87% at Risk
87% of universities have financial health worse than UArts, which just closed
What We’re Talking About
Back in June, Kerry Walk, President of the 130-year old University of the Arts in Philadelphia, abruptly resigned after less than a year in office. The university’s finances were worse than she realized, and the university was closing, with almost no notice to students or faculty. A planned conference was cancelled just minutes before it was due to start. Their accreditation was pulled.
Which is crazy. The university’s enrollment, like many other colleges around the country, has been declining year-over-year, but UArts sits on a $160M real estate portfolio, and college finances are relatively predictable, given the 4-year nature of their primary product. Last year, UArts’ audit showed $189M in assets and $66M in liabilities, and they had just completed a $67M capital campaign.
Temple University just backed out of acquiring UArts a few days ago, which resurfaces some of the questions that have plagued UArts for months now: What happened?
Better Oversight
In order to qualify for federal loans and grants, universities have to provide audited financial statements to show they have enough cash on hand for financial aid refunds, that they’ve been paying debts, and that they meet a minimum composite score. UArts’ composite score was 1.7 – anything above a 1.5 indicates that they’re financially healthy, as deemed by the Department of Education. A year later, they went under.
UArts’ audit in 2023 showed a $12M operating deficit, largely the result of rising costs, declining enrollment, and declining revenue. They closed that deficit by selling off real estate assets. So they passed, but those are glaring red lights. Fitch downgraded $46M of their bonds from BB- to B+ in January 2024.
At least 34 colleges and universities have closed this year so far, a rate of about 1 per week. But only 2 of those closures were monitored by the Department of Education (ED). That means that 94% of college closures happened without triggering any additional oversight. Which means we are testing the wrong things.
The composite score that determines whether ED intervenes weights the a university’s net income ratio at about 20% of the total composite score value.
Out of the 2,549 colleges and universities with composite scores in 2020–2021 (the latest published on their website, which is also frightening), over 87% had composite scores equal to or worse the UArts.
What does this remind you of? Regulators not enacting proper or effective oversight, measurements misrepresenting the financial health of organizations, Fitch downgrading the debt for hundreds of colleges…
Meanwhile, FAFSA’s awful rollout led to a 10% decrease in FAFSA applications, and a general decline in enrollment. Brandeis’ enrollment is down 9% in the past five years, and they’re facing a $2M budget deficit. University of Lynchburg’s enrollment is down 15% in the last ten years, and they just eliminated 17 academic programs, including their majors for business studies, physics, and management.
Brandeis’ and University of Lynchburg’s composite scores are 3.0; there’s no actual indication that they’ll close their doors, but if Brandeis is facing an enrollment cliff and shoring up their finances, imagine what’s going to happen to the 87% of universities with scores lower than 1.7.
Cooking up something cool
Michael and I just wrapped a really amazing interview, and have a few more in the pipeline. “What interviews?” you ask (maybe?). Interviews with incredible operators in the EdTech space, with the hope that they’ll have actionable learnings for all of you! Stay tuned!