Bottom line for a college is how revenues per student compares to expenditures per student. Pretty obvious. Like any business, you need margin.
The revenues per student is (i) net tuition revenue per student plus (ii) endowment revenue per student. (i) is by far the most important – can you fill seats with customers willing/able to pay enough. Only at the very very top are endowment dollars more than tuition dollars.
Cornell ($281k endowment per student), as an example, could (if it needed/wanted to) fill up 100% of its seats with full pay customers. People literally lining up to pay full sticker price. It could get by with a zero endowment if it had to. It has the luxury of using some of its tuition dollars and its endowment dollars to pursue things like diversity. It does not have to offer discounts to fill seats. It has no risk of going out of business. Just like Georgetown ($82k per student), Boston College ($148k), Wake ($191k), Hopkins ($165k). They are not going anywhere
A school at risk is one that is not in demand. So they have to offer discounts just to fill seats. A school with declining net revenue per student is at risk. If it doesn’t have a big endowment, then it has even less margin for error.
Sweet Briar was $132k endowment per student. Way better than Gtown, about the same as BC. It died because it could not bring tuition dollars. BC and Gtown are still open because they still can.
Gtown is also rock solid because it only spends $6,500 per student per year. Compare that to Harvard, which spends $51k per year.
That Georgetown number is not correct (unless you meant to say that it spends that much from the endowment per student). High schools spend more than that per student per year.
^ It’s likely the figure refers to endowment revenue/spending per student. The disparity was probably used to emphasize the endowment ranges under which colleges can successfully operate.
Northwesty has a good point. Sweet Briar had a drop in revenue (from tuition and fees) of 16% between 2008 and 2013 (14.5 million to 12.1 million) according to IPEDS data. Sweet Briar had to discount tuition to bring in new students. Schools with a stronger market position (e.g., Georgetown and BC) had correspondingly increasing revenues from tuition and fees during this time period.
Rather than doing a college by college assessment, you might be interested in this article published yesterday by Bloomberg News:
“College Presidents Worry Their Schools Won’t Survive:
Just 39 percent report confidence in their school’s financial sustainability over the next decade”
“don’t know any details about Starbucks franchises. Would it be possible for small, isolated colleges to set up a Starbucks franchise to make their campus more appealing to students from, well, just about anywhere in the continental US?”
Even an actual SBX on campus doesn’t matter if it’s perceived that other things appealing to college students (movies, pizza shops, bookstores, vintage clothing shops, etc) aren’t easily accessible.
What SBX is a proxy for is “outside gathering place.”
or SBX is a proxy for “not living in a campus bubble” with convenient things to do in “the real world”. (as crazy as it may seem to us that sometimes a cup of coffee is not just a cup of coffee, with apologies to Sigmund Freud).
Though the commercial world may be a proxy for “an outside social world,” for some, the “real world” is the natural world. Sometimes a cup of coffee is just a cup of coffee.
“Though the commercial world may be a proxy for “an outside social world,” for some, the “real world” is the natural world. Sometimes a cup of coffee is just a cup of coffee.”
Well, then, such students are happy in small towns without outside social worlds.
Apparently not enough of them exist to make SB viable.
“Sweet Briar had a drop in revenue (from tuition and fees) of 16% between 2008 and 2013 (14.5 million to 12.1 million) according to IPEDS data. Sweet Briar had to discount tuition to bring in new students. Schools with a stronger market position (e.g., Georgetown and BC) had correspondingly increasing revenues from tuition and fees during this time period.”
In order to make up for a $2.4 million drop in annual tuition/fee revenue, you would need to increase your endowment by $60 million (assume a 4% annual pay out rate).
If you can’t sell enough seats at a high enough tuition price, you are dead. Period.
Endowment (other than in the HPYS stratosphere) is a tertiary factor. Endowment is used to buy the beach house and the convertible. Schools live on tuition.
I’m sure those SBC ads are prepaid and will just run its course. They were fundraising as business as usual up until the Monday before the announcement so the day before. Alumnae got their emails sharing the closure vote the next day.
If we take Sweet Briar’s 16% drop in tuition revenue as a benchmark for financial problems, then there at least 100 private non-profit colleges that might be in trouble because they had a similar drop in revenue between 2008 to 2013. This includes colleges like Dowling on Long Island and Franklin Pierce in New Hampshire that were written about by Bloomberg press as colleges with potential financial difficulties.
Anxiety about the future of liberal education in America has a long history. How many times have Goddard College, Antioch, or St. John’s reinvented themselves? Or Duke, for that matter (if we look back far enough)?
RIP SBC … but the average endowment of the 10 LACs in the NESCAC is now over $1B. This is less than a decade after the worst financial downturn since the Great Depression.
There is a bit much – I would even suggest too much – pessimism among a high percentage of folks on this thread regarding the future of LACs. While some will no doubt fold over the next decade, many will tinker with their model, adapt to changing times, and emerge from the shadow of Lehman Brothers, et al. with firm enough financial foundation to move forward at least into the latter 21st century. Maybe Kenyon, Occidental and Goucher will fold their tents by 2085, but by that time I frankly won’t care.
The issue isn’t the endowment, discounting tuition, shaky cash flow, over-reliance on pricey new construction to attract students, etc. The issue is all or some of those things, coupled with a decrease in the number of HS students. We can’t predict what the cohort will look like in 25 years since those kids haven’t been born yet, but colleges that are not working aggressively to court international students will find themselves stuck competing for a smaller piece of a smaller pie if the US birth rate drops.
So a college which is now functioning at or near the point at which its enrollment cannot drop further without really risking the critical mass of students which it requires (library, food services, athletics… whatever footprint it has built using assumptions about the number of bodies in the seats) is going to have to watch demographic trends very, very carefully.
It won’t take a financial catastrophe to “do in” a college which has an endowment cushion. But a few years of not meeting enrollment goals and then you’re chasing your tail.
Interesting that according to the Bloomberg article Mackinaw linked in post 704, 36% of president of public colleges agreed or strongly agreed that their schools’s financial model is sustainable, while 44% of private nonprofit college presidents agreed or strongly agreed that their schools’s financial model is sustainable. I won’t try to interpret that. Obviously state legislatures are not going to let their flagships go bust, but it does say something about the financial pressures the majority of college presidents are clearly feeling.