I was thinking about this yesterday. One thing that Mary Baldwin did that was absolutely brilliant is that they started an Early College Program which is actually well known worldwide. It’s for really smart kids who are ready to do college work but who are still fairly immature. They (girls only) get to live on a college campus in their own dorm, in a relatively safe, sheltered women’s college, and take college classes from college faculty. Kids actually come from as far away as India to participate in the program. That really was a stroke of genius. Honestly, Sweet Briar should have tried to hire those administrators who came up with that plan as consultants. I wonder who they did bring in as consultants and when they did it. Mary Baldwin also implemented online programs, and admitted men to their graduate programs which were taillored to particular regional interests and packaged as adult education.
MBC has been pretty aggressive in diversifying from its core all-womens liberal arts undergrad core (which probably is a cash drain) while not going co-ed. Co-ed adult education, pre-college girls program, starting up a health sciences college. Years ago they even tried an all-womens military program back when VMI was fighting the battle against going co-ed. TBD how succesful all that will be financially.
Some evidence that predatory “interest rate swaps” by banks helped to bring down SBC. They have also cost many school districts, cities and counties tens of millions of dollars, and contributed to Detroit’s bankruptcy.
@charliesch Very good article and one that looks at some of the “other” issues affecting not only colleges, but governments, and the average investor. It just makes me mad how greedy Wall Street can be!
@scsiguru, it makes me sad that people running organizations are stupid and bad at risk management. If you do anything complicated in financial markets, you’re swimming with sharks, so unless you can swim faster or have sharper teeth, it behooves you to not swim in those waters.
BTW, how exactly do you want Wall Street to behave? To not try to make money? To not take advantage of stupid people? Taking dumb money (in a legal manner) is how markets become efficient and the price of instruments reflect their “true” value and risk, and that’s of benefit to many people. So what would you have them do instead?
"To not take advantage of stupid people? "
Exactly that.
Another college that stayed open, some precedent: http://www.businessinsider.com/sweet-briar-college-staying-open-wilson-college-lawsuit-2015-3
But another recent article, Roanoke Times, includes this quote: “For six of the past seven years, Sweet Briar’s operating expenses have exceeded operating revenues, and for at least the past three years, the college had been covering that loss by dipping into its endowment, which has dropped from $96.2 million in 2001 to $84 million today.”
This was not unknown, not kept secret. The previous move to consolidate or eliminate some majors, a period when the school stopped contributing to retirement funds, the drive to shift the faculty/student ratio, etc, were public. You can find those old news articles.
One of the jobs of a college president is to both drum up major contributions and an increasing pool of interested students. I wonder if something fell thru with one of the former presidents. This happened where DH taught (a known name,) and one solution was an aggressive move for more wealthy international kids.
Wow. What a wildly irresponsible article!
Sweet Briar borrowing a lot of money with a swap in mid-2008 was bad timing and unlucky, because in hindsight interest rates were relatively high then, and because the recession then just beginning would severely affect the college’s revenues. But neither of those things had anything at all to do with “predatory banking,” or anything like it.
Practically every commercial loan in America of sufficient size that is not big enough to be placed as a publicly traded issue is structured as a variable rate loan with a swap attached. That’s because for at least the past 20 years the bank regulators have discouraged banks from lending at fixed rates, and no borrower that is not actively engaged in rate speculation wants to borrow at anything other than a fixed rate. Borrowing long term at a floating rate without a related swap is utter speculation; no responsible board of trustees would authorize that. Borrowing at a floating rate with a custom swap attached is the same as a fixed rate borrowing; it’s the only responsible choice.
Of course, if you borrowed in June 2008 – approximately the apogee of the U.S. economy in the last decade – you would later wish you had better timing, because interest rates plummeted a few months later. When the Fed began to intervene to stave off a full-scale depression, real interest rates fell below 0%. So the floating rate interest Sweet Briar was paying on its bond became quite low, while the payments it was making on the swap soared, but the two of them together equaled a reasonable fixed rate on a loan in June 2008. The swap didn’t cost Sweet Briar a penny more than it had assumed it would be paying for interest over that period, and it protected Sweet Briar against the possibility that the economy would NOT crash and interest rates would rise, not fall. When Sweet Briar refinanced the bond in 2011, of course it paid a termination premium (as it would have if it had issued a traditional fixed-rate bond and refinanced it three years later), and of course the transaction still made sense because interest rates were then so low that it could (with the help of swaps, of course) lock in a low, long-term rate.
A heartbreaking factoid in that Atlantic article – that many faculty members built their homes on college land. So these poor people will not only be jobless soon but also homeless! And likely losing much of their investment. Just awful.
It is fair to assume that SBC has contractual obligations to the faculty in terms of employment and residence. Severance pay and the obligation to repurchase homes must have been factored in the cost of closing. Those people must be first-line creditors of the school. Obviously, the school decided to close when it still could afford to take care of its own.
Someone at Business Insider needs to master their basic US geography. The Wilson College referred to as a potential model for keeping SBC open happens to be in Pennsylvania. A legal ruling from that state wouldn’t necessarily serve as precedent in Virginia. http://en.wikipedia.org/wiki/Wilson_College_(Pennsylvania)
@happymomof1, you might as well ask people to work without getting paid.
You can structure incentives so that people are or are not induced to engage in certain practices, but most folks want to reach their goals. Telling them that they are greedy doesn’t usually do the trick.
The Bull market since 2008 has made them back more money than they likely expected. Easy come easy go.
So there’s a very small discussion on the Earlham College forum (which I look in occasionally since it’s on my daughter’s short list) about Moody’s downgrading Earlham for the second time in three years, and I figure there’s more people here than there, so mentioning it on this thread, where it seems topical enough. Earlham’s different than Sweet Briar, though, since it has not just a decent- but a really good-sized endowment (and thus, a really good endowment:student ratio), but Moody’s says they’re likely to be drawing from it for at least a decade(!), so: Should I be worried that Earlham’s not the next domino to fall, but that it’s in the queue? Well, yes, I suppose (one should always worry regarding non-hyper-elite LACs), but I guess the question is, how worried do folks think I should be?
The link to the Moody’s summary: https://www.moodys.com/research/Moodys-downgrades-Earlham-College-IN-to-Baa1-from-A1-outlook–PR_293574
Ultimately, Earlham could rely on a much stronger “supporters” base with many “friends” who value its education model. The discounting is a concern but the school is in a better position to curb the imbalance.
As far as general view on LACs, one might be interested in looking at the recent history at Claremint McKenna. The school added 100 beds (a very costly endeavor if you read the Amherst story) and added 100,000,000 to its asset base. Obviously, a doubling of applications in les than a decade and a 635MM capital campaign play a large role.
The first pages of this report are telling … http://www.claremontmckenna.edu/treasurer/annual-reports/2013-2014-CMC-Annual-Financial-Report.pdf
Applications for the Class of 2019 should be above 7100.
DFB – you want to know whether Earlham will be in trouble five years from now, when your kid would be graduating. I’d suggest you do this.
Where was Earlham 5 years ago on size of incoming enrolled frosh class, average tuition discount, average revenue per student, average spending per student, USNWR ranking, freshman retention rate, 6 year graduation rate. Compare those numbers to today. Are those trend lines all declining? Extend those trend lines for the next five years.
Do they have enough endowment to give them a cushion if those trend lines continue?
I read the Moody’s report but didn’t see a figure cited regarding their endowment spend plan. To my knowledge, most non-profits look a 4-4.5%, based on an average of a number of preceding quarters, as a healthy draw that maintains the endowment for the long run. I seem to recall reading that SBC was drawing 9%.
ETA: I apologize if anyone has already addressed this, I skipped about 200 messages.
So sad to hear about Sweet Briar!
It is great that the alumnae are standing up for their school. I hope other women’s colleges are taking note and shoring up their own resources to prevent them from following SB into the darkness…
"To not take advantage of stupid people? "
Actually yes. And if that’s not possible, to regulate them so they can’t.
But I gather what they did was not so much stupid as unlucky.
I am visiting the parents of my niece who happily graduated from Sweet Briar last year (and is gainfully employed too), they are all shocked. They thought it was a great place for their daughter, though they also understand how it wouldn’t appeal to everyone.
There is nothing particularly unethical about what happened with Sweet Briar though. It is not as if they were swindled or cheated in some way. (If anything, it would have been unethical for a lender not to include a derivative with a massive loan like that.) I agree that SB was not stupid, just unfortunate, but they weren’t taken advantage of.