By Ann C. Logue

Financially, a college is considered to have perpetual life. Auditors evaluate it as a going concern, trustees are not allowed to spend the amount originally contributed to the endowment, and money managers assume an infinite time horizon for investments. The world’s oldest university was founded in 859, the University of Karueein in Morocco, or so says Guinness World Records.

[blocktext align=”right”]Many colleges will have trouble staying vital for two centuries, let alone twelve.[/blocktext]But not all will see eternity. Many colleges will have trouble staying vital for two centuries, let alone twelve. Small liberal arts and religious colleges face changing demographics, tough economic conditions, and declining interest in their pedagogy. Throw in two years of polar vortices, driving applications to campuses south and the west, and you have a looming crisis in the Midwest. Higher education is big business in Rust Belt states.

California, the nation’s most populous state, had, as of 2008, 436 colleges and universities, with a total enrollment of 2,652,000. Ohio, meanwhile, has 213 colleges and universities with 654,000 students – about half as many institutions with a quarter as many students. Ohio, Michigan, Indiana, Illinois, and Wisconsin are home to 277 private, not-for-profit colleges. Most of these are small religious and liberal arts colleges. In the 19th century, Eastern intellectuals wanted to create homes for higher studies in the burgeoning Midwest, while many religious denominations wanted to establish seminaries to train people to serve in their churches. Some of these became robust institutions, such as Northwestern University, which was founded as a Methodist seminary in 1851. But others are suffering.

Antioch Hall, Antioch College by Nyttend, via Wikimedia Commons

Antioch Hall, Antioch College by Nyttend, via Wikimedia Commons

In many Rust Belt communities, the local institution of higher education offers a solid core of employment and commerce in a shifting economy. The bank may have merged into a global conglomerate, and shopping may have moved to big-box stores on the highway, but college towns have vibrant downtowns. Sure, the merchants may be pushing beer and T-shirts, but they are in business. The townies need the students to thrive.

Each year, the National Association of College and University Business Officers (NACUBO) and Commonfund, a nonprofit organization that manages money for institutions, publish comprehensive data on college endowments. The 2014 NACUBO-Commonfund Study of Endowments was based on a survey of 832 institutions. The 91 institutions with an endowment over $1 billion held $318,635,457,000 in total, or 74 percent of all college and university endowment funds in the United States. The remaining 26 percent of endowment dollars are split among 741 institutions. The relatively small size of the typical college endowment gets lost in the hype about Harvard’s $35.9 billion.

The smaller the endowment, the less leeway the campus has to weather difficult financial markets and changing student interests.

In March of 2015, the trustees of Sweet Briar College, an all-women’s college in Virginia, announced that it would close at the end of this school year. They said that the endowment and the pool of potential applicants were not sufficient to support the campus into the future. Alumnae have sued, and trustees at other small colleges are watching with interest.

Calvin College of Grand Rapids, MI, was founded in 1876 to serve members of the Christian Reformed Church. Michael Le Roy was hired as president in 2012 and asked for a financial review to prepare for a new strategic plan. The results were released in February of 2013, and they were not good. From 1997 on, the college had borrowed money for the construction of new facilities. The plan had been to invest contributions for these projects and earn a higher rate of return than the interest expense on the loans, thus covering the construction costs and generating additional revenue. Because of that, prior administrations had not built debt service into the budget. Fundraising was lower than expected, as was the return on investment, and by 2012, Calvin had a financial crisis. Le Roy’s administration has been transparent, but the campus community has been shaken.

[blocktext align=”left”]A big gift isn’t always enough.[/blocktext]A big gift isn’t always enough, says David Zimmerman, a profession of economics at Williams College in Massachusetts and the director of the Williams Project on the Economics of Higher Education. The long-term value of the cash depends on when it is received and how it is treated. A big donation that can be invested at the beginning of a strong stock market cycle will yield greater long-term returns than if that donation is received in a bad market or if it has to be spent immediately. NACUBO and Commonfund report that the average endowment earned 17.5 percent in 2007, lost 3 percent in 2008, and lost 18.7 percent in 2009. These were the years of the financial crisis, and the volatility and losses are hardly unique to colleges. But, this means that $10,000 received in 2006 would have been $11,750 at the end of 2007; that same $10,000 gift received in 2008 would have become $8,130 in 2009.

And if the money were to be spent, then its future value would be zero.

Calvin’s endowment of $123 million and its enrollment of 3,789 don’t provide a lot of cushion. Just as Calvin’s 1997 administration figured that a strong stock market would take of everything, so too did many families when they were planning college savings for their children.

The first decade of this century brought a stock market crash led by the bursting of a technology bubble and exacerbated by a terrorist attack, middle-class wage increases that were held down by increased health insurance costs, a slow recession that culminated in a real-estate crash and financial crisis that turned into a Great Recession, and a Federal Reserve Bank that fought the financial crisis with very low interest rates. Even families that worked hard and saved money for college found that they didn’t have enough to meet the increasing tuition rates. Even worse, they saw new college graduates all around them who could not get jobs but who still had student loans. One doesn’t have to hear too many anecdotes about people with an M. Div. from a well-regarded seminary taking jobs in HVAC to start rethinking the entire small college proposition.

john-belushi-collegeFamilies have been willing to pay for higher education because it leads to greater lifetime earnings. Even in the recent recession, a college degree has paid off. College graduates may be working at coffee shops, but they are the ones getting hired, not high school graduates. Still, there’s a sense among some employers and more parents that students majoring in liberal arts don’t have the skills to compete in the labor market, certainly not with enough gusto to pay off their student loans.

The perceived value of higher education means that it is a luxury good. Like a Tesla car, people demand it more as the price goes up. An expensive college education is the hallmark of America’s elites; we like the idea of self-made people, but entrepreneurial folks have more success when they drop out of Harvard than when they drop out of high school.

As overall wealth increased in the 1980s and 1990s, some private colleges raised tuition prices in an attempt to raise their profile. This put them in elite conversations; an expensive college attracts the attention of those looking for luxury goods. The higher tuition allowed for increased per-student spending, which looks impressive in different rankings of colleges. Some of the higher revenue went to increased financial aid, especially merit aid to attract students with better test scores or GPAs than the campus average. Some of the money went to faculty and educational programs. And some of the money went to frills – swanky student centers, upgraded food service, and plush new dorms.

[blocktext align=”right”]College prices are likely to increase faster than inflation … [/blocktext]College prices are likely to increase faster than inflation anyway, thanks to an economic phenomenon known as Baumol’s Disease, after William Baumol, the economist who first described it. It holds that there are limits to how productive most service providers can be. If an orchestra plays a symphony twice as fast as it was written, no one thinks of the musicians as being twice as productive. Likewise, a college professor doesn’t improve productivity by teaching twice as many students. The time spent grading and advising students is the same on a per-student basis, and the savings in the professor’s lecturing time are offset by declines in the student’s benefit.

“The economic problem you face is maximizing your income relative to whatever your mission is,” Zimmerman says. Many colleges face a situation whereby cutting tuition is taken as proof that the campus has problems and is hurting for students. Rather than cut the price, many colleges offer discounts in the form of merit aid to students who are unlikely to need cash but who are price sensitive, or in willingness to accept AP credit. (Colleges have discretion on what scores to accept, another practice that favors wealthier students.) “Colleges have become expensive for middle-income students,” Zimmerman adds. “That’s a group that has become increasingly fickle and wiling to price shop.”

A Tale of Two Colleges

Ohio’s Greene County is home to two storied colleges that are facing real challenges, Antioch College and Wilberforce University. Wilberforce is one of the few private, historically black colleges outside of the former Confederacy. It was founded in 1856 by free African-Americans, to educate African-Americans. It is affiliated with the African Methodist Episcopal Church. Despite its illustrious history, most African-American students enroll at places other than the historically black colleges and universities (HBCUs). Wilberforce is down to 489 students and an endowment of less than $11 million. In June of 2014, the Higher Learning Commission of the North Central Association, which handles university accreditation in the Midwest, asked the Wilberforce administration to show cause as to why accreditation should not be removed. The commission’s concern is fiscal viability, especially given problems in the administration of federal financial aid and a habit of borrowing against the endowment. The Commission is likely to make a decision by June of 2015.

When rating colleges on financial strength, the Higher Learning Commission looks at the financial information submitted each year by the colleges that it rates. The criteria are stricter for private institutions than for public ones, as there’s a greater breadth of support for the average public school than for the average private one. It develops a composite rating; schools that fall below the cutoff score need to submit an institutional response and additional financial documents. If the score is low enough or the problem persists, the campus may need to particulate in a detailed financial review process.

The stakes are high. If Wilberforce loses its accreditation, then its students lose their federal financial aid, effectively closing the campus.

One of the curiosities of the Wilberforce situation is that its campus is adjacent to a public HBCU, Central State University. Central State spends more money per student, which is one indicator (not the best) of educational quality. The U.S. Department of Education shows that Wilberforce expended $14,564,000 in 2010-2011 with enrollment of 689 in the fall of 2010 – or $21,138 per student. At Central State, the enrollment was 2288 for the same period, with total expenditures of $60,369,000 – or $26,385 per student. Central State’s endowment is just $3.2 million, but it is a state-supported institution. The good news for Wilberforce students is that they could probably transfer to Central State with little trouble.


Wilberforce University and Ohio Historical Marker

“Any time you do anything to limit your applicant pool, it costs you,” says Zimmerman, which explains why religious colleges, single-sex colleges, and HBCUs tend to have more problems than average. Wilberforce is both religious and historically black. It seems unlikely that it will survive, but then, a college down the road from it has returned from the dead.

Antioch College in Yellow Springs, OH, was founded in 1850 in by Horace Mann. It expanded its graduate programs in the 1960s with affiliated campuses all over the country. The institution was renamed Antioch University in 1978, with the undergraduate program in Yellow Springs keeping the Antioch College label. The execution of the expansion was less than perfect, at least from the perspective of those in Yellow Springs, and led to the closing of the college in 2008.

In 2009, a group of alumni purchased the campus and its name back from Antioch University. Antioch College reopened for students in September 2011. “We think we’re the only private liberal arts college starting in America,” says Mark Roosevelt, the president of Antioch College. “The for-profits aren’t interested in liberal arts.”

Why start a new college in this competitive environment? Roosevelt says that traditional colleges don’t meet the needs of modern students. “Learning is richer when it’s one in a state of experience,” he says. The revived Antioch is drawing on the campus tradition of co-op learning to attract students, which allows students to work during their college years in order to learn professional skills and to earn money to pay tuition. (Antioch was the first college with a co-op program, established in the early 20th century.) The Antioch faculty is looking at different approaches to the traditional liberal arts curriculum; the goal is to keep it from being the field where pedagogy – and alumni job prospects – go to die.

Foreign language has long been a component of a liberal arts education, yet countless students have taken two years of a language at the college level and are now able to do nothing more than order beer and ask for the bathroom. The new Antioch goal is to have students pass the American Council on the Teaching of Foreign Language Oral Proficiency Interview, a more practical standard; the test is a 30- to 40-minute spoken interview that shows how well the student can think and use a language. It requires a different curriculum, and Roosevelt says that it’s that approach that will bring the liberal arts into this century.

[blocktext align=”left”]Economics and demographics may not support colleges as they are now, but liberal arts have always been adaptable.[/blocktext] For now, tuition is free and Antioch College has applied for re-accreditation. At that point, its students will be able to receive federal financial aid, and Roosevelt hopes to keep tuition low enough to appeal to students who have a low income. He served as Superintendent of Schools in Pittsburgh before joining Antioch, and he believes that first-generation college students from urban public school districts can benefit from a small campus, a liberal-arts curriculum, and co-operative education programs.

Antioch’s buildings suffered from years of deferred maintenance from before the close, and a dormant campus didn’t help matters. Roosevelt says that some of the priorities are determined by what is good for both the campus and the local community. One of his first projects was renovating the wellness center, which has over 2,000 paying members from the Yellow Springs area. Next on the list is the theater, which will be used for both campus and community performances. “It’s really a tight, symbiotic relationship,” Roosevelt says. “We own the NPR station, we own the riding center, we own the nature center. Our chapel is used as a synagogue and a Quaker meeting house.” Sharing these facilities with the town helps Antioch’s budget; it also creates activity and enthusiasm on campus.

The administration is looking for more non-traditional sources of revenue; a wellness center will never be able to support an academic institution, but an on-campus residential facility for early retirees or people willing to commute might. (Yellow Springs is about 19 miles from Dayton and 55 miles from Columbus.) That’s one of many ideas being considered.

There may be too many small liberal arts colleges, but there are ways to preserve most of them. One interesting model is the Claremont Colleges in California; it is a system of five private liberal arts colleges that share an administration, offering a lot of economic efficiencies and giving students the best parts of small and large campuses. Another is the Colleges That Change Lives, a national consortium based on a best-selling book of the same name that promotes the value of small liberal arts schools. Along with Antioch, Ohio members include Denison, Ohio Wesleyan, and the College of Wooster.

“You don’t honor Antioch’s past by doing the same thing you did before,” Rockefeller says. That’s ultimately the challenge. Economics and demographics may not support colleges as they are now, but liberal arts have always been adaptable. The best way to show the value of that education is to find a way to thrive in this market.

Ann Logue is a writer based in Chicago. She has covered higher education issues for such publications as InvestHedge and University Business.

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