Behind the scenes of colleges across the United States, institutions are struggling to pay their bills.
Why is this important: There is a math coming up in higher education – especially for small private liberal arts schools – that has taken years. Obviously, COVID-19 has accelerated some of the trends, but college finances have been suffering for some time.
- Government stimulus funds in the era of the pandemic have helped a large number of schools gain a year or two of financial trail.
- Yes, but: Restructuring advisers who work with higher education institutions as clients say there has been a slight increase in schools starting to explore financial transactions to avoid sinking.
Demography is fate: A falling birth rate means the pool of college-aged Americans has shrunk, and could it be as much as 15% less in the mid-2020s compared to the early 2000s.
Catch up quickly: Smaller, non-urban liberal arts schools are bearing the brunt of declining student numbers, more so than elite universities with huge endowments or large public schools that receive public funds.
- These schools “find it difficult to differentiate themselves from other small private liberal arts institutions” – and in the midst of intense competition, they end up offering substantial discounts on tuition fees to large numbers of students, he said. told Axios Matthew Roseman, head of bankruptcy practice at Cullen Dykman. .
- They are also often entirely dependent on tuition fees, with little or no endowment, he says.
Then COVID struck.
Schools have lost much of their income from room and board over the past year. And some of that might never return as distance learning grows.
The numbers of registrations this fall will be decisive for many.
Be smart: Colleges cannot file for Chapter 11 bankruptcy the same way insolvent businesses do because they would lose accreditation and student access to federal loans.
- Banks and other lenders who provide college loans are generally willing to offer more leeway to corporate borrowers than they would – with term extensions and other reliefs, says Mark Podgainy, managing director of consultant Getzler Henrich.
- No bank wants to see the headlines about it throwing kids out of school, he said.
- In return, lenders typically require universities to strengthen their balance sheets, by mortgaging or selling real estate, or entering into a merger and acquisition or cost-sharing transaction with another school.
If a school still can’t survive, the insolvency process it uses is called a ‘teach-out’ – where another school takes over its facilities and offers classes to students, while the old school liquidates its assets.
- Higher Ed Dive has listed recent transactions in higher education, finding at least 18 schools closed or consolidated into another institution in 2019 and 2020, after 25 such transactions in the previous two years. here is a instantaneous of some of these agreements.
The plot: A new playbook could emerge for struggling schools if a recent three-way reunion around the University of Bridgeport in Connecticut goes as planned.
- Goodwin University acquired the University of Bridgeport real estate and academic programs. Meanwhile, the Paier Art College will move at the Bridgeport campus and share resources. The three will remain independent institutions.
The bottom line: Students typically don’t assess a school’s means to pay its bills when choosing a college, but they are the ones most at risk of losing the most from closures. The earlier schools deal with their problems, the more they will be able to provide a smooth path for students to complete their degrees.