With Respect to Endowment: On average, all schools - at-risk or not - are already drawing amounts on their endowments that are what is considered a prudent maximum. And the trend for endowment draw is up. Now, of course, the quasi endowment portion of the total endowments - which is all that is showing here since the principal of the rest of the endowment cannot be touched - could be removed from the endowment, in part or in whole, to fund operations. But that would require Board approval and such a step would normally be considered a measure of last resort.
With Respect to Fixed Assets: For the most part, college and university debt is in the form of revenue bonds that are secured simply by cash flows. So it is difficult to define a school’s borrowing capacity. But let’s use the commercial real estate model as a proxy and say a school’s debt capacity is 70% of the book value of its fixed assets. Credit rating agencies and potential buyers of bonds are quite aware of the enrollment challenges colleges and universities will face. And at a certain point, higher returns in terms of interest don't compensate for potential losses in the event of default. And what The 2024 New England Survey data are saying about Staying Power is that the risk of default for many schools could move out of the realm of speculation in short order if they do not prepare in advance. And even if the average school could secure an additional $40 million in cash by taking on more debt, servicing that debt would deplete future cash flows and provide relief for a very short period of time as you will see in a moment.
There's always the possibility of selling assets - whether those are real estate or other types of valuable assets like art collections - to raise cash. A few schools in the Greater Boston area have tried that sort of thing. It didn't go so well in terms of news coverage and the reaction from stakeholders, including alumni. Assets pledged as collateral on debt cannot be sold. But if assets can be sold, the proceeds would have to be quite significant to do anything other than delay the inevitable unless the school uses the bought time to make other necessary adjustments.
