Future of Division III

[ronk]

I saw this update regarding Smith in the Forbes article this morning:

Update: Smith College, which likely would have been subject to the 4% tax given its 2023 stats—an endowment worth $2.47 billion, which worked out to $780,000 for each of its 3,192 students—contacted Forbes on July 8 to note that its full-time tuition-paying student enrollment is now below 3,000. The school currently pays a 1.4% tax on its endowment (worth $2.6 billion as of June 30, 2024). Starting in January, Smith will likely be exempt from an endowment tax. Smith declined to say how much tax it has been paying.

According to NCES, Smith's enrollment in 2023 was only 2830 (2506 undergraduate, 324 graduate), and according to the school's own "Fall Enrollments" document was, depending on how you count, either around 2600 or ~2700.  It's interesting to note the NCES numbers for 2023 and Smith's own numbers on this page don't exactly match with a difference of over 100. 

 Sounds like incentive to purposely keep your enrollment under 3000.

[Ron Boerger]

I saw this update regarding Smith in the Forbes article this morning:

Update: Smith College, which likely would have been subject to the 4% tax given its 2023 stats—an endowment worth $2.47 billion, which worked out to $780,000 for each of its 3,192 students—contacted Forbes on July 8 to note that its full-time tuition-paying student enrollment is now below 3,000. The school currently pays a 1.4% tax on its endowment (worth $2.6 billion as of June 30, 2024). Starting in January, Smith will likely be exempt from an endowment tax. Smith declined to say how much tax it has been paying.

According to NCES, Smith's enrollment in 2023 was only 2830 (2506 undergraduate, 324 graduate), and according to the school's own "Fall Enrollments" document was, depending on how you count, either around 2600 or ~2700.  It's interesting to note the NCES numbers for 2023 and Smith's own numbers on this page don't exactly match with a difference of over 100. 

 Sounds like incentive to purposely keep your enrollment under 3000.

At least until the goalposts get moved again.

[Ron Boerger]

Former D3 Cazenovia College, which shut down due to financial issues two years ago, will be purchased by a group of local investors who will turn it into "a space for business, innovation, living, and leisure".  According to syracuse.com the group agreed to spend $9.5M to purchase the campus, including its equine facility.  The local group 9 Fresh says "Stay tuned – we'll be sharing more in the coming weeks."

The deal isn't totally baked as only an "agreement in principle to purchase" has been announced.

[Ron Boerger]

According to Fitch Ratings, "{o}perating margins at private nonprofit colleges have plummeted to their lowest levels in over a decade due to growing financial challenges, especially for tuition-dependent institutions".  The median adjusted operating margin for the 56 private nonprofit colleges in Fitch's portfolio fell to -2.0% and is expected to fall further due to reductions in federal support.

As noted, the expected decline in high school graduates will be another contributing factor.

[y_jack_lok]

According to Fitch Ratings, "{o}perating margins at private nonprofit colleges have plummeted to their lowest levels in over a decade due to growing financial challenges, especially for tuition-dependent institutions".  The median adjusted operating margin for the 56 private nonprofit colleges in Fitch's portfolio fell to -2.0% and is expected to fall further due to reductions in federal support.

As noted, the expected decline in high school graduates will be another contributing factor.

I'm not passing judgment on the accuracy of the above. However, if the Fitch analysis is based on 56 private non-profit colleges "in their portfolio' (what does that mean?) that is probably less than 10% of the number of such colleges in the country. So, is that enough of a sample to draw a firm conclusion?

I have to admit that I knew nothing about Fitch before your post. I've been to their website and tried to find out exactly which 56 institutions are "in their portfolio". I've also done a general Google search for same and the "AI Overview" only comes up with four names (Maryville U in Saint Louis, Maryland Institute College of Art, Midwestern University, and Grand Canyon University).

[jknezek]

I'm not passing judgment on the accuracy of the above. However, if the Fitch analysis is based on 56 private non-profit colleges "in their portfolio' (what does that mean?) that is probably less than 10% of the number of such colleges in the country. So, is that enough of a sample to draw a firm conclusion?

I have to admit that I knew nothing about Fitch before your post. I've been to their website and tried to find out exactly which 56 institutions are "in their portfolio". I've also done a general Google search for same and the "AI Overview" only comes up with four names (Maryville U in Saint Louis, Maryland Institute College of Art, Midwestern University, and Grand Canyon University).

You have to be a Fitch subscriber for that info. Which unfortunately I am not, even on the business side. However, Fitch is a well-respected rating agency. I suspect the 50+ colleges represent a few from each rating they assign, a few large, a few small, etc. Enough for a broad overview, not enough to apply the analysis down chain to individual schools. However, if your school has a general, non-special revenue, bond issue outstanding, and Fitch rates it, you can reasonably infer how much trouble Fitch, or other respected ratings agencies like S&P and Moodys, thinks the school is in for the issue.

For example, W&L has about 28 bond issues for $150 million outstanding. Most are municipals, uninsured, tax-free, and they carry a AA2/AA rating from Moody's and S&P. Not rated by Fitch apparently, so W&L would probably not be in their portfolio. R-MC carries about 43M outstanding in 43 issues. Most are municipals, all are uninsured, all are tax-free, and they carry a A rating from S&P. So again, not Fitch rated, unlikely to be in the portfolio.

Neither school would be rated anywhere near distressed. Sweet Briar, on the other hand, who has had their issues, has only 7.5M outstanding in a handful of issues, but they are rated BB+, much more or a distressed rating. Why did I choose these 3? Because 1) they are ODAC schools and we both are ODAC people, 2) they are colleges we'd be interested in, 3) it shows the variation, and 4) it shows that debt, in and of itself, is not bad. W&L carries the most, but has the ability to carry the most and is the highest rated. Sweet Briar carries the least, probably shouldn't even have that much, and is the worst rated.

So if you are a parent looking for a place to drop 100K or so over the next 4 years and want to be fairly certain the school will be around until your kid graduates, check the endowment. Make sure it's $250M or more. Make sure it hasn't been cut in half over the last few years. Check the enrollment. Some attrition since COVID, sure. 25% or more? Not good. Check the recent news. You don't have to go crazy, just look at the headlines. And check a bond issue or two. You can usually Google it. A ratings and above, pretty good. BBB, ok. BB, getting bad. B or below? Not good.

There are few things as expensive as a college education that we will buy in our lifetimes. We research houses, cars, wedding rings, the major purchases. Start doing more research on schools than just which one your kid likes. While that is important, they are going to spend 4 or so years there presumably, it's not the end-all, be-all when you are writing pretty massive checks.

[y_jack_lok]

^^^ Good stuff. Thanks. Gotta say, I'm glad I'm really old and my kid is long since out of college. I would not want to be navigating the college admissions and financing challenges that exist now.

[Kuiper]

Albright made dramatic cuts to avoid closure. Experts say its financial future is still murky.

Albright College says it ended its recent fiscal year with a more than $10 million surplus, zeroing out its deficit by slashing operational costs, eliminating half of its full-time staff, and selling unused property and other assets.

Still, experts warn that windfall does not guarantee long-term financial health, since much of the revenue was raised using one-time maneuvers. The numbers presented by the liberal arts college are also not audited, meaning they haven't been reviewed by a third party and could be unreliable.

***

In recent years, Albright's net income margin — a key indicator of the college's financial health and efficiency — has tanked, dropping lower than those of closed peers like the University of the Arts and Cabrini and Clarks Summit universities, data compiled through the Private College Advanced Financial Compass show (they were shared with Spotlight PA by College Viability, LLC).

After Albright's faculty voted "no confidence" in then-President Jacquelyn Fetrow in April 2024, its Board of Trustees brought in new administrators and laid off 53 employees. The school also canceled some academic majors, and sold property and artwork.

In December, the college received permission to borrow up to $25 million of its endowment fund to prevent "the risk of closure." Two months later, administrators told Reading City Council that the college was not in danger of closing because of the efforts to "right-size" the institution.

Administrators have touted this quick turnaround in recent news releases and donation requests, telling Reading City Council members in February that Albright would be "budget-neutral, if not budget-positive" by the summer.

Higher education experts, however, say it's difficult to turn around a college by cutting expenses alone. Successful recoveries require "multiple points of entry" to generate revenue, said Lynn Pasquerella, president of the American Association of Colleges and Universities. (The group advocates on behalf of many higher ed institutions in Pennsylvania, but Albright is not a member.)

"It's very difficult to cut your way to financial sustainability," Pasquerella said. "It really does require an investment: alumni giving grants, support at the state and federal level."

Gary Stocker, founder of the app College Viability, LLC, stressed that Albright's current surplus relies on one-time revenue, which isn't sustainable.

"At the end of the day, they still need to generate positive cash from operations," he told Spotlight PA. "I hate to be redundant, but ... you have a local symptom of a national disease."

Moving forward, Albright aims to attract more students through expanding athletics programs and phasing out less popular majors like economics and philosophy with ones that are in demand like cybersecurity, according to Larry Bomback, interim chief financial officer and vice president of finance.

"It is the result of these one-time things which are not going to be repeatable, but this does give us the runway that we need to get into next year, so that we can see all these enrollment changes and programmatic changes ... really take full effect," he said.
'Gigantic structural deficit'

Bomback doesn't deny that the college was in rough shape financially. Albright was at "significant risk of closure," he said.

"If nothing had happened this past year, I am pretty sure Albright would have been following a similar fate as some of those other colleges," he said, adding the school didn't have the "luxury" of time. "We had to cut costs immediately because there was this gigantic structural deficit."

Former and current faculty and staff say they spent the past several years sounding the alarm, but the Board of Trustees didn't heed them. In February, administrators told Reading City Council the college only ran deficits in 2023 and 2024. But records show Albright had been deeply in the hole since 2018.

Fetrow announced in May 2024 that she would resign as president amid mounting questions about the school's finances. The board then hired Debra Townsley, touting her "experience in controlling spending while increasing enrollment and fundraising."

Since taking over, the new administration has sold unused property, gaining $13.8 million in one-time revenue. The college has also received nearly $4 million in unrestricted donations since January, Bomback said. Albright is also looking to cut down on how much it uses its endowment fund, he added.

College leadership has also taken steps to reduce expenses through making programmatic changes and whittling staff from 360 full-time employees to 210. Looking for more sustainable revenue, the college is raising tuition and room and board this fall.

'All in on athletics'

Key to Albright's turnaround will be reversing the college's plummeting enrollment, which has dropped nearly 50% since 2016.

***

Relying upon athletics to power enrollment sounds like a plausible strategy until you realize everyone else is trying to do the same. That makes it harder to increase your market share when the pool of potential candidates are dwindling.

[Ryan Scott (Hoops Fan)]

From experience, when you make draconian cuts to balance a budget you cannot calculate the impact on morale.  Moving too quickly might satisfy the creditors and accreditors, but it will also hasten your decline.  I wish all the best for Albright, but this is a tricky situation to navigate.

[Ron Boerger]

I'd sure like to see where the $10M surplus came from (and will have a chance in a year or so when the 990 for the FY just ended becomes available).  If it's totally from one-time sales, disposition of assets, non-repeatable donations and the like then all they did was buy some time.  And bringing in more athletes if you have to suffer a 60% discount rate to get them to come isn't a winning strategy.

[WUPHF]

I'd sure like to see where the $10M surplus came from (and will have a chance in a year or so when the 990 for the FY just ended becomes available).  If it's totally from one-time sales, disposition of assets, non-repeatable donations and the like then all they did was buy some time.  And bringing in more athletes if you have to suffer a 60% discount rate to get them to come isn't a winning strategy.

The majority of the surplus comes from the sale of unused property, in all likelihood.  That they might have $10M in strip malls, family farms, and other unused commercial or residential surprising is not at all surprising.

[IC798891]

The thing I can't quite wrap my head around is, what "going all in" on athletics looks like. Albright's already got a robust athletics program, in terms of what they offer. They're adding men's wrestling (which seems like it makes women's wrestling the obvious next move) and women's stunt. But they've already got 19 teams. They don't have swimming, and from a cursory glance on the web, it doesn't look like they have required existing facilities needed to add it.

So, is the plan to just try and attract more athletes to the sports you're struggling to do so already? (The track teams strike me as very small)

[Ron Boerger]

The thing I can't quite wrap my head around is, what "going all in" on athletics looks like. Albright's already got a robust athletics program, in terms of what they offer. They're adding men's wrestling (which seems like it makes women's wrestling the obvious next move) and women's stunt. But they've already got 19 teams. They don't have swimming, and from a cursory glance on the web, it doesn't look like they have required existing facilities needed to add it.

So, is the plan to just try and attract more athletes to the sports you're struggling to do so already? (The track teams strike me as very small)

According to the DoE's Equity in Athletics site, Albright had 1,215 FTE in the last year for which data was available (2023?), of which there were 324 male and 145 female athletes after duplicates were removed - nearly 40% of enrollment are athletes.  Lightly endowed schools that get much higher than that don't have much success in the long run.

And if I'd only *read the freaking article* I would have seen that they gained $13.8M in one-time revenue and nearly $4M in donations, so absent that they would have lost around $8M last year.   That would be an improvement over the '23-'24 year when they lost $22.7M and the '22-'23 year when they lost $27.8M, but at the end of '23-'24 they had $155M in liabilities and $224M in assets, liabilities having increased by nearly $50M in that one year.   The school listed $53M in endowments at the end of the year, but also $76+M in "lease liabililties", the increase in which accounted for most of the increase in liabilities over the prior year.

[Ralph Turner]

Forgive me the diversion on this conversation, but it is the off-season when we are waiting.

Having significant familial ties to Auburn thru my two daughters (War Eagle), we look forward to the Monday podcast of SEC Shorts, an absolutely creative parody site that is so good, one even has to laugh as how steadily they skewered your own favorite school.

I share with you their most recent production, which will strike responsive chords on this forum.

SEC Shorts - The past learns what happens to college football in the future

https://www.youtube.com/watch?v=jYoloKX9VRc

Enjoy!

[lefty2]

The thing I can't quite wrap my head around is, what "going all in" on athletics looks like. Albright's already got a robust athletics program, in terms of what they offer. They're adding men's wrestling (which seems like it makes women's wrestling the obvious next move) and women's stunt. But they've already got 19 teams. They don't have swimming, and from a cursory glance on the web, it doesn't look like they have required existing facilities needed to add it.

So, is the plan to just try and attract more athletes to the sports you're struggling to do so already? (The track teams strike me as very small)

According to the DoE's Equity in Athletics site, Albright had 1,215 FTE in the last year for which data was available (2023?), of which there were 324 male and 145 female athletes after duplicates were removed - nearly 40% of enrollment are athletes.  Lightly endowed schools that get much higher than that don't have much success in the long run.

And if I'd only *read the freaking article* I would have seen that they gained $13.8M in one-time revenue and nearly $4M in donations, so absent that they would have lost around $8M last year.  That would be an improvement over the '23-'24 year when they lost $22.7M and the '22-'23 year when they lost $27.8M, but at the end of '23-'24 they had $155M in liabilities and $224M in assets, liabilities having increased by nearly $50M in that one year.  The school listed $53M in endowments at the end of the year, but also $76+M in "lease liabililties", the increase in which accounted for most of the increase in liabilities over the prior year.

Albright dropped swimming a year ago.  They were dominant in the MAC on the women's side in the 2000s and on the men's side in the 2010s.