International Forecaster Weekly

IF YOU THINK EDUCATION IS EXPENSIVE, TRY IGNORANCE

Flying below the radar across the country, under the shadow of the better-known student loan crisis, colleges and universities have been having trouble paying their bills.

Axios’ Kate Marino believes there’s a reckoning coming in higher education — especially for smaller, private liberal arts schools — that’s been years in the making. 

Guest Writer | June 15, 2021

By Dave Allen for Discount Gold & Silver

Flying below the radar across the country, under the shadow of the better-known student loan crisis, colleges and universities have been having trouble paying their bills.

Axios’ Kate Marino believes there’s a reckoning coming in higher education — especially for smaller, private liberal arts schools — that’s been years in the making. 

Demographics Are Destiny

No doubt, Covid accelerated some of the trends and revealed the existential nature of the companion crisis, but college finances have been hurting for a while.

Pandemic government stimulus funds have helped a number of struggling schools gain another year or two of financial maneuvering.

But their restructuring advisers say there’s been an uptick in schools that are beginning to explore financial alternatives to keep from going under.

A declining birthrate means the pool of college-age Americans has been declining, and it could be as much as 15% lower by the mid-2020s compared with the early 2000s.

“Demographics are destiny,” Marino observes. “Smaller, [suburban and rural] liberal arts schools are taking the brunt of the shrinking student body.”

The effect is much more profound than that felt by elite universities with huge endowments or larger state schools that receive public funding.

Matthew Roseman, who runs the bankruptcy practice at Cullen Dykman, says these schools "amid intense competition, wind up offering substantial tuition discounts to a large chunk of students.” 

They’re also often entirely tuition dependent, with virtually no endowments.

Then (drum roll please…) Covid hit.Schools lost much or all of their room-and-board revenue since last spring’s semester. 

And some of that may never return to prior levels, as remote learning strategies expand and become permanent. Now, Marino warns this fall’s enrollment numbers “will be make or break for many.”

Teach-In, Teach-Out

Colleges can’t file for Chapter 11 bankruptcy the way insolvent companies can, because they would lose their accreditation and student access to federal grants and loans.

Banks and other lenders that provide loans to colleges are usually willing to provide more flexibility than they would to corporate borrowers — with maturity extensions and other relief.

Mark Podgainy, managing director at consultant Getzler Henrich, says bank directors are reputation-sensitive, and no one wants to read headlines about stopping a kid’s education in its tracks.

But, in return, lenders usually require universities to shore up their balance sheets, through mortgages or selling real estate, or by inking an M&A or cost-sharing transaction with another school.

If a school still can’t survive, the insolvency process it uses is called a “teach-out” — where another school takes over its facilities and offers classes to students, while the legacy school liquidates its assets.

Higher Ed Dive has cataloged recent transactions in higher ed, finding at least 18 schools closed or were consolidated into another institution during 2019 and 2020, after 25 such deals in the prior two years. 

Help could be around the corner for struggling schools and students in Connecticut, if a recent three-way deal centered around the University of Bridgeport goes as planned.

Goodwin University acquired the University of Bridgeport’s real estate and academic programs. 

At the same time, Paier College of Art will relocate to Bridgeport’s campus and share resources. The three will remain independent institutions.

This dilemma and its impacts aren’t limited to private schools. 

The Pennsylvania Plan

In my home state, the Pennsylvania State System of Higher Education is considering two consolidation plans for six of its 14 public universities.

PSSHE has struggled with declining enrollments and stagnate state funding for years, and the pandemic pushed the system to hasten its plan for financial sustainability.

Dozens of PSSHE alumni, as well as state residents, have expressed concern that chancellor Daniel Greenstein is rushing into consolidation without first pushing the state legislature to better fund the system.

Education appropriations per full-time-equivalent student have decreased by 52% since 2001 — falling from $8,716 in 2001 to $4,106 in 2019. That’s according to the State Higher Education Executive Officers Association’s latest State Higher Education Finance report

At the same time, every taxpayer dollar spent on public higher education in the state results in $10.61 of economic output, according to PSSHE’s 2021 appropriations request.

One plan — dubbed the west integration plan, will consolidate California, Clarion and Edinboro universities, which are all located in the western part of the state. 

The northeast integration plan will consolidate Bloomsburg, Lock Haven and Mansfield universities, which are clustered in the northeastern and north central part of the state.

The consolidated universities would have a shared enrollment strategy and student support services, such as academic advising, financial aid, health and wellness counseling, library services, and career counseling.

More than 50,000 Pennsylvania students enroll in out-of-state online education each year, according to the west integration plan.

To try to capture part of that market, the west consolidated university would offer a range of fully online degree programs that would integrate existing programs.

The two plans do not reveal how the consolidation efforts will affect employees. At the west consolidated university, enrollment is expected to increase by 2% annually. 

System officials say if those projections are met, they expect that the consolidated university will maintain its faculty levels and may even hire more instructors as part of its online offerings.

At the northeast consolidated university, enrollment is expected to increase by 1% a year. 

The number of staff members employed by each consolidated university is likely to change (i.e., shrink). Both plans said, “Periodic adjustments to personnel may be required to meet institutional needs.”

The PSSHE faculty union, the Association of Pennsylvania State College and University Faculties (where I interned in 1980), said it’s still reviewing the new plans.

“APSCUF is reading the plans carefully — through a lens that keeps student concerns at the forefront — and making sure the plans comply with Act 50,” union spokesperson Kathryn Morton said.

Act 50 is a state law that requires PSSHE to carry out a “detailed, transparent and consultative review, planning and implementation process” before any changes are made to the state system. 

The plans also aim to reduce the total cost of degree attainment by 25% per student.

In-state tuition at the six institutions currently falls between $7,770 and $11,200 a year, according to Emma Whitford of Inside Higher Ed.

System officials say the two consolidated universities will be given a new name this summer.

Eric Hartman, a Lock Haven alum and co-founder of the advocacy group PAPublics said, “We’re really the same size state system as we were 20 years ago, but they keep citing this massive decrease.” 

More importantly, Hartman argues, the plans target institutions in rural parts of Pennsylvania, where access to education is already limited. 

He fears the west integration plan goal of creating fully online degree programs may not help some rural students who don’t have broadband internet access.

Hartman and other members of PAPublics want PSSHE to work harder to get more money from the state. 

Presidents at five of the six universities slated for consolidation have reportedly responded positively to the plans.

One of them, Dale-Elizabeth Pehrsson, president of Clarion and interim president of Edinboro, said:

“Our institutions have evolved over many years, adapting to meet the needs of our students, our communities, the Commonwealth and beyond. This proposed integration is a next step in that evolution."

Days of Future Past?

Most students don't consider a school's ability to pay its bills when choosing a college (“Yeh, great business school, but have you seen their liabilities?”) — but they're the ones who stand to lose the most from closures. 

I remember fellow student activist Nate Gadsden — from one of the PSSHE schools, West Chester University — saying in 1977 to a small, but enthusiastic crowd of students at Shippensburg University (where I went):

“You can take away the administration, and we’ll run the school. You can take away the faculty, and we’ll teach each other. But you take away the students, and you’ll have nothing.”

Aja Whitaker-Moore says the earlier that schools — public and private — acknowledge and come up with a plan to deal with their problems, the more likely they’ll be able to create a path for students to start their studies and earn their degrees.

Otherwise, we all just might find that ignorance is even more expensive than education.