. And I think what really the question comes down to for me,

Brian Rosenberg (42:46)
Thank you.

sarah holtan (42:51)
is that you're putting two morals against each other. You're saying, which is a greater moral imperative? Is it to protect students and also society? Or is it to enable financial dependency of colleges? And I think in my mind, we have a greater moral imperative to protect students and society.

Gary (43:15)
Interesting. Joe?

Joe Sallustio, Host and Co-Founder @ The EdUp Experience (43:18)
I was going to say, can pick on somebody else to follow Sarah besides me.

Gary (43:20)
That was quite the response there. Very nice.

Joe Sallustio, Host and Co-Founder @ The EdUp Experience (43:24)
Yeah,

You know, that's a that's such a tough question. I'm glad Sarah was so articulate with her response. I still do think no matter what happens, I think these if you go back in time. And COVID never happened, you still had schools that were on their way to close just because of all the things that we talked about, the models not changing. We've been talking about this. Many, many have been talking about this since the for -profit started closing in 2011, 12, 13.

Now you fast forward 18, 19, and you go, wow, schools are in trouble. And then COVID hits. And then there's some that close, and then there's some money that comes in. So I think in my mind, the financial situations have to be addressed. There is a fiduciary responsibility of a board to act in the best interest of the students without federal money. And...

often times more often than not. You think about what is it? What incentive does a board have to even go through and look at a merger and acquisition? The answer is none. Unless they have the unless they're helping the students, they have feel some moral obligation to help the students in that way. Otherwise, do you want to be the one that that killed the university name or you just let it close?

and find some other reasons. So this incentive is not there until it is or until some we figure out some way to fix the financial situation and adjust the model. The federal funds coming in will be five dollar bills being thrown out the window over time.

Gary (45:06)
So Brian, moral hazard, this fall, this spring, would there be a moral hazard attached to a federal bailout?

Brian Rosenberg (45:16)
You know, Gary, I'm not sure if it's a moral hazard. I do think we have evidence that once colleges get into bad budgetary habits, it's very hard for them to get out of them. And, you know, the example I would use would go back, I'd go back to the Great Recession. But a lot of colleges did when the recession hit was increase their endowment draws, those colleges that had endowments. So they went from 5 % to 6 % or 7 % or 8%.

And what happened is that became the new normal. So a lot of those colleges never went back to a 5 % draw. And so they're still building their budgets 10 or 15 years later around draws in the endowment that are financially irresponsible. And I worry that if in fact colleges begin to build their budgets around the assumption of a federal bailout if...

they get into real trouble, but that will become the assumption that that's the new normal. And they won't do the things necessary either to cut expenses or to generate new revenue. The other point I'd make, without trying to downplay the significance of what's happened with the FAFSA, it is significant. But my view is if any school that's one bad admissions year away from closure is probably going to close. It means they don't have cash reserves.

It means they don't have much of an endowment. It means they're probably spending too much relative to their revenue. And so will it accelerate closures of some of these schools? Yes. But if you are that, the difference between having to do some belt tightening and closing. If the FAFSA situation will cause you to close, you're probably going to close anyway within the next few years.

Gary (47:07)
Interesting, interesting. Ricardo, take us home. What do you think?

Ricardo Azziz (47:11)
Well, you know, I'm glad I'm following Brian. So I can say absolutely, fully agree. I think the points about if you're a ransomware attack, a bad enrollment year away, you're a bad gift away, then you're already going to be closed. You're what we call zombie schools, right? I mean, you're already dead, but don't really know it. And is the answer to your question, is this a moral hazard?

I'm also going to say, I don't know about the moral part, but I'm going to put my hat on as a higher education leader and say, absolutely, I want more money. I want more money from the government, from the state, from donors. Come on. I do the most important work in the universe. As a taxpayer, I say, no way.

Gary (48:02)
Interesting, interesting. Well, there we have it. We are clearly in the middle of something, some really big changes in higher education. The rate of closures, cutbacks, layoffs, along with the diminishing demand for a college degree for a variety of reasons, it's here. I tell folks all the time, I think, we'll bring the five of us back together in three years, we're gonna look back and say, we were in the middle of it. We just didn't know what the details were at that time.

So thanks again to my guests for joining us. I'm grateful for your time. I'm grateful for your expertise and your contributions. My name is Gary Stocker with College Viability. Join me each Monday for news and commentary on all that is going on in higher education. If you are a parent or student, look for my new podcast, Beyond the Brochure, where my co -host, who is an actual college student, asks me questions about colleges from the perspective of students and their families. Until next time, this is Gary Stocker. Good day.