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No Way out of Debt for US Colleges???? -Phooey!

In an October 2007 article in The Chronicle of Higher Education a venture capitalist was asked if the trend of VC's or "for-profit" organizations purchasing non-profit institutions would continue. To paraphrase, the reply was essentially "no."

The Problem with the Tides

That was then. Maybe our VC's answer had to do with an honest opinion or perhaps it was motivated by a wish to undercut interest in this potentially lucrative investment opportunity. The motivation doesn't matter as what may be true one day may change completely a short time later, as reliable as the changing tides.

In recent weeks we have learned of the purchase of Daniel Webster College in Nashua, New Hampshire by Indianapolis based ITT/ESI, Inc. as well as the purchase of Waldorf College in Forest City, Iowa to the for-profit Columbia Southern University in Orange Beach, Alabama. The College of Santa Fe in New Mexico was recently saved when a group of local investors purchased the institution and made a deal with the for-profit Laureate Education to manage academic programs.

Virtually every institution is impacted in one way or another by the recession and its economic impact. The ability of institution and academic leaders to morph into change agents within their organizations has never been more critical. Failure to make this change may have some potentially sobering effects. In the best case, they will merge with bigger schools; sell themselves to for-profit organizations or offer vocational training that elite colleges eschew, says Sandy Baum, a senior policy analyst at the College Board.

In the worst case, they will shut down permanently.

Does this describe YOUR institution?

The institutions in greatest danger of shutting down include many small non-profit, tuition driven institutions that without a significant reputation or clear value proposition may be found heaving with debt from a decade of luxury building. Moody's has downgraded or has a number of such institutions on its "watch list" while Fall 2008 to Spring 2009 retention rates took a historic dip and assets were frozen and/or lost significant value. Standard & Poor's predicts bankruptcies will rise from the typical one or two schools that fold each year.

"Small colleges with no reputation could go out of business," said Baum. "They're very tuition driven, so if they can't get tuition revenues, they'll be in really bad shape."

A Change Agents' Top Five Solutions:

1. Program Review: Look at relevance and either update or eliminate your degree programs. What does your pipeline on new program development look like? How do you compare with competitors?

2. Key metric performance: Ask each VP to come up with metrics to manage every staff member in their departments. You may be startled at what they come up with (or don't come up with).

3. Retention: this is the low hanging fruit. They are there already, why can't you keep them? Be honest!

4. Tuition roll-backs: Before you raise tuition, first cut back on underperforming areas and see how that impacts your budget. Take a look at the various "no frills" degree offerings to help off-set and reduce tuition expenses for working students and families.

5. Realigning Budget management: It still shocks me that institutions cut or cap enrollment at programs with high demand because of budget cuts. Does your institution do this? If so, fire your VP of Finance, they don't understand how to manage a modern higher education budget.

A Change Agent's Top Challenge: Speed!

Significant concessions must be made and artful diplomacy with key stake holders must be achieved regardless of union contracts in order for institutions to move through these challenges with the speed and dexterity required to navigate the significant challenges they face. Despite diplomacy and concessions you will still find "hold-outs" who cannot or will not move quicker. These personalities have single handedly caused the closure of a number of institutions around the country. Leadership must develop a strategy to get everyone on board with being a "speedy" change agent or their efforts will be in vain.

 The anxiety associated with facing such challenges may seem too much. A group therapy session of sorts may be required before all the players come to acknowledge the reality of their situation. This acknowledgement will be required before any significant action can occur that will put the institution on better ground. Human resource offices may be engaged with the kind of personnel development and culture change management they have not practiced previously.

All areas of the campus community must be integrated into the solution for a solution to work.  For more ideas and information about this or related topics, please contact Dominick Miciotta at Dominick@edtekservices.com

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