Rare College Closings Could Increase During Prolonged Economic Downturn
For 15 years, Cascade College in Portland, Ore., struggled to find the fuels that any college needs: students to pay tuition and donors to help build an endowment.
Then came the global economic meltdown, and suddenly that struggle became an impossibility.
Late last month, the small Christian college with just 280 students and $4 million in debt announced it would have to shut down at the end of the current academic year.
“Our hearts would have said we would like to continue trying,” said Cascade President Bill Goad, somberly adding that he never imagined his duties would include shutting the school down. But on top of their long-term challenges, “small colleges like Cascade just don’t have the slack to survive those kinds of impacts,” he said.
Colleges are remarkably resilient institutions. Princeton University’s Nassau Hall still bears the cannonball marks from the Revolutionary War battle that raged near campus. Dickinson and Bowdoin colleges saw their first buildings burn down, as did the University of Vermont, which also survived its first president going insane.
Still, every year, a handful of institutions go under. And while a wave of college closings is unlikely, the current economic turmoil could accelerate the pace.
In addition to Cascade, another Christian institution, Taylor University, announced last month it would close the undergraduate program at a branch campus in Fort Wayne, Ind., while Pillsbury Baptist Bible College in Owatonna, Minn., announced plans to close.
If more college closing announcements come, it would likely be next semester, or next fall, when schools find out how many of their students don’t return.
“We’ve seen what’s happened to family income, the financial assets of so many families,”’ said Matt Hamill, senior vice president of NACUBO, a college business officers group. The key question, he said, is “how that will manifest itself when it comes time to enroll next fall.”
There are about 4,400 colleges in the United States, and the American Council on Education has records showing that only four closed in 2007.
Mergers are somewhat more common, but outright closing is rare for several reasons. Nonprofit colleges don’t have to please Wall Street, and many have endowments they can tap in emergencies. They also have an enviable business model. Students pay up front, often with large government subsidies. And colleges sell a product — education — that families have proved willing to pay more and more for each year, notes Roger Goodman, who analyzes college finances for Moody’s Investors Service.
Still, even before the economic crisis, many small colleges were battling long-term challenges, from demographic changes away from the Midwest and Northeast, where many schools are located, to the perpetual difficulty of making the case that they are worth the extra cost over a state school.
While 76 institutions had endowments over $1 billion last year, according to NACUBO figures, about one-third had less than $50 million — even before the downturn. And NACUBO only reports figures from about 800 colleges; the rest have zero or negligible extra cash.
Some colleges — like American consumers and homeowners — may discover they took on more debt than they should have, lured by low interest rates and ambitious growth plans. Moody’s figures on private colleges show median debt up 50 percent over the last five years.
That didn’t look like a problem, since revenue and donations have also been rising. But in recent months, like homeowners stuck in a variable-rate mortgage, some schools have seen their debt payments surge, thanks to the collapse of a complicated line of dominoes that includes bond insurers and banks.
Instead of holding long-term debt at lower interest rates, they have gotten stuck with short-term obligations at higher rates — a scenario they knew existed on paper but never expected to happen.
Others have become collateral damage from the collapse of Wall Street firms. Simmons College in Boston was placed on a watch list for a ratings downgrade because of an estimated $10 million exposure in a complex interest rate swap deal with now-bankrupt Lehman Brothers.
The financial crisis is “clearly very serious,” said Paul Corts, president of the Council for Christian Colleges & Universities.
“I think people are sensing that this is not short-term,” he added. “It’s something that’s going to take a couple of years to play out.”
Enrollment at the 102 CCCU campuses grew 71 percent between 1990 and 2004, and Corts says he has no reason to believe member schools will close.
But, “then again, nobody knows what the ultimate extent of this whole financial crisis is going to be,” he said.
Another potentially vulnerable group is historically black colleges, which, like Christian schools, have a limited recruiting pool. Some such institutions, like Morehouse and Spelman, have healthy endowments.
But others are more fragile, especially those with low graduation rates. Banks are tightening up credit standards, and increasingly denying students at schools where students are too likely to drop out. The Journal of Blacks in Higher Education has reported that there are 23 historically black colleges where more than two-thirds of entering black students fail to earn a diploma.
At St. Paul’s College in Lawrenceville, Va., the graduation rate fell from about one-third to under 10 percent between 2002 and 2006, according to federal numbers collected by the The Education Trust.
College President Robert Satcher said that percentage is higher now, but acknowledged the school faces serious financial challenges.
It needs to add at least another 200 students to reach its goal of 1,000, and somehow despite the downturn must raise money to boost its tiny $4.5 million endowment.
Some students haven’t been paying bills, and St. Paul’s is bracing for a cut in grants the state of Virginia offers to students.
“I am confident we’ll be able to survive,” Satcher said.
But, he added, “there’s going to be some difficult days ahead.”
All colleges contribute to the colorful tapestry of American higher education, and something is lost when they disappear.
Goad said “micro-colleges” like Cascade, which was a branch campus of Oklahoma Christian University, offer students a level of personal mentoring that they often don’t find at other schools.
When the schools close, there’s also a loss for the faith communities they are affiliated with — in Cascade’s case, the Churches of Christ.
But Cascade would have needed a base of 500 students to survive, and an endowment 10 times its current $1.5 million.
Cascade students will be able to move to Oklahoma Christian, or transfer their credits to other colleges. A K-12 school next door will rent some of the campus facilities.
“I wish this hadn’t been the outcome,” Goad said. “But I’m committed, and I hope this campus is committed, to finishing well.”