Falling Stock Markets and College Budgets: Mergers & Bankruptcies on the Horizon?

Forbes posted an article on October 22, foretelling hard times in the country’s higher education industry.  With falling stockmarkets, declining endowments, and some colleges having loaded up with debt in the past decade or so, the article predicts that some colleges may be swallowed up by financially stronger competitors, or will at the very least face some very tough financial difficulties in the next few years.


The evidence is a September 2008 study by the National Association of Independent Colleges and Universities, in which one-third of the 504 member institutions surveyed indicated that the credit crunch had hurt enrollment.  About 20%  of respondents said they had fewer returning students than expected, and roughly the same number said they had a smaller incoming freshman class than expected.


Clearly the credit crunch is hurting individual families, and economic logic would have it that these individual decisions will have an impact on the higher education industry, as demand falls for high-priced tuition at private colleges and universities. I’ll have more thoughts on that story later this week.


As demand falls, some colleges that were not as conservative with their investments and did not leverage their future in favor of immediate gratification may begin to feel the financial pinch.  Moody’s is watching college budgets and investments carefully, and according to an article in the Chronicle of Higher Education, three colleges are on a “watch list” to have their bond ratings downgraded. The colleges in question are Simmons College, Franklin Pierce University, and Suffolk University.


Many other colleges will feel some pain.  But, as I said in an earlier post, most colleges have acted more like the pecunious ant than the spendthrift grasshopper.  The report from Moody’s bears this out, as seen from this quotation from the Chronicle article:

In its report, Moody’s said that the “overwhelming majority” of colleges have dealt with the freeze with “only minor budgetary or liquidity adjustments.” It attributed colleges’ general resilience to their conservative management strategies, their access to lines of credit and quasi-endowment funds, and their holding of fixed-rate debt.

 

So I’m not betting that many colleges will go belly up or that we’ll see a bunch of college mergers.  Maybe a few exceptional cases will make the headlines, but the vast majority will weather the storm.  It won’t necessarily be a leisurely cruise; but most boats won’t sink–even as the hurricane roars overhead.


Mark Montgomery
College Counselor











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Duke University Administrator Blasts the Rankings Game

Today’s issue of the Chronicle of Higher Education features a commentary by John F. Burness, a former administrator at Duke, Cornell, and the University of Illinois. Burness critiques the rankings created by US News & World Report–and by newcomer, Forbes. While the rankings titillate and sell oodles of magazines, they do little to shed light on the differences among colleges.
While the article is password protected, I will offer a short snippet here that identifies what I think are his most salient criticisms of the US News ratings:

The undergraduate magazine rankings, in contrast, give considerable weight to perception and tend to be based on annual assessments, as if undergraduate-program innovations or tweakings manifest significant change in two semesters. But if the objective is to sell magazines, manifesting change is important. U.S. News has artfully—in the guise of improving the veracity of its rankings—made one or more changes in its methodology every few years, which enables it to argue that there is some shift in the quality of institutions that the new methodology has captured. The cynic in me says that the changing of the methodology is more a strategy for getting different results in the rankings, which helps the publication sell more copies. If the rankings stayed constant, why buy the magazines?
Moreover, the precision that U.S. News purports its methodologies reveal is, on the face of it, rather silly. If you look at the top 10 institutions, you will see that some of them are separated by small fractions of a percent. In the Olympics, those fractions make a difference, but it’s hard to understand how in the real-life breadth of activities of a university, they make any difference at all to a student. I have talked with many people at U.S. News who share my skepticism and, in some cases, are embarrassed by the magazine’s rankings. But they recognize that the rankings are a significant moneymaker. (The magazine has created separate rankings of graduate and professional programs, as well as research hospitals, not to mention books based on the rankings.)

I admit that I do sometimes use the rankings in my research of colleges, primarily because parents often ask me how this or that college is ranked in this or that category.
But I never let the rankings dictate which colleges I may (or may not) recommend for a particular student. For each student, there may be any number of great colleges that will amply fill their needs and aspirations.
First I get to know those needs and aspirations. Then I recommend colleges that will best suit the individual student.
Mark Montgomery
Independent College Counselor
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Eight Tips For Handling Rejection in College Admission

Forbes.com recently did a series of articles on the aftermath of the college admissions season, and looked at how kids are handling rejection.
I was featured as one of their experts in providing tips on how to handle rejection. Check it out; scroll through the slides.
This little slide show was an accompaniment to a more detailed article by Hana R. Alberts, called Handling Rejection. It’s a very balanced piece.
Mark Montgomery
Expert in College Search and Admission
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