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Campus Finance Briefs

A Third of Colleges on “Unsustainable Path”

University Business, September 2012

A third of all colleges and universities in the United States are in a weaker financial state today than before 2005, according to a new study.
Colleges have more liabilities, higher debt service, and increasing expenses without the revenue or cash reserves to back them up, as well as limited ability to pass costs onto families, according to Boston-based Bain & Co.

Proving that few higher ed institutions are immune from the effects of the economy, schools such as Yale and MIT are included on Bain’s list.

The study also notes that endowments are unlikely to recover to the annual growth trends they enjoyed leading up to the recession.

What determines whether a school is at risk? Bain says indicators include:

  • tuition hikes consistently near the top end of the range;
  • lowered admission standards;
  • reduced financial aid;
  • faculty layoffs;
  • debt outpacing instruction expenses;
  • tuition as an increasingly greater percentage of revenue;
  • down bond ratings.

The study says many institutions have operated on the assumption that the more they build, spend, diversify, and expand, the more they will prosper. Instead, institutions have become overleveraged, with long-term debt increasing at an average rate of 12 percent annually; and their average annual interest expense is increasing at almost twice the rate of their expenses for providing instruction.