20% of Private Nonprofit Colleges Got a ‘D’ in Financial Health. How Quickly Can They Upgrade to a ‘C’?

By: | April 14, 2020

John (Jack) Hampton is a Professor of Business at St. Peter’s University, a core faculty member at the International School of Management (Paris), and a Risk Insider at Risk and Insurance magazine where he was named a 2018 All Star. He was Executive Director of the Risk and Insurance Management Society (RIMS), dean of the schools of business at Seton Hall and Connecticut State universities, and provost of the College of Insurance and SUNY Maritime College in New York City.

The April 14-15 anniversary of the 1912 sinking of the Royal Mail Ship RMS Titanic is a time to reflect upon today’s current risks in these very choppy higher education waters.

We have one set of maritime rules in calm weather and another when crossing the North Atlantic, with its ferocious winter storms or spring thawing of the Arctic ice shelf.

Before departing Southampton, we ensure we have enough, food, spare parts and lifeboats. As we approach a field of icebergs, we slow down the vessel to minimize the possibility of collision.

If the unthinkable happens — incurring a direct hit on an iceberg — we encourage orderly processes, get the passengers into lifeboats, and alert nearby ships to rescue as many people as possible.

The grade of F can be awarded on each activity to the Titanic:

  • The ship had 20 lifeboats with a capacity of 1,100 individuals. The ship carried 2,200 passengers and crew.
  • Captain Edward J. Smith was urged to ignore danger and steam full speed ahead through a field of icebergs.
  • Mitigation Afterwards. The lifeboats, with a capacity in calm waters of 1,400 people, carried only 700 to safety.

From here, we morph to private, nonprofit colleges and universities. Declining college-age students, excessive student debt and changing social and economic conditions are the tips of icebergs. Too many colleges observe only the 10% of each iceberg above the water line and try to forget about the other hidden 90%.

Then from out of nowhere, we hit COVID-19, the granddaddy of all icebergs.

Higher education does not have enough lifeboats to save everyone. Who is likely to get a seat?

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Twenty percent of U.S. private nonprofit colleges got a “D” on Forbes’ 2019 financial health rating. The study identified 177 institutions that were in trouble — twice the number from two years earlier.

Many private nonprofit schools are in trouble but not necessarily doomed. Like the Titanic, they made some mistakes. Unlike the Titanic, many can still take swift action to save the vessel, even as they put some people in lifeboats.

The process starts with a sustainable business model. Three questions:

  • What do our clients (parents and students not always in that order) want from us?
  • How can we develop it?
  • How can we deliver it on a sustainable financial foundation?

If we have no answers to these questions, all is not lost. We can still do some risk management things:

  • The Band. Anecdotal evidence and James Cameron’s 1997 movie Titanic, tell us “the band played on” after the collision. It helps everybody feel good when live music is playing on a sinking ship.
  • Past Behaviors. We can engage in the familiar activities that worked so well for us in the past. This is analogous to a comfortable post-collision activity of “rearranging the deck chairs on the Titanic.”
  • The Bar. Keep the bar open for God’s sake. Whatever else we do after hitting an iceberg that will destroy the vessel, do not close the bar.

Thus, our risk management strategy is for everyone to sit quietly in deck chairs, with our favorite drink and music playing in the background, on a cool, moon-lit spring evening.

This is a totally viable strategy for the next two hours and 40 minutes. &

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The R&I Editorial Team can be reached at [email protected]