Is Your College Going Broke? The Most And Least Financially Fit Schools In America

Matt Schifrin, via a kind reader email

In late June, nearly two months after most incoming freshmen had sent in their deposit checks securing places at hundreds of colleges across America, Long Island University's Post campus, nestled in the wealthy New York City suburb of Brookville, N.Y., was testing a new approach in its efforts to fill up the 250 or so empty seats it had in its class of 2017.

The week of June 24 was "Express Decision Week" at LIU. High school seniors were invited to walk into Post's Mullarkey Hall any time from 9 a.m. to 7 p.m., transcript, SAT scores and personal statement in hand, and LIU's admissions officers promised to make an acceptance decision on the spot. All application fees would be waived, and registration for fall classes would be immediate. An identical event was being held simultaneously at LIU's Brooklyn campus.

Post's aggressive marketing ploy is eerily reminiscent of the on-the-spot low-docmortgage approvals that occurred during the heady days leading up to the housing crisis. But the product here is bit less tangible than a loan that secures a house. These admissions officers are selling the promise of a better life through post-secondary-school learning.

LIU isn't alone. Mount Saint Mary College in Newburgh, N.Y. and Centenary College in Hackettstown, N.J. offer similar same-day, on-the-spot admissions events. According to Jackie Nealon, Long Island University's vice president of enrollment, LIU takes it a step further in the spring and sends admissions officers into Long Island high schools to admit students on location-the academic version of a house call.

If LIU sounds a bit desperate, it is. From a financial standpoint LIU is suffering from a host of ills common to hundreds of colleges today. According to the most recent financial data LIU has supplied to the Department of Education, its Post campus has been running at an operating deficit for three years. Its core expenses, or those essential for education activities, have been greater than its core revenues. Like many other schools, Post is a tuition junkie, with nearly 90% of its core annual revenues derived from tuition and fees.

This year Post raised its tuition and fees by 3.5% to $34,005, yet it offers steep tuition discounts to nearly every incoming freshman. In fact, a quick click over to its website shows the deals available. If your kid is an A student with an SAT score of about 1300 out of 1600, expect at least a $20,000 rebate per year.

This seeming paradox of raising prices while simultaneously offering deep discounts is a way of life among middling and lower-quality colleges in the market for higher education. It's a symptom of a deeply troubled system where the cachet of elite institutions like Harvard and Yale has led thousands of nonelite schools to employ a strategy where higher prices and deeper discounts are more effective than cutting prices and tightening discounts. According to the National Association of College & University Business Officers, the so-called tuition discount rate has risen for the sixth straight year and is now averaging 45%. In some ways colleges operate like prestige-seeking liquor brands. In other ways they are more like Macy's offering regular sales days, only quietly.

To do that we created the FORBES College Financial Grades, which measure the fiscal soundness of more than 900 four-year, private, not-for-profit schools with more than 500 students (public schools are excluded). For the purposes of our analysis we used the two most recent fiscal years available from the Department of Education-2011 and 2010. The grades measure financial fitness as determined by nine components broken into three categories.

-Balance Sheet Health (40%): As determined by looking at endowment assets per full-time equivalent (15%), expendable assets (assets that can be sold in a pinch) to debt, otherwise known as a college's viability ratio (10%) and a similar measure known as the primary reserve ratio (15%). Primary reserve measures how long a college could survive if it had to sell assets to cover its expenses. Schools like Pomona and Swarthmore are so asset-rich, for example, that they could cover expenses for ten years without collecting a penny in tuition. Other well-known schools like Carnegie Mellon and Syracuse have primary ratios of about 1.0, meaning they could last about a year.

-Operational Soundness (35%): A blend of return on assets (10%), core operating margins (10%) and perhaps most important, tuition and fees as a percentage of core revenues (15%). Tuition dependency is the most serious risk facing middling colleges today.

-Admissions Yield (10%): The percentage of accepted students who choose to enroll tells not only how much demand there is from a specific school's target customers but also gives an indication of the effectiveness of its admissions staff.

-Freshmen Receiving Institutional Grants (7.5%): The most desperate schools use "merit aid" as a tool to lure more than 90% of incoming freshmen.

-Instructional Expenses per Full-Time ?Student (7.5%): Struggling schools tend to skimp in this area.

Posted by Jim Zellmer at July 30, 2013 4:00 AM
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