In mid-November, Greg Britton woke to a story in Inside Higher Ed about an ed-tech company called Edmit, which had come up with a formula to determine how long private colleges had before they would run out of money and be forced to close. The story focused on what could have happened but didn’t: Inside Higher Ed and Edmit had decided not to release that list when various institutions threatened to sue.
Britton, the editorial director of the Johns Hopkins University Press, felt a shudder of panic. At first, he thought, he’d been scooped. Then he wondered whether the Hopkins Press had set itself up for a similar legal tussle.
For months, Britton had been working closely with a set of authors — including Robert M. Zemsky, a leading scholar of higher education at the University of Pennsylvania — on a book about the severe market pressures facing colleges. The College Stress Test, as the book is called, includes a section on how to calculate the market stress of a private, public, or two-year college — and, by extension, determine how endangered that particular college is. The book doesn’t tie its “stress test score” to individual colleges, except those that are already closed or merged, and it doesn’t make speculative predictions years into the future, as Edmit’s study did.
“As I got into the article, I realized that what Edmit was doing was fundamentally very different,” Britton says. He decided he didn’t need to call the press’s lawyer or rejigger whole chapters of The College Stress Test.
Instead, he knew he had a hot book on his hands.
For years, businesspeople, pundits, and policy makers have speculated on the health of the higher-education sector, and some predictions of a die-off among the nation’s colleges have only gotten more dire over time. “Thirty years from now the big university campuses will be relics. Universities won’t survive,” the management consultant Peter Drucker said in 1997. In 2011, Clayton Christensen predicted that half of colleges would close within 10 to 15 years — and even six years later, when his prediction appeared to be wrong, Christensen doubled down, saying the die-off might happen sooner. In 2013, Andrew S. Rosen, the chairman and chief executive officer of Kaplan, said all but 600 colleges would be dead within a few decades. (His own ed-tech company, as it turned out, was doomed itself, to be gobbled up by Purdue University to create Purdue Global.)
Those predictions were shot from the hip, however. Now, a small industry of higher-education oddsmakers armed with data has emerged. A wave of government agencies, media outlets, companies, and scholars are crunching numbers on finances, retention, and rankings to determine just how doomed particular colleges are, exactly.
For many years, for example, the U.S. Department of Education has issued “financial responsibility” scores to rate colleges on their debts, assets, and operating surpluses and deficits. In November, in an article that urged colleges to “merge or perish,” Forbes put out its annual list of financial grades for private colleges, issuing mostly C’s and D’s. That same month, the state of Massachusetts worked with local colleges and accreditors to devise metrics for financial health for all of the state’s private colleges. The Century Foundation also released a set of guidelines for assessing college financial health, devised by a former analyst of the for-profit-college sector.
Metrics like these have long been used to assess the health of private companies. But colleges can be far more complicated entities, with missions and goals that don’t fit neatly into profit and loss categories. With higher education already dealing with a skeptical public, an assessment that gives students and families the wrong idea is risky not just for the college but for the sector.
Despite that risk, “higher ed is desperately in need of a good set of core metrics around financial health and sustainability,” says Rick Staisloff, a finance expert in higher education — for the public, yes, but also to clue in administrators at struggling institutions. “It really is shocking how little colleges understand about their own business model and how it works, even at a senior level,” says Staisloff. Having a reliable set of metrics can help institutional leaders make a case for change to others on campus.
“The danger is in overpromising what these tools can provide to us,” he says. Even the seers of the corporate sector are often wrong. Staisloff points to Jim Collins’s Good to Great: Why Some Companies Make the Leap … and Others Don’t, the bestselling guide to corporate management. The principles outlined in the book are solid, but its predictions about the trajectory of specific companies have been uneven. Now-defunct firms like Circuit City, among other companies lauded in the book, did not achieve the long-term greatness that Collins forecast.
“To the extent that we’re trying to predict what’s going to happen for higher-education institutions going out of business, I think that is enormously overreaching — actually, I’d take that a step further and say it’s irresponsible,” says Staisloff. Predictions about a college’s long-term viability can not only be wrong, but can affect that institution’s ability to attract and retain students and hasten its demise. “It’s trying to apply metrics in ways that I just don’t think are possible.”
The danger is in overpromising what these tools can provide to us.
The analysts at Moody’s Investors Service, which is in the business of assessing the financial health and potential of colleges, are also skeptical of rating a college’s future performance based on a handful of numbers. Susan Fitzgerald, an analyst in Moody’s higher-education practice, says the ratings agency starts with a quantitative assessment of factors like operating revenue, liquidity, and investments.
“But there are multiple other credit considerations that are unique to each institution that provide that forward look, and the forward look is really in large part driven by management and governance,” she says. “That’s a much more qualitative assessment than any number or group of numbers will give you.”
The College Stress Test came out of a book pitch that wound up as a dud. Zemsky and his longtime collaborator, Susan Shaman, had devised a formula that would rank the market viability of law schools and took the research to Britton, who had published some of the scholar’s past work.
“He sends back this amazing email: This is great stuff, Bob, but we’re not going to publish it. Nobody’s gonna be interested,” says Zemsky. “But then he goes on and says, Why don’t you apply the same methodology to undergraduate education?”
Of course, thought Zemsky. “I felt like an idiot,” he says. Zemsky and Shaman teamed up with Susan Campbell Baldridge, then provost of Middlebury College, to provide cultural and psychological context to the Penn scholars’ analysis of the colleges’ market risk.
The College Stress Test is an analysis of colleges’ positions in the market, not the state of their finances, which is what many other ratings systems attempt to calculate. All the same, a key question lies at the center of the book: How many colleges are out there, asking themselves, “Is it closing time?” To get to that answer, Zemsky, Shaman, and Baldridge rely on a set of just four metrics, which vary depending on the type of institution they are analyzing, and an analysis of how those metrics are trending, which evens out undulating data. For nonprofit private colleges, for example, the authors based their market-stress analysis on the percentage change in the number of first-year students from 2008 to 2016 (the most recent year that government data is available), the first-to-second-year retention, the market price, and the endowment-to-expense ratio. The analysis of public four-year colleges swaps out that last number for state-appropriation levels.
The calculations yield a numerical score of zero to 12. Scores equal to or greater than four indicate market stress; scores of six or more indicate severe stress. The book does not list colleges by score, except for about a dozen that have already merged or closed. Some of those, like Mount Ida College, scored a two, which put it in the safe zone. The model is not a perfect predictor. But the stress scores were higher for many others: Marygrove College, in Michigan, scored a six. Green Mountain College, in Vermont, scored a nine.
Zemsky wanted to call the book “Closing Time.” The College Stress Test might be more appropriate, because like a heart stress test, a blood-pressure reading, or a white-blood-cell count, the results indicate trouble for a college but don’t specifically point to what’s wrong.
And what’s wrong with higher education, Zemsky and his co-authors write, should be clear to any longtime observer of the sector: The elite, wealthy institutions are getting bigger and richer in this “winner’s market,” while underendowed colleges, particularly in the Northeast and Midwest, toil to consistently attract and retain classes of students that can cover their costs. Necessary innovations — like overhauling the general-education curriculum and setting up more relevant, interdisciplinary majors — are difficult to pull off because of intractable faculty members and skittish administrators, Zemsky says.
Moreover, they say, the conversation about what’s happening in higher education is caught among extreme visions: The catastrophists, often coming from private industry and the ed-tech sector, see an implosion coming for the college landscape, while people within colleges tend to be Pollyanna about the challenges ahead — that is, until closing time, when the language turns to one of grief.
Sixty percent face little or no market risk. But the remaining 30 percent are institutions that are bound to struggle.
Here’s what’s not happening: disruption. There is no Christensen-style reordering of the college market, no higher-ed Amazons killing the well-established J. C. Penneys. While Arizona State University and Southern New Hampshire University have experimented with new models and seen incredible growth, they are not fundamentally altering the higher-ed landscape, which is still ordered according to resources and prestige.
And a massive die-off is not happening, either. In fact, if you buy the Stress Test figures, most of higher education is doing quite well. “What the numbers tell us is that just less than 10 percent or less of the nation’s colleges and universities face substantial market risk,” they write in the conclusion. That’s a few hundred colleges. “Sixty percent face little or no market risk. But the remaining 30 percent are institutions that are bound to struggle. To thrive, they will need to reconsider the curricula they deliver, the prices they charge, and their willingness to experiment with new modes of instruction.”
There is a sad irony to all of this: The colleges that are the most pressured, the Stress Test authors note repeatedly, are also the same colleges that serve populations of students that desperately need education to climb the socioeconomic ladder.
Some higher-education insiders, when hearing of the Stress Test numbers, said the share of colleges that are distressed is closer to 20 percent, not 10. In any case, the fate of those colleges is fairly clear in a market where student numbers are declining, costs keep rising, and competition is fierce.
For that reason, higher-education scholars, public officials, and consumer advocates have pushed for a reliable way to identify endangered colleges — a process that appeared starkly necessary after the chaotic closure of Mount Ida College. In March 2018, Mount Ida announced that it would close at the end of the school year, which left students scrambling to find colleges to attend in the fall.
Burdened by a crushing backlog of deferred maintenance and struggling to bring in students in its final years, the college had sought mergers with both Lasell University, which fell apart, and the University of Massachusetts at Amherst, which eventually absorbed the campus. But Mount Ida seemed to do little to prepare its professors, staff members, and students for an abrupt closure. Administrators may have concealed the college’s precarious state to avoid scaring off prospective students. The state attorney general conducted an investigation, concluding that administrators should have known the college was on the edge.
But Michael B. Alexander, president of Lasell, says Mount Ida’s leaders seemed to be unaware.
“While we were trying to acquire them, they kept saying they had enough money to get through the year that we were in, and I’m looking at their own information and saying, ‘Um, no, you don’t,’” he says. “Three straight years of $10 million in total losses — I mean, that should have been obvious, right? But it still wasn’t.”
As lawsuits erupted following the closure, state officials pressed Massachusetts’s private colleges and the New England Commission of Higher Education to come up with a metric that would identify endangered private colleges and require them to form a teach-out plan. But the process has been wrapped in secrecy.
In meetings with state officials, the Massachusetts colleges argued that publishing the financial conditions of various institutions would lead prospective students to avoid colleges that seemed to be struggling and hasten the demise of those institutions. Even allowing the state department of higher education to devise the formula was too dangerous, the colleges argued, because news outlets or advocacy groups could acquire it through open-records laws and publicize lists of weak institutions.
The state accepted that argument and will likely put the process in the hands of the accrediting agency. Alexander says that even he and his finance staff don’t know the formula precisely. They took a stab at guessing what the formula might be and ran Lasell’s statistics through it; Alexander says the college fared even better on the official version of the assessment.
Lasell is doing well these days, Alexander says, with more than 2,000 students, $100 million in new construction, and books in the black. But in the 1980s, the college had 300 students and was losing money every year. If Lasell’s condition had been called out then, it would have closed.
Utica College seems to embody the complications and risks of carrying results of these studies to distant conclusions. Utica plays a prominent role in The College Stress Test, in a chapter that discusses the impacts of the college’s 2016 tuition reset, which dropped the sticker price to $20,000 from $34,000. Laura Casamento, the president of Utica, was a student of Zemsky’s at Penn’s higher-education program, and the book regards the college’s reset as a market success. Fitch Ratings recently gave the college a “BBB-" rating for its “solid” enrollment trends and “improving” cash flow.
But Utica was also at the center of the debate about financial-health predictions from Edmit, a company that advises students and parents on college choices. As Edmit prepared to release its results in coordination with Inside Higher Ed, a reporter sought comment from Utica, saying that the college had not fared well in the study. Utica, in response, threatened to sue.
“We thought it was going to be damaging,” says Casamento, noting that Edmit’s model works with old data and can’t capture the complexities of running a small college. “I’ve been president for three and a half years, happy to share my first three years of financial data with anyone on that that wants to see it. This isn’t about us not wanting to be transparent. It’s not about not wanting people to write about us. It’s wanting them to be factual and accurate with their conclusions.”
Edmit’s forecasting is different from The College Stress Test in that it names colleges that it believes will close in the years to come. Specifically, the model looks at 946 private, nonprofit colleges and identifies 188 that will likely fail in the next 10 years, along with another 128 institutions failing in years 11 through 20, and 59 in years 21 through 30. Like the model in The College Stress Test, Edmit’s is based on only four inputs: a college’s investment returns, its salaries, tuition cost, and tuition discounting. The model’s designers — master’s students in finance at Brandeis University, with no background in higher education — considered including enrollment figures and selectivity (through SAT scores), but ultimately found them to be irrelevant or redundant.
While The College Stress Test is written for college administrators, Edmit’s model is aimed directly at students and parents. Nick Ducoff, a co-founder at the advising company, published an editorial in The Hechinger Report that called out Utica College, noted that it had received a D in Forbes’s financial-health ratings, and cast the hullabaloo around Edmit’s forecasting as a battle for consumer protection — a message that gets traction these days: “Why are we protecting failing institutions and not the very students who will be the ones that pay the price — literally — for their college closures?”
In an interview, Ducoff says he has shown his results to sector insiders. “They thought our model was generous — very generous,” he says. “I think these colleges are way worse off than our model predicts.”
Perhaps. The tricky part is in deciding the fates of individual institutions, as Edmit attempted, rather than the sector as a whole. Ducoff believes the trajectories of colleges are more or less fixed. “The stewardship of these universities is pretty uneven,” he says, “so I don’t have a whole lot of faith that institutions on the brink are going to be able to turn it around.” Occasionally, he concedes, someone with “visionary leadership” makes an impact: Ducoff’s co-founder in Edmit, Sabrina Manville, came from Southern New Hampshire University, which in the early 2000s was just another struggling East Coast college, a type that might have landed high on Edmit’s endangered list today.
Institutions that rise from obscurity to dominant positions in higher education are admittedly rare. As The College Stress Test notes, many of the nation’s colleges will struggle perpetually into the future. Higher education has an adage: “It’s hard to kill a college” — a saying that comes from decades, if not centuries, of colleges that teeter on the edge of oblivion, yet somehow recover, and sometimes prosper. Under poor leadership, difficult trends in the sector, or a run of bad luck, they can find themselves struggling again.
“We have a lot of very small, private colleges where if they are 10 students off, they’re at risk,” says Robert Kelchen, an associate professor of higher education at Seton Hall University, who is himself trying to come up with a set of metrics that can reliably identify endangered institutions. “It’s hard to see that much of a larger market developing, and it’s hard to operate that efficiently when you’re that small.”
Why are we protecting failing institutions and not the very students who will be the ones that pay the price — literally — for their college closures?
Even so, he says, the conversation about college closures has been overblown, to some extent. Consider, he says, the 354 institutions profiled in the 1971 book The Invisible Colleges: A Profile of Small, Private Colleges With Limited Resources. Most of those institutions are still open.
“What I think that the question often should be, is not will these colleges close, but should they close?” he says. The new predictive models might help institutions avoid the boom and bust cycles, but they also might tell some institutions when to give up. Of course, that is not an easy call to make when many of these underendowed, struggling institutions are the economic engines of their communities.
But there might be another aspect to struggling institutions that the metrics can’t capture: The bid for survival pushes institutions to come up with innovative pedagogy, to cut costs, to seek new kinds of students. Colleges that struggle sometimes do so consciously, taking chances on students that initially might not seem like “college material.”
The struggle is what defines some small colleges — even while we risk romanticizing it. Jonathan Brand, the president of Cornell College, in Iowa, acknowledges that he is at an institution that has “struggled for decades,” but he feels that the college is better for it.
“There is a beauty at Cornell that comes with the struggle,” he says. “Faculty and staff learned to roll up their sleeves together and make it work. There is a trust that exists between the faculty, staff, me, the vice presidents, and the board that we are doing our best we can to achieve our mission with the resources we have.
“It’s a lovely foundation for the school,” Brand says. “It’s not always perfect, but it’s motivating.”
This article is a special preview of the 2020 Trends Report.