Colleges in Crisis: How Private Colleges and Universities Can Survive?

By Michael Townsley and Debra Townsley

Colleges in Crisis describes how the Covid and a shrinking birth rate over the last decade will devastate private colleges and universities if they cannot quickly transform their curriculum, operations, and marketing methods. The book offers two turnaround strategies that have been successfully used over the last twenty years. In addition, the book discusses the obstacles that leaders will face in conducting a transformational turnaround.

• Language: English
• Publisher: Gatekeeper Press
• Release date: Feb 15, 2021
• ISBN: 9781662907449

Book preview

Colleges in Crisis: How Private Colleges and Universities Can Survive?

Published by Gatekeeper Press

2167 Stringtown Rd, Suite 109

Columbus, OH 43123-2989

www.GatekeeperPress.com

Copyright © 2021 by Michael K. Townsley & Debra M. Townsley

All rights reserved. Neither this book, nor any parts within it may be sold or reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems without permission in writing from the author. The only exception is by a reviewer, who may quote short excerpts in a review.

The editorial work for this book is entirely the product of the author. Gatekeeper Press did not participate in and is not responsible for any aspect of this element.

Library of Congress Control Number: 2020952278

ISBN (paperback): 9781662907432

eISBN: 9781662907449

List of Figures and Charts

Authors’ Note of Appreciation

Authors’ Biography

Section I Private Colleges in Crisis

Chapter 1 Demographics Jeopardize the Stability of the Business Model

Chapter 2 Student Debt, Shifting Preference for Academic Majors, and Tuition Discounts

Chapter 3 Unforeseen Circumstances

Chapter 4 Evidence That Private Colleges Are Already Sliding into Financial Distress

Section II Resistance to Change in Times of Crisis

Chapter 5 Resistance to Change at Private Colleges

Chapter 6 First Concept: Contradictions of Dual Governance

Chapter 7 Second Concept: Faculty Tenure

Chapter 8 Third Concept: Political versus Hierarchical Decision-Making

Chapter 9 Fourth Concept: Constraints Imposed by Accreditors and Regulators

Chapter 10 Fifth Concept: Legal Constraints – Explicit and Implied

Chapter 11 Sixth Concept: The Mismatch between Human and Tangible Capital Investments

Chapter 12 The Structure of Strategy and Conflict

Section III Leadership and Strategy – Moving Beyond a Crisis

Chapter 13 Process for Implementing Change: Shared Governance Strategic Model

Chapter 14 Process for Implementing Change: President-Led Turnaround Transformation Model

Chapter 15 Strategies That Worked Prior to the Pandemic

Chapter 16 Existential Crisis!

Bibliography

Endnotes

Figure 1 Example of Supply, Demand, and Price in Higher Education

Chart 1 Birth Rates from 2010 to 2018

Chart 2 Birth Rates by Region from 2012 to 2018

Chart 3 First-Time Enrollment for Private, 4-Year Institutions 2010 to 2017

Chart 4 Projected Private, 4-Year, College-Going, High School Students by Region

Chart 5 Tuition Discount Rate: Actual Rates through 2018-19 and Projected Rates Through 2023-24 Using a Simple Regression

Chart 6 COVID Cases, Hospitalizations, and Deaths

Chart 7 Cases, Hospitalizations & Death Rates as Percentage for Nine Age Groups

Chart 8 Age Distribution of Students at Public and Private Nonprofit, Public Two-Year, and For-Profit Institutions (Image from National Center for Education Statistics)

Chart 9 Age Distribution of Faculty by Gender

Chart 10 Percentage of Nonprofit Colleges Reporting Financial Distress by the Department of Education for the Period: 2008 to 2017

List of Tables

Table 1 Enrollment for Private Colleges and Universities in Delaware

Table 2 Market Share for Private Colleges and Universities in Delaware

Table 3 Comparison: Underemployment Among Several Majors

Table 4 Count of Institutions and Average FTE for Table 5 Report

Table 5 FTE, FTFTE, and Total Expenses for Three Enrollment Sets From 2010 to 2017

The authors wish to extend appreciation for the many people who helped us during our preparation for Colleges in Crisis.

• John Minter for the data that he provided on higher education

• Robert deColfmacher for the articles that he found

• Bell Cooper for tracking down glossaries on data

• The Chronicle of Higher Education and Inside Higher Education for their extensive list of articles about the experience of colleges as they deal with the future of higher education.

We want to especially express gratitude to Stevens Strategy for assistance in funding the book. In addition, we want to thank Dr. John Stevens for his chapter on Shared Governance Strategic Model. Dr. Stevens has extensive experience working with private colleges and universities as they develop strategies and operational plans.

Michael K Townsley, Ph.D.

Michael Townsley has nearly 40 years of experience in higher education. He has held positions at Becker College as a Full Professor, Department Chair, and Academic Dean of Business and at Wilmington University as Business Manager, Vice-President for Finance, and Senior Vice-President. Dr. Townsley began his career in education in 1971 running a desegregation project, then he became a business manager, and supervisor of bus transportation. He is now a financial consultant for Stevens Strategies on financial analysis and strategies. For the last twenty years, Dr. Townsley has written several books and articles on finance in higher education.

Other Publications by Michael K Townsley, Ph.D.

- The Small College Guide to Financial Health (2003); NACUBO.

- Weathering Turbulent Times (2009); NACUBO.

- Financial Strategy for Higher Education: A Field Guide (2014); Stevens Strategy.

- Steve Hannagan; Prince of the Press Agents and Titan of Modern Public Relations (2020); Gatekeeper Press.

Debra M. Townsley, Ph.D.

Debra Townsley has 40 years of experience in higher education as a Professor, Department Chair, Academic Dean, and President of multiple institutions, including as an interim. She conducted successful turnarounds as President of Nichols College and William Peace University. Dr. Townsley has had considerable experience and success in leading colleges out of deep financial distress. Prior to her career in higher education she worked at IBM in marketing and at Booz, Allen & Hamilton as a senior consultant and project manager.

For the past forty years, many studies and columnists have predicted the demise of private colleges. Predictions were made that the end of the baby boom would lead to a massive number of college closures; however, private colleges were sufficiently nimble to pick-up the new trend of women and adults (or both) enrolling in college to earn or finish a degree. Rather than collapsing as predicted, the financial condition of private colleges actually improved. Then came the Y-2K recession, the 911 recession, and the deep financial recession of 2008. Though the recessions were heavy blows to the endowments of private colleges, and many faltered, they slowly recovered.

Now, a demographic melting away of prospective student pools threatens to devastate the financial reserves of many private colleges, in particular, small, tuition-dependent colleges. These key threats are already becoming more evident as private colleges close, seek merger partners, and try to restructure their operations. On top of these problems, private colleges and universities were forced to shut down in the middle of the Spring 2020 semester to protect their students from the COVID-19 virus. These shutdowns immediately aggravated any financial weakness, in particular inadequate cash reserves. Regrettably, the old adage, ‘cash is king’ rings true in a crisis. Moreover, the virus may well upend any attempts by struggling colleges to survive the demographic crisis.

In a 1997 article in The Chronicle of Higher Education, Arthur Levine, former President of Teachers College, Columbia University, contended that:

because higher education had left its growth stage, it should expect government to reduce its autonomy, increase regulation, and demand greater accountability.¹

Not only has government changed its relationship with higher education since 1997, state governments, in particular, reduced their financial support while the federal government has intervened more deeply through regulations (for example, Title IX, diversity, and sexual violence) and demand for more accountability of colleges (for example, gainful employment of graduates, financial responsibility tests, and the Cleary Reports on campus crimes). These actions by the federal and state governments have increased the cost of operation, diminished revenue, and limited the strategic options available to institutions of higher education. As Boeckenstedt noted in his article on A Collison Course with Reality,

… applications are skyrocketing; yield rates are falling; predictive models are failing us; discounts are rising; and – yes – colleges of some renown are starting to close. In retrospect, 2007 [the deep recession that led to fewer enrollments that have not yet recovered] seems to have been the tipping point, the final warning that we were on a collision course with reality.²

Although applications were skyrocketing, students are applying to many more schools before deciding where to attend. Bill Conley, Vice-President for Enrollment Management at Bucknell University, in an October 2019 article, reported on his impression of the growing crisis in higher education. According to Conley, the trend for higher education is not good news:

"… Bucknell University had a large and talented applicant pool for the Class of 2023. Setting an aggregate target of 980 (40 more than in 2017), our yield model indicated that our admit pool, plus 30 to 35 students from the wait list, would safely land us there by the first day of fall classes. This all changed on May 2. The enrollment-deposit spigot went dry considerably short of our goal. As it turned out, we would need to enroll about 100 students from our wait list. For classes entering between 2014 and 2016, the average number of colleges that would consider post deadline applications over that three-year span was 436. For the past three years, the average was 554 – a 27 percent increase.

"In the process of calling those wait-listed applicants, we learned that Bucknell was hardly alone in its shortfall. Up and down the selectivity ladder, especially among private colleges, yield models had been crushed under the weight of a sea change in student college-choice behavior.

This is my summer of 2019 takeaway: Higher education has fully entered a new structural reality. You’d be naïve to believe that most colleges will be able to ride out this unexpected wave as have previous swells.³

Two different articles in Moody’s Investors and Bloomberg News affirm the observations by Boeckenstedt and Conley. These two articles reported that the future does not bode well for many private colleges as they try to maintain financial viability in the face of a decade-long collapse in the prospective student pool.⁴

Investors are already dubious about the financial capacity of private colleges to cover their existing debt obligations, let alone make payments on new debt as falling enrollments shrink tuition revenue.⁵ If a college does arrange for a loan, financial markets will accommodate the higher risks of new debt and the lower probability of meeting debt covenants by raising interest rates and tightening debt covenants. Even when local banks loyally provide debt to a hometown college, they will have to toughen their covenant standards if they intend to sell the debt obligations to outside financial institutions. The upshot of financial markets responding to higher risks in providing debt to private colleges will either be much higher debt servicing costs or the exclusion of risky colleges from financial markets.

A sharp and sustained decline in the prospective student pool in most regions of the country will increase the risk that many private colleges and universities may not survive. Risk of financial downfall from a collapse of the prospective student pool directly follows from the business model employed at most private institutions in which enrollment drives revenue and this revenue source covers a substantial portion of operational expenses. Moreover, the operational structure of the business model tends to be inflexible because labor and assets cannot be quickly realigned due to long-term personnel contracts and legal instruments that set conditions on physical assets funded by debt instruments. Furthermore, the inflexibility of the business model is compounded by the dual governance structure in which decision authority is not concentrated but