The Warning Signs That a College Is in Financial Trouble

In an article published in Money [], Matt Krupnick, who writes for the Hechinger Report, highlights “Five Signs Your College Is in Serious Financial Trouble.” Krupnick has clearly written the article in response to the well-publicized issues facing Corinthian College and the City College of San Francisco, though neither of those institutions’ problems are really typical of the problems that cause most colleges to close. Corinthian Colleges became a massive online for-profit whose business practices were extreme even for institutions in that sector–in particular, in its emphasis on recruitment without regard to academic outcomes and its abuse of federally guaranteed student aid. On the other hand, the City College of San Francisco has been in an extended conflict with an accrediting agency with skewed priorities–placing more emphasis on maintaining administrative apparatus than on meeting instructional needs during a period of economic crisis.

In any case, Krupnick’s five warning signs are the following:

1.  The accreditors are circling.

2. The credit-rating agencies are raising flags.

3. The Department of Education gives the school poor marks on its financial strength.

4. There’s talk of a merger.

5. The administration won’t come clean.

This last warning sign would seem to apply to Lebanon College, which just announced that it is cancelling fall classes and, in effect, closing its doors. Lebanon College is a private, two-year college located in Lebanon, New Hampshire, a city of about 13,000 in west-central New Hampshire. The college was founded in 1956 and was fully accredited, though it did not have a fixed campus until 1997, when the college purchased and renovated the former Woolworths building in the downtown. Up to that point, the college had made use of available space at various locations throughout the region.

In 2008, the college also purchased a space in the Lebanon Mall formerly occupied by the Shoetorium. The plan was to locate a “health education center” in the space, combining several medical programs already offered by the college with several new programs. But the financing to support the plan never materialized. Worse, the additional debt incurred in the purchase of the property apparently transformed the ongoing, serious financial difficulties being faced by the college into an insurmountable fiscal crisis.

Krupnick’s fifth warning sign more specifically involves an administration’s failure to provide specific details about its plans to manage financial difficulties and its relying instead on broad reassurances that the institution is headed in the right direction. In an article in the Valley News [], Maggie Cassidy and John P. Gregg note that, as recently as the spring commencement exercises, the chairman of the college’s Board of Trustees, Arthur Gardiner, asserted confidently, “We look forward to a bright future” and cited many of the steps taken by the college’s most recent president, Ron Biron, to make the institution’s debt load more manageable and to expand its curriculum and its recruitment of students. While some community leaders were very aware that the college’s future was dubious, some were caught off-guard by the announcement of its pending closure. Carol Dustin, a member of the City Council, stated that she was “astonished” at the news, noting that Biron had “sounded as though they were moving right ahead and expanding”—that he had “sounded quite positive”—when he made a May “presentation to the Heritage Commission about expansion plans into the former Shoetorium spot.”

Nonetheless, when the announcement of the cancellation of classes for the fall semester was made, the college had just 53 full-time students, including just 18 freshmen.

The situation at Lebanon College illustrates two warning signs that might be added to Krupnick’s list: first, the emphasis on the addition of a program or group of related programs that is going to be so successful that it will allow the institution to balance its books, and, second, the incurring of significant additional debt in order to make that new program a reality.

In my neighborhood, there are many single-family and dual-family homes built by a developer who eventually became the biggest private landowner and landlord in our county. As is often the case, this developer’s son and heir was a much less astute businessman. Before the developer died, he tried to protect his son’s inheritance by mandating that it be placed in a trust for ten years, ostensibly to allow his son time to become accustomed to managing such extensive properties. But when the trust was finally dissolved, the son entered into a series of speculative projects, each one almost certain to fail because it not only had to be reasonably profitable in itself but it also had to be profitable enough to allow him to recoup his losses on the previous projects. Within a decade and a half, the son was not only bankrupt but in prison for his machinations in attempting to avoid paying both his creditors and his taxes.

The cliché “throwing good money after bad” could not have been more apt in the case of the developer’s son, and it is certainly applicable to institutions whose administrations fantasize about simple, immediate solutions to complex problems that have developed over a long period of time. Leveraging debt is one of those corporate concepts that generally does not work well in the non-profit world of higher education—and it especially does not work well in small institutions with very limited enrollment bases and very limited endowments.


4 thoughts on “The Warning Signs That a College Is in Financial Trouble

  1. All of those warning signs were present at Dana College in Blair, NE when I taught there, but we just didn’t want to face reality. We (the faculty) kept believing that we could turn things around. In 2010, the doors closed for ever, and my teaching career, for all intents and purposes, ended.

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