Reinterpretation of Small Colleges and Their Struggles is Certainly Overdue

Will Wootton authored an interesting post, "The Real Reason Why Small Colleges Fail," for The Chronicle of Higher Education.  He comments that he takes Burlington College's demise personally and that the closure "...like a number of other small institutions recently shuttered or nearly so, reinforces the idea that such institutions are inherently frail, that their size renders them unsustainable.  Conflating that stereotype with assumptions about academic quality, curricula, student success, and institutional history leads to a conclusion that small colleges are suspect--they must be because they fail."

Wootton's post certainly struck a chord.  He notes that 30% of private nonprofit institutions in the United States have enrollments under 1,000 and then comments, "...I can tell you from experience that if it were small size alone, if the diseconomy of scale were that overwhelming, then all these places would have expired years ago..."

Review of changes in financial ratios using an approach from thesustainableuniversity.com certainly underscores Wootton's commentary.  Stars are placed on the diagram below for three of the institutions mentioned in the article based on changes in their equity and expense ratios from FY2011 through FY2015.  None of the three stars fall in the financially unsustainable section of the grid, even though the fall 2015 f.t.e. enrollments ranged from 112 to 360 students.

Financially sound does not imply there are no struggles, but for the moment, these institutions are not in the unsustainable position others are facing.

Out of personal interest, I placed another star for Martin University after posting their recent announcement that they will be adding a fascinating teacher education program in fall 2017.  Martin U. was founded in 1977 and their fall 2015 f.t.e. was 262.  Martin also appears to be financially sound and they appear to be moving forward in a determined way by working with other local partners to meet a serious local need.  The new program is consistent with their mission to serve people in the neighborhoods of Indianapolis where Martin is located.  I'm guessing they will do just fine!

So, what about other small colleges?  I focused on roughly 300 institutions with f.t.e. enrollments between 250 to 750 students that submitted financial data to IPEDS permitting calculation of equity and expense ratios for two different periods, from FY2004 through FY2008 and from FY2011 through FT2015.  The resulting picture is one of relative stability and once again supports the argument Wootton makes in his article.   

Over one hundred of the institutions, roughly one-third, of these very small institutions, appear to be financially sound in both time periods.  And, in spite of a lot of blog posts and other rhetoric or hand wringing, the number of financially unsustainable institutions decreased from 100 to 86.

So, I agree with Wootton that we need a more nuanced conversation when it comes to small colleges and universities.  Some are under sufficient stress that they will close...however, there are also many that are managed in such a way that they will likely be able to continue serving for many, many years.

The risk of seeing small enrollments as a problem is that the usual prescription then calls for chasing enrollment.  We've all seen how this can lead to unsustainable policies with respect to discount rates or use of debt financing.  

Managing expenses to match revenues is a difficult endeavor in the best of times.  And, I'm guessing there are a number of business managers and trustees serving financial committees of boards that deserve a lot more praise than they have received!!

Small Colleges #2: Enrollment

The initial post in this series provided an overview of 364 small institutions with enrollments of less than 1,000.  

When one closes, like Saint Paul's College in Virginia did a little over a year ago, there can be a flurry of articles sounding similar themes.  As an example, the Chronicle ran an article "College's Closure Signals Problems for Others"  the following month that included a quote from Moody's Investor's Services, “The pending closure is credit negative for a small subset of the higher-education sector with similar attributes to Saint Paul’s and other closed colleges: very small, private colleges with a high reliance on student charges, indistinct market positions, and limited donor support,”  Further in the article, a Moody’s analysts said. “We anticipate more closures for these types of colleges given the current pressures on all higher-education revenue sources and increased accreditation scrutiny.”

So, how are the small, private colleges fairing?  This second post will focus on changes in enrollment over the past decade.  A third post will follow with a look at changes in common financial variables like tuition, net price, and endowments.  I'll then have a fourth post where I share my experiences using a couple of financial ratios to draw conclusions about the financial health of these small colleges.

Enrollment:  Changes in enrollment are probably the most widely watched variable at most institutions.  This is particularly true at small colleges where there is little margin for error and tuition is often the principle source of revenue.  FTE enrollment provides a common measuring stick among institutions that may or may not have graduate students or others that may or may not have not have many part-time students.

FTE enrollment for the small institutions as a group was very stable  over the ten year period. The chart below and the table that immediately follows include mean and median enrollment figures.

Enrollment across all the institutions increased by 1,663 or one-tenth of a percent and the mean values only increased by one student.

How do the figures for the small institutions contrast with changes during the same period among all U.S. degree granting institutions? Whether by design or due to difficulty in attracting students, the small institutions experienced very modest growth in enrollment when compared with the broader measure of U.S. fte enrollment which increased 23%.

Source: http://nces.ed.gov/programs/digest/d13/tables/dt13_307.10.asp

Though enrollment appears stable to modestly higher when looking at the small group statistics, there are difference among the small institutions when viewed by Carnegie classification or when you look at individual institutions.  Two hundred-one (201) of the small institutions in this study reported increasing enrollment for the ten year period and 158 saw declines in enrollment. 

Baccalaureate institutions and the tribal colleges were the two categories seeing overall declines in enrollment.  Among the other categories, institutions focusing on medical and health professions, schools of art, music and design, and schools of business or engineering recorded double digit increases.

Different patterns of enrollment change are also certainly evident at the institutional level.  The following table includes the five institutions with the largest increases and the five with the largest decreases for the decade.  In the latter group, Virginia Intermont College closed this past spring.  Paul Quinn College has struggled for some time and Wilberforce University has been in the news this year as welcomed a new president and launched a fundraising effort to avoid possible loss of accreditation.

Thanks for reading and I certainly look forward to hearing your thoughts or questions!

Small Colleges: A Reappraisal of Common Wisdom

I really enjoyed reading about Shimer College this past week in Jon Ronson's interesting article for The Guardian.  Shimer, founded in 1853, has never had large numbers of students and apparently has fewer than 100 students now.  Yet, it somehow survives and given the emotional responses of students and alumni, will likely do so for a while.

Ronson mentioned in his article that Shimer is the second smallest institution now in the U.S....though there are actually several more that are smaller.  So, I thought it might be interesting to learn and share a bit more about this part of our higher education system.

Watch for several more posts over the next few days.  I'll also look forward to hearing your thoughts or questions!

I started this project by identifying the 364 public and independent institutions with f.t.e enrollments less than 1,000 in the 2013-14 academic year.  You can zoom in using the map below to find their names and locations.


This group excluded for-profits, institutions that operate outside the Carnegie and IPEDS systems for classification and data gathering, and a few institutions with gaps in their IPEDS data.  The remaining institutions were then divided into eight groups using their Carnegie basic 2010 classification and the Summary table below provides the most recent basic information on enrollments and endowments reported to IPEDS.

There is diversity of mission among the institutions, though nearly 80% of these small schools are either baccalaureate institutions or are classified as seminaries, bible colleges, or faith-based institutions.
 

Twenty-five percent of the institutions appear to be totally dependent on tuition and annual gifts since they do not have endowments or report endowment returns.  Among the remaining 272 institutions, wide differences in wealth are reflected in disparities between mean and median endowments.

I pulled and ranked the ten small institutions with the largest endowments in the following table.  While future posts will provide more analysis of the less well off institutions, I think it is good to recall this list when someone makes blanket claims that small institutions must change or close.  Some appear to be small by design.