Crying Wolf about Small Colleges

Yesterday afternoon I actually began working on my next project exploring the future of Christian Higher Education (I’m one and a half pages into the project!). As I was working in my local coffee shop, I got the afternoon update from the Chronicle of Higher Education, which included the following news (reposted here in its entirety):

Small Colleges’ Closure Rate Could Triple by 2017, Moody’s Says

By 2017, the closure rate of small colleges is likely to triple from the rate of the past decade, according to a new report from Moody’s Investors Service that is available to the service’s subscribers. That will amount to a “small but notable rise” in the number of institutions that will shut their doors or merge, according to the report.

The service cites patterns of limited revenue growth and declining enrollment, particularly among the smallest of private colleges.

The closure rate of small colleges was relatively low during the past decade, the report notes, with roughly five institutions closing per year. The number of mergers averaged two to three in that period, and that rate will more than double by 2017, according to the report.

Honestly, sometimes I think these stories are planted by university trustees who want to make dramatic changes and Wolfneed to explain how we’re all on the verge of dying.

My first reaction was to learn more about the actual statistics. I did what all academics would do, I googled it. What I found is that Moody’s has been making a very similar prediction every year for the last decade.

My second reaction was to wonder what “closure rate tripling” really meant. When you land on the actual Moody’s news release, they explain that while the rate could triple, it would remain at less than 1% of affected schools. If I’m reading this correctly, the closure rate might “jump” from .33% to as much as 1%.

They set the standard for small colleges based on total revenues under $100,000,000. When I read that, I realized that all five of the Christian Colleges I’ve served had budgets under $100 million. In four of the five, I actually saw the budget shrink in response to financial pressures. As one of my current colleagues puts it, that’s just good management. If revenues shrink due to lower enrollment, higher discount rates, declining gift income, some form of adjustment to expenditures is required.

That doesn’t mean that those adjustments are easy. Enrollment pressures hurt long-term planing. Salaries freezes or additional courses hurt morale, potentially lowering faculty/staff retention. Administrators have many sleepless nights trying to figure out how to get from the current crisis to the end of the fiscal year.

I tend to set the benchmark for struggling colleges based on enrollment. In my experience, a school needs to have a minimum of 1200 students to be able to weather the ups and downs of economic shifts. In addition, some programming outside the traditional 18-22 residential market is a good hedge against demographic changes — online programming, degree completion, or a robust graduate program in professional areas. The central thrust of the institutional mission still rests with the traditional population (which is how our schools distinguish themselves from for-profit competitors) but we can’t afford to be myopic in terms of programming.

Two of my schools had less than 500 undergraduates. This made for a continual sense of fiscal crisis. As Moody’s said, it was difficult to compete with institutions with better amenities but the small-institution embrace of community seemed to offset that. In terms of finances, it seemed that there was an annual problem. Not usually the same one but the fact that the school operated so close to the bone meant that any discovered over-expenditure or inadequate-budget jumped up and bit us during the year. The only bright spot in this is that we learned exactly what the budget assumptions were and knew where to respond.

The other three were larger with between 1400 and 2200 undergraduates. An enrollment swing was still problematic and required adjusting the budget but there was enough critical mass to allow those changes even if they were painful. Obviously, a school that saw its enrollment shrink from 1400 to 900 would be in major crisis and would have to significantly rethink its offerings, staffing, and student programming.

Many of the stories about “will small colleges survive” happen on the heels of a closing announcement. I try to track these carefully. Some of these bear little resemblance to most of the schools in the CCCU.

For example, Marian Court closed this summer. For most of its history, it had been a two-year secretarial college and just tried to move to a four year school. It’s last graduating class had 64 students.

Tennessee Temple University in Chattanooga announced that they were merging with North Carolina’s Piedmont International University. Temple at one time had 4000 students and had between 250 and 400 (depending on the news report) by the time of the merger announcement. Their Wikipedia page documents all the attempts at mergers, fundraising appeals, and property sales that were supposed to keep it afloat.

Another closure announced this spring was HBCU Knoxville College. It lost it’s SACS accreditation in 1997 and has been trying to solve its financial issues for decades. It April it notified the Tennessee Higher Ed Commission that it wouldn’t offer classes this fall for its 11 students.

One more thing that fits into Moody’s “small college” prediction. The Department of Education has a fairly open means of categorizing colleges. If you go to the IPEDS site (educational statistics for geeky types like me), you can find over 1500 four year schools with revenues under $100 million. But these include all kinds of special interest, vocational, and seminaries that don’t fit my enrollment criteria above. (Reporting on the DOE scorecard released a couple of weeks back showed a tremendous number of Beauty Colleges in the for-profit higher ed count.)

When I selected schools with bachelor’s degrees, private four year status, and budgets under $100 million, the count drops to about 470. But I’d argue that the closure rate for those would be substantially less than for those special interest schools in the previous paragraph. It’s like reading the college debt or loan default statistics without controlling for the type of school involved.

I definitely agree that small special purpose institutions may struggle to attract long-term markets (that’s the ongoing Sweet Briar story). But to take generic stories about small college closure and generalize that across institutions is poor reporting, bad faith administration, and alarmist. In the long run, it keeps us from addressing those issues within our control that would strengthen our institutions on behalf of the students we serve.

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