Education

A potential indicator of colleges that may face major financial challenges (opinion)

In 2013, Dawn Lyken-Segosebe and Justin Cole Shepherd, doctoral students in Vanderbilt University’s Higher Education Leadership and Policy Studies program, identified 10 factors that put small private colleges and universities at risk of closure. In 2016, the strategic consulting firm Parthenon-EY released a report that operationalized those indicators as follows:

  • Enrollment under 1,000 students;
  • No online programs;
  • Annual tuition increases of more than 8 percent;
  • Tuition discount rate higher than 35 percent;
  • Dependence on tuition for more than 85 percent of revenue;
  • Endowment that covers less than 33 percent of expenses;
  • Debt payments more than 10 percent of expenses; and
  • Deficit spending.

Parthenon-EY found that, in 2013, 77 percent of private colleges and universities with enrollments of fewer than 1,000 students, and 18 percent with enrollments of 1,000 to 4,999 students, exhibited at least three of these risk factors.

Since 2013, several such institutions have closed:

In a previous essay, I warned people who work at small private colleges and universities about four mostly qualitative signs that their employers were heading toward unrecoverable failure. Given the accelerating decline of many institutions of this type, it’s time for a quantitative measure that people can use to compare their own employer against others. Parthenon-EY’s set of indicators, while comprehensive, relies on information that faculty and staff members might find difficult to obtain.

A simpler and just as informative predictor of failure for low-enrollment, tuition-dependent institutions is the percentage change in annual total expenses per full-time-equivalent undergraduate student over a multiyear period. This calculation reveals the deteriorating financial condition of colleges that attempt to boost enrollment with larger tuition discounts. And it accounts for temporary improvements in net revenue that arise from increased borrowing or the sale of endowment assets. Spending more money per student, regardless of where that money comes from, cannot continue indefinitely.

Enrollment information for Atlantic Union, Burlington and Marian Court is not listed on IPEDS, but for other institutions listed above, I calculated the percentage change in total expenses per FTE undergraduate over the most recent six-year period for which data is available. I then rank ordered the results, which are shown below.

State

Fiscal Years

Percentage change in total
expenses per undergraduate FTE

Concordia College Alabama

AL

2012-17

76

St. Catharine College

KY

2010-15

67

College of New Rochelle

NY

2012-17

53

Newbury College

MA

2012-17

49

Mount Ida College

MA

2011-16

41

Wheelock College

MA

2012-17

41

Green Mountain College

VT

2012-17

31

Marylhurst University

OR

2012-17

30

Saint Joseph’s College

IN

2011-16

21

It is clear that revenue was not keeping pace with expenses at any of these institutions prior to their closure. Several other colleges and universities show similar signs of financial deterioration — their scores on this measure range from 20 to more than 50 percent. The higher an institution’s score, the slimmer its chances for survival.

Interested in finding out where your employer falls? FTE enrollment data is available from the Integrated Postsecondary Education Data System. At this webpage, click on “Compare Institutions,” then select “Use provisional release data” and click “Continue.” Enter your college or university’s name in the indicated box. Once you have selected your employer and clicked “Continue” to variables, select “Reported 12-month full-time-equivalent undergraduate enrollment” for the most recent six years from the “12-Month Enrollment” category. Click “Continue” through a few more screens to see the data, which can be downloaded as a .CSV file.

A college or university’s financial data can be found in the Form 990s that it files annually with the Internal Revenue Service. Form 990s are freely accessible online from nonprofit monitoring organizations like ProPublica. Annual total expenses are listed on the form.

Get the total expense figures for the same six fiscal years for which you collected the numbers for FTE undergraduate enrollment. The fiscal year is indicated at the top center of each Form 990 — it differs from the reporting year. For each year, divide total expenses by FTE undergraduate enrollment. Then calculate the percentage change in this number from the initial year to the most recent year in your data.

How does your college or university’s score compare to those of the institutions that have closed?

Source :insidehighered