When a bailout isn’t a bailout, continued
Here’s the rest of my conversation with David Jesse about his story on a U.S. Department of Agriculture program that has grown to become a key source of financing for struggling rural colleges. You can read Part 1 in yesterday’s Daily Briefing.
Iowa Wesleyan University went from being the leading example of an institution saved by this program in 2019 to closing last year. And the government, as the lender, took ownership of its land and facilities, because they were put up as loan collateral. Are the feds set up to find good uses for these campuses after they close?
Not really. Part of the problem is the location of the campuses. By definition, these colleges are in rural areas where there’s not much demand for office space or apartments once the college is gone.
Look at Iowa Wesleyan. A big chunk of campus was sold to the local school district for just over $1 million. That’s a great deal for the district, which needed some office space, athletic fields, and a nice auditorium for school bands and choirs to perform in. That’s not such a great deal for the USDA in terms of getting money back on the $26 million it loaned.
That gets to a big question, Rick. I’d be interested in seeing what you found in your reporting several years ago — should the USDA be loaning money out to these colleges?
I think the answer depends on the goal.
If the goal is to simultaneously pay for construction jobs in rural areas, make colleges hire consultants so they can apply for cheap capital, keep institutions open without completely insulating them from market forces, and socialize the financial risks of it all, then the USDA program works great. If you want a meaningful, coordinated economic- or community-development plan for these regions, this all makes no sense. If you want to make money for the government, I’m not sure.
It’s worth noting exactly who is getting these loans — 80 percent of all the loans in the last decade went to private colleges and universities.
The bulk of the loans, 46 percent, went to colleges in the Southeast, 20 percent went to colleges in the Great Lakes, and 17 percent went to colleges in the Plains area. It really is striking to see these clusters of colleges and then nothing west of the Rockies, and only one in the Southwest. Those are, especially in the Southwest, the areas where colleges aren’t facing as steep of a demographic cliff as other areas of the country.
Regarding those colleges that did close, what are we supposed to tell the student who, five years ago, could have gotten a degree from an Iowa Wesleyan because campus was close enough to their home that they’d have persisted and graduated — only now they can’t do that because the college closed?
That seems to be the $2.2-billion question. Andrew Koricich, the executive director of the Alliance for Research on Regional Colleges and an associate professor of higher education at Appalachian State University, told me: “What is the purpose of this being a loan? Why not a grant? Congress has to decide rural places are worth being invested in and not just a place to make money.”
Any final thoughts?
These are vital institutions that are often the only opportunity rural students have to get a four-year degree. Adding debt through a program like this can be helpful in keeping a campus up to date. But it also can wreak havoc on a college’s bottom line.
I find myself thinking a lot about what Koricich said to me about the program and its impact on colleges: “These institutions have to have a near-flawless performance after the loan.” I’m not sure that’s possible in today’s landscape.
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