The Principal Findings of The 2024 New England Survey

With a school deemed to be "at-risk" if normal operating  revenues would only cover normal operating expenses plus debt retirement and fixed asset investments not covered by debt for less than 3 years, here is the "at-risk" profile of the 44 mid-size private colleges and universities in New England at a range of declines in enrollment, not just 15%:

Anticipating Objections:

Why is a school deemed to be at risk based on a 15% decline in enrollment in the previous sections of this report?  Isn't that a worst case scenario? 

And isn't expecting schools to have Staying Power equal to or greater than 3 years too high a standard?  

And aren't the Staying Power averages presented here derived from a moment in time snapshot of 44 different school at the cash low point for the year for most of them?  

And if enrollment declines set in, won't that be for some time and wouldn't they do so gradually and give schools a chance to adjust?

And why assume student revenues would decline proportionate to the decline in headcount?  What if available dorm spaces would simply accommodate a higher percentage of the student body on campus? 

In Response:

First:  If the threshold is lowered to 10%, 22 of the 44 schools in The 2024 New England Survey would still be “at-risk” with their Staying Power averaging slightly more than 1 year and with a standard deviation that puts most below a 2 year threshold.  And even at 5%, 19 schools would be at risk. Indeed, assuming no decline in enrollment, 8 of the 44 are already at what would appear to be extreme risk. And the fact that the average Staying Power is well below the arbitrary 3 year threshold for all at risk schools on average at every assumed level of decline simply adds weight to the principal findings of the Survey. 

Second: The prevailing wisdom is that enrollments will, indeed, decline by somewhere between 10% and 15% overall over the next 5 to 10 years.  But demographics are not the only reason why enrollments are likely to decline.  Articles in the new media, magazines and journals about the public questioning the value of a college education in relation to cost  frequently appear alongside write ups on the "demographic cliff".   And while 16 of the 44 schools in The 2024 New England Survey had an increase in the size of their latest incoming classes of 9% this past year, 28 schools saw declines in the size of their incoming classes averaging 12.8%.  If the past year is any guide, declines in enrollment have already begun to set in.  

Third:  The low point of the year is precisely the time to test whether a school is vulnerable.  It does no good to have had extra cash in the bank in September and January when tuitions were flowing in if you can't pay the bills over the dog days of Summer.  

And finally:  Reread the previous section - The Harsh Reality.   Serious cash shortages would set in quickly as enrollments begin to decline and grow exponentially.  And colleges and universities are not known to be fleet of foot.   And with respect to things like housing a higher percentage of students:  Of course there are some possible offsets depending on a school's particular circumstances.  But minor details do not change the big picture.  

SO THE PRINCIPAL FINDINGS OF THE 2024 NEW ENGLAND SURVEY ARE THAT POTENTIAL DECLINES IN ENROLLMENT WOULD PUT A SIGNIFICANT PORTION OF THE INDUSTRY AT QUANTIFIABLE RISK OF SERIOUS OPERATING CASH FLOW PROBLEMS.  THOSE PROBLEMS WOULD SET IN ALMOST IMMEDIATELY.  AND, DECLINING ENROLLMENT MAY HAVE ALREADY BEGUN. 

The notion that declining enrollments could create financial problems for schools is hardly novel or profound in any way. .  Indeed, for tuition dependent schools, it is stating the obvious.  But as long as the risk is discussed in abstract or general terms, it can take on little meaning for a school that feels secure, at the moment, in its financial place.  The New England Survey hangs numbers on the risk.  And they demonstrate quite conclusively that  the last thing any of the at risk schools in the study can afford to do at this time is feel secure.  

 An Observation and Some Advice:

Skeptical stakeholders often speculate that the administration of their school has "two sets of books"  And, indeed, it might.  But having "two sets of books" is not necessarily the deception that some assume it to be.

   
Without getting overly technical:  The operating budget of a college or university is usually presented based on Generally Accepted Accounting Principles, or "GAAP",  to conform with the Statement of Activities schedule in audited financial statements.  And, as noted, the operating surplus or deficit is just one component of the cash flow equation.  

 
The "second set of books" that administrations often rely on is one that takes the full cash flow equation into consideration.  And the best way for colleges and universities to allay  suspicions about there being a "second set of books"  is, simply, to share that critical information with their stakeholders.