Future of Division III

[jknezek]

I'm pretty illiterate when it comes to bonds, but would it not also be the case that in a season of college closures and downsizing that the rating agencies would be a little less optimistic overall, simply because the sector isn't super healthy?

Without doubt the ratings agencies are going to look a little harder at these schools than they would have 10 years ago. But, these ratings are individual to the schools and were looked at independently and according to each school's prospect, in the context, of course, of what is going on in higher education and the assumptions the ratings agency makes about the industry going forward. It's all about their ability to pay back the debt when it comes due, or, in drastic cases, to make the interest payments.

You really don't want to be sub-investment grade because it gets so much more expensive when you try to refinance, or raise, new debt.

[Ron Boerger]

I'm pretty illiterate when it comes to bonds, but would it not also be the case that in a season of college closures and downsizing that the rating agencies would be a little less optimistic overall, simply because the sector isn't super healthy?

They certainly factor that in, but they apply it case by case as just one of the factors.  A school with healthy financials and continued high enrollment (and those do exist) - as well as other factors such as fundraising, overall profitabilty, etc. would overcome the overall environmental issues, at least until those other factors see changes.

[olddog]

Out west schools rely on donors for capital improvements/projects and upgrades. I see it tapering off as schools become more and more liberal. I know many that have cut off their school (including myself) ....due to their liberal position. This is not meant to be political just factual.   
I doubt the new graduates will be high earners and large donors in the future. Stats show the UC system donations per graduate taper off as them became liberal.

[Pat Coleman]

Can you cite that study?

[jknezek]

Considering schools with the largest endowments in the country are all fairly liberal, Stamford, the Ivies, and they continue to rack in billions in donations on a regular basis... I have my doubts. On the other hand, older people do hold most of the money, and older people tend to be more conservative than younger.

But really when looking at endowment sizes, you have to get to Notre Dame at 7, Vanderbilt at 16, and Rice at 19 before you find schools I wouldn't consider liberal. And Vanderbilt is pretty liberal for the south. Given the turmoil between liberal campuses and more conservative alums has been going on since the 1960s, at least, it only feels like this is a recent schism thanks to a whole lot more coverage.

Quality schools with good outreach and strong alumni associations get money. For every successful conservative who decides he's done giving, there's usually a counterbalancing liberal who likes what they see. Sure it makes news when some big donor says they are done, but the fundraising numbers tend to even out over a couple years and campaigns.

[scottiedoug]

Some time ago there was on here the observation that several very conservative colleges are having difficulty recruiting students and finding money. I am not sure how anyone knows if a school is "liberal." By what measure? Does this relate to athletics other than endowment support?

[Ryan Scott (Hoops Fan)]

Some time ago there was on here the observation that several very conservative colleges are having difficulty recruiting students and finding money. I am not sure how anyone knows if a school is "liberal." By what measure? Does this relate to athletics other than endowment support?

There's really two different things happening as it relates to D3 schools.  Conservative Christian schools are struggling with the rift between more conservative donors and parents and the students who'd rather they be a bit more open.  This is a Catch-22 that doomed Eastern Nazarene College, for sure.  It was too liberal for "grown-ups" and too conservative for the students - tough to stay in business when no one is happy.

I suspect the previous poster, though, was talking more about culture wars in the political sphere.  Issues of free speech, gender identity, and campus protest are all causing rifts along political lines, which is especially tough in an election year.  When so many d3's depend on tuition and donors to keep the doors open, one controversy or even alleged controversy can spell real trouble.

The broad labels of "conservative" and "liberal" with no real specifics behind them are dangerous, often expand quickly beyond facts, and spread quickly.  I suspect a lot of admin time is spent on maintaining good PR.

To me, it feels like what's likely been an age-old tension: parents and donors generally want the graduates of the schools they support to think largely like them.  When schools are doing their jobs and teaching kids how to think for themselves, they often develop ideas and opinions the financial backers don't like (even if they're largely abandoned by the time they hit 30 years old).  It's hard to believe this is a new problem - but perhaps it's one being exacerbated by budget issues that are more acute than in past generations?

(That's not to say there aren't schools or specific professors out to indoctrinate students, but those are generally small minorities and tend to represent perspectives across the liberal-conservative spectrum.)

[Ralph Turner]

Ryan is right.

Schools with Methodist heritages that have gone under since 2020:

MacMurray 2020
Wesley DE  2021
Martin Methodist (TN) 2021
Iowa Wesleyan 2023
B-SC 2024

If the alum does not perceive the institution of higher education to be instilling a faith-strengthening experience or a life-transforming experience, similar to what they received when they attended, then what good is that small liberal arts institution? Followers of Christ will recognize the parable of the fig tree in Matthew 21:18-19. If a Christian institution of higher education does not bear fruit (for the Kingdom of God), it will perish.

[scottiedoug]

Ryan is mostly right about this: " When schools are doing their jobs and teaching kids how to think for themselves, they often develop ideas and opinions the financial backers don't like (even if they're largely abandoned by the time they hit 30 years old)."

I am not sure that the last part is true, but his statement of what schools are for is correct.

I am not sure BSC's closure was about more than graft and fraud by "adults."

I also think certain loud people who care not at all about education are stoking the culture war part of the difficulties schools are facing. 

We who care should support institutions that are "doing their job" as Ryan puts it!

[Ron Boerger]

Fitch (another bond rating firm) has lowered Mount Saint Mary College (NY) debt from BBB+ to BBB, which on Fitch's scale is the lowest non-speculative grade.  They've also moved the outlook to Negative.

The downgrades to 'BBB' reflect multiple years of deterioration in financial assets stemming from declines in student enrollments, the primary source of MSMC's revenues, that had not been matched by proportionate cuts in operating costs.

The Negative Outlook is based on Fitch's forward-looking scenario analysis that demonstrates MSMC's leverage metrics will continue to erode to levels more consistent with a lower rating of one or more notches, if the college does not swiftly take more impactful measures to balance operating performance. Fitch's forward-looking analysis also assumes relatively stable enrollment and net tuition revenues in fiscal 2025, no additional debt issuance, and limited capital spending to be funded by internal resources. Variations to any of these assumptions will also pressure the ratings.

The school reported a break-even year in FY 2023, but it took $16.5M in "Investment spending designated for current operations" to do so.  Absent that, the school would have reported a $16.5M loss on revenue of $64.3M.  Fall 2023 enrollment below 1,400 was down 12% from the previous year and 30% since 2019.

MSMC reported net assets of $130M, the majority of which is plant and equipment.  The school's liquid assets were primarily limited to $21.9M in savings and temporary cash investments and $35.1M in securities.  Only $16.9M of their assets are unrestricted, further limiting spending flexibility.

[Ryan Scott (Hoops Fan)]

We see this split even in our local high schools.  They're pushing 8th graders to pick a career pathway and tailoring their HS schedule to match - almost like picking a major.  Everything is about career development.

Personally, I still hold to the liberal arts ethos that education is about personal development, which makes it all very frustrating for me - but it is what it is.  People think differently and it's shaping the way schools function.

I'm really not all that sad about my alma mater's closing - to stay alive it was already having to move much more to career training over personal development.  At that point, let the schools with scale and resources handle it.  Liberal Arts are certainly not for everyone and it seems like we're seeing a major market correction to reflect that.




As an aside on the religious education piece, I do think there's a niche out there for an evangelical school that's not anti-LGBTQ, but it's a costly endeavor.  From what I gather from public sources, it cost Eastern Mennonite about $80m to simply change their HR policies to allow queer folks to work there (lost revenue and endowment value in the five years it took them to recoup fundraising) - and that's in a denomination that's largely split 50/50 on the issue.

An interesting test case for this is Point Loma Nazarene.  They don't really need denominational affiliation for recruitment or fundraising and they're getting regularly pummeled in local press over conservative stances.  The Board of Trustees is still largely Nazarene, though, so it'll be interesting to see if they double down on doctrinal purity or do what might be best for the future of the school.

Finances forced ENC's closure before they really had to address that issue, but that won't be the case everywhere.

[jknezek]

Personally, I still hold to the liberal arts ethos that education is about personal development, which makes it all very frustrating for me - but it is what it is.  People think differently and it's shaping the way schools function.

I'm really not all that sad about my alma mater's closing - to stay alive it was already having to move much more to career training over personal development.  At that point, let the schools with scale and resources handle it.  Liberal Arts are certainly not for everyone and it seems like we're seeing a major market correction to reflect that.

I feel the same way but I also understand that if you are going to take on 75-100K in debt to go to college, you need to come out employable. And while I think the personal growth story of liberal arts schools is an applicable hiring skill, a lot of employers would prefer someone who already understands basic accounting, finance and economics and not necessarily the skills to analyze the Iliad and the Odyssey. And frankly, if you want to do anything in tech, having a liberal arts degree is essentially a non-starter.

I'm also the odd person who went to a liberal arts school and graduated with a B.A. in print journalism and a B.S. in Business Administration, basically the two most career orientated majors offered on campus. So I'm not exactly the poster child for liberal arts despite attending a liberal arts school.

But really this is about making the expense pay off. When you used to be able to go to college in the 60s and 70s and come out with little or no debt provided you worked a part time job, it was no big deal. Colleges have priced themselves out of the liberal arts benefits, and I just don't see that changing any time soon.

[Ralph Turner]

Personally, I still hold to the liberal arts ethos that education is about personal development, which makes it all very frustrating for me - but it is what it is.  People think differently and it's shaping the way schools function.

I'm really not all that sad about my alma mater's closing - to stay alive it was already having to move much more to career training over personal development.  At that point, let the schools with scale and resources handle it.  Liberal Arts are certainly not for everyone and it seems like we're seeing a major market correction to reflect that.

I feel the same way but I also understand that if you are going to take on 75-100K in debt to go to college, you need to come out employable. And while I think the personal growth story of liberal arts schools is an applicable hiring skill, a lot of employers would prefer someone who already understands basic accounting, finance and economics and not necessarily the skills to analyze the Iliad and the Odyssey. And frankly, if you want to do anything in tech, having a liberal arts degree is essentially a non-starter.

I'm also the odd person who went to a liberal arts school and graduated with a B.A. in print journalism and a B.S. in Business Administration, basically the two most career orientated majors offered on campus. So I'm not exactly the poster child for liberal arts despite attending a liberal arts school.

But really this is about making the expense pay off. When you used to be able to go to college in the 60s and 70s and come out with little or no debt provided you worked a part time job, it was no big deal. Colleges have priced themselves out of the liberal arts benefits, and I just don't see that changing any time soon.

I agree.

[Gray Fox]

Colleges have priced themselves out of the liberal arts benefits, and I just don't see that changing any time soon.

A perfect description.

[Ryan Scott (Hoops Fan)]

It's just more of the differentiated learning, right?  There are increasingly alternative paths to skill development and college will be less of a requirement as industries figure out better ways to train employees.

My liberal arts experience was so fundamental to my personal development, I consider it literally priceless.  Obviously that's not going to be everyone's experience or everyone's need - I do think liberal arts still needs some champions.  It's easy to cherry-pick a comparative literature or art history degree as impractical - but plenty of liberal arts students also major in math and science or education.  I haven't "used" my history degree, per say, but those skills have been pretty valuable in a number of different alternative fields.

What's definitely changing is the notion of liberal arts as the preferred default for higher ed.  That's probably a good thing, even if it means some very sad carnage amongst small and under-resourced colleges across the country.