Sunday, May 12, 2024

College Bankruptcies - the Enrollment Cliff

Demographics are only part of the college bankruptcy crises.

More than a decade ago, I opined that the next wave of bankruptcies would be colleges and universities.  At the time, we were going through the bankruptcy of GM and Chrysler's second bankruptcy as well.  The "Big-3" automakers had a storied history of offering the wrong products at the wrong time (big gas-guzzling cars and SUVs of low quality) as well as blowing billions on pie-in-the-sky ideas.

GM, for example, was reported to have spent as much on Saturn than they would have just buying a controlling interest in Toyota.  GM spent billions in a deal to acquire Fiat, then spent an equal amount to get out of the deal - money that Fiat used to buy GM's competition, Chrysler.

In the 1970s, the "big-3" couldn't compete with the Japanese, so they offered such "innovations" as opera windows, landau bars, and vinyl roofs, hoping that a plethora of tchotchke would bondo-over shoddy build quality and decades-old engineering.  It didn't work.   The bonus was, of course, they were horrifically expensive as well.

Today, the "pimp barges" of that era are just starting to become collectible in spite of themselves.  Those cars are sort of along the lines of the Edsel - not necessarily desirable, but more of "can you believe they built this?"

College educations were falling along similar lines, starting in the 1990s and accelerating into the 2000s.  I have no sympathy for anyone "struggling" with student loan debt if they took it out in the last decade or so.  The media has been rife since the early 2000's, with articles about how worthless some college degrees are and how overpriced they are - and how student loan debt is like a life-ring made of lead.  Young people today have no excuse for not knowing.

Like the 1976 Monte Carlo, a liberal arts education today looks attractive from a certain angle and distance, but up close, the cracks appear in the facade.  Kids are majoring in useless majors, such as "gender studies" or "African-American studies" or the like - toxic degrees in many cases that are best left off your resume, as they mark you as a potential troublemaker, not a productive employee.  They also show a lack of sound judgement.

And before you flame me, I will admit that there are one or two jobs out there for someone with those "credentials" - a company might want a "diversity training" officer with such a background.  But such jobs are few and far between and like a "communications" degree, the colleges are cranking out more graduates in one year than there are jobs in the industry overall.  No, you are not going to be the next Dan Rather by going to Newhouse School.

And to boost corporate profits, many companies are laying off their "diversity training" officers and eliminating other touchy-feely job titles, which were good for corporate PR, but not so much for the almighty share price.

Consider my hippie brother (update: no longer stinking!) who has a PhD in puppetry and miraculously .found the one job on the planet that requires that credential.  We are all happy for him that at age 50 he found this job.  Now, if he can just keep working until age 80, he can pay off those student loans.  I kid, but the thrust is true - there are jobs out there for some more obscure degrees, but there ain't many of 'em - and a ton of applicants.

It reminds me of my friend who was a bassoonist for the late Syracuse Symphony (which folded when they could not pay union wages and could not put butts in the seats in the audience or find corporate sponsors willing to throw money at it).  He told me they had an opening for a principle violinist for the orchestra.  They received thousands of resumes, of which hundreds were eminently qualified and of which they selected dozens of finalists.  One lucky person won the job, but even with union wages, it was not a great living.  At least back then, student loans were not a thing.  Today they are.

Time was, a liberal arts degree - or any degree - got you a job.  Back in the post-war era, you could graduate from college and get a salary job and "work your way up" from the mailroom to the executive suite.  You could succeed in business without really trying - or at least that was how it appeared.  And yes, companies had a lot of "dead weight" and indeed, they treated employees better, in some regards, and invested more in their human capital.

I went to school at General Motors Institute, a college started by the then-largest automaker in the world as a feeder for their engineering talent requirements.  Although many if not most graduates (or dropouts, like me) ended up working somewhere else, it was said that GM still benefited from increasing the pool of Engineers as a result.  They felt they were doing a public good.  Those days are over, although the school still exists (as Kettering Institute) and co-op programs exist at other colleges and universities as well.  I highly recommend checking them out, if you feel you can't "afford" college and also want some real-life work experience.

On the other hand, not many places are offering co-op programs for English Lit majors.  And this is a general trend.   College is so expensive today that students are forced to make hard choices.  Sure, there are always the rich kids who can afford to party for four years (and their parents gladly pay, to get them out of the house).  But the near-wealthy and middle-class can't afford to do that.  And I've seen middle-class kids try to emulate the lifestyle of their trust-fund frat brothers through the use of student loans.  It does not end well.  Bad grades and a useless degree - and a lifetime of crippling debt - are not a fair exchange for four years of binge-drinking.

Three small liberal arts colleges I am familiar with have gone bankrupt - with only one being saved so far. My sister's Alma Mater, Sweetbriar, went bust, but was saved at the last minute through donations from wealthy alumni.  The school had the money, but it was tied up in an endowment that limited the school to an all-girls college.  Fortunately, a judge threw that limitation out, and with alumni donations, they are back in business - for now.

Cazenovia College - in my old hometown - went bust when they borrowed millions of dollars to install a new equestrian center and other improvements.  They apparently didn't do the math on how to pay back that money.  It is akin to how many "brick and mortar" stores went belly-up in the last few years.  Pundits blamed the problem on Amazon, but the reality was these companies were often taken private, saddled with staggering debt, and then unable to pay it back.  Such was the case with Caz College.

Our lake house was in Aurora, New York - the one North of Ithaca, not near Buffalo.  It was a funky place, home to Makenzie-Childs pottery.  The founders, Richard and Victoria (or as we called them, "Dick & Vic") were our next door neighbors.  The town was host to Wells college, named after and founded by, one of the founders of Wells Fargo as a "seminary" school for his daughter to attend.  The town was also home to a motley collection of old hippies and colorful characters.

It was more than a decade ago when we lived there, but the school was struggling even then.  They went co-ed to try to attract more students and tied-in with Ithaca College and Cornell to allow students to attend classes there.  One wealthy Alumni, Pleasant Rowland (who sold her American Doll company to Mattel for nearly a billion dollars) pumped money into the school, keeping it afloat and paying to renovate school buildings, including the old hotel and restaurant.

As her reward, the locals hung her in effigy, claiming that making the hotel ADA compliant was "attracting too much tourism" and "ruining" the local vibe.  So Pleasant took her marbles and went home - and donated hundreds of millions to other places where people weren't so stupidly obstinate.

Wells just announced they are closing for good.  Maybe it would have closed anyway, with or without Ms. Rowland's millions.  On the other hand, pissing off your number one alumni surely was a stupid move.  What will happen to the school is anyone's guess.  No doubt the mansions along the lake (many used as school buildings) will become vacation homes for those awful "tourists" that the "locals" were trying to keep out.  Time will tell.

The big problem for the school was that they were offering liberal arts degrees, and as a small college, they had very high tuition costs.  In today's dog-eat-dog world, student-consumers are looking for bang-for-the-buck and a "meh" degree from an unknown institution isn't very valuable anymore.  And whether you like it or not, everything has a value, even (and especially) college degrees. So just get over that and stuff that "education for education's sake" nonsense in the toilet.  Ordinary people can't afford that. And no, neither can our government.

When you are in a job interview and the first thing you have to do is explain what your Alma Mater was all about, you are at a distinct disadvantage.  When I interviewed at Carrier and the USPTO, they understood what GMI was all about.  But at the law firm, it was "what the hell is that?"  Meanwhile, at many an interview, they would see "Syracuse University" on my resume and smile and say, "Let's go Orange!" and then want to spend the rest of the interview talking basketball and Coach Jim Boeheim - two topics I know little about and care less.

Sad but true - your college education will be judged by how notable your school's sports team was, regardless of your major.  Employers know "brand name" schools, even if it is only from watching sports on television.  When I entered The George Washington University (yes, "The" is part of the name) we had no real basketball team to speak of.  The new dean made it a goal to have a division-A team and succeeded.  When I interviewed with employers, it was the same deal, "How about those Colonials?   Made the playoffs!"  Less spoken about was the notoriety of the faculty of the law school, which was a shame as they had some notable professors there.

Fair?  Of course not.  But that's life - unfair.  Good-looking people are hired and promoted over less-attractive folks.  You will be discriminated against based on your race, religion, sexual orientation, appearance, or whatever - despite laws to the contrary.  And your education will be evaluated, in some situations, based on how well-known your school is.  A degree from Harvard still has panache even it the school itself has acquired a patina.

But again, this is just one factor and colleges are facing a perfect storm of a number of factors conspiring against them.  And the biggest factor is the so-called enrollment cliff, a demographic drop in the number of high school graduates in the coming years.  Compounding this problem is the drop in foreign students (thanks to xenophobic anti-immigrant politics) who were previously a cash-cow for many universities, as they generally came from wealthy families and paid full tuition without scholarships or government subsidies.

The vaunted "US education" is losing it shine in many countries overseas.  I am reading online stories from Indian students who came to America to get technical degrees at great expense, only to find employment difficult in the States and nearly impossible back home.  Many US students are questioning the value of a college education, seeing the $100,000 or more (sometimes per year!) as better spent on a down payment on a house or a nest egg for retirement.

The old adage that a college degree will earn you more money over time is based on statistics from the 1960's and 1970's and is far less true today.  Maybe this will turn around, but with so few people willing to get into the trades anymore and so many young people wanting "desk jobs" the labor rates have inverted.  I noted before the law business sort of cratered when everyone decided to go to law school and the medical profession seems similarly affected.  Once the ticket to an upper-middle-class living, a law degree or medical degree is today at best, a ticket to stay within the struggling middle-class.

Meanwhile, the heavy equipment operator is showing me photos of his vacation home and $100,000 pontoon boat, towed behind his pickup truck that cost as much.  Who's the idiot now?  And we wonder why "rednecks" are voting for candidates who promise to cut taxes for people making over $400,000 a year.  Those country folks are raking it in more than we suspect.  The new poor are the professional class living in the city.

There is, of course, one more factor and that is endowments.  Traditionally, colleges and universities had endowments which were big piles of money they had invested.  Often, they could survive just based on the income from the endowment. In fact, one famous school has no tuition as their endowment is large enough to cover all expenses.  In addition, wealthy alumni (who either came from money or made lots of money by dint of having a college education) would donate money or give huge sums to have a building constructed with their name on it.

Today?  Less so. Many schools are burning through their endowments, trying to hang on, hoping that "down the road" somehow things will turn around.  Meanwhile, the new generation of alumni are so broke they cannot afford to donate to their old school.  When you are still paying off student loans well into your 40's, you can't afford to answer the call of the Alumi association.  By charging such enormous tuition and encouraging students to take out loans, colleges, in effect, were borrowing from their future alumni donations.

So take all this and throw it in a blender.  Colleges and Universities are facing big problems.  But for the most part, the initial failures are limited to smaller liberal arts colleges, "women's" colleges, and historically black colleges.  These are small tragedies being played out in small towns and cities across America, making local headlines and then everyone forgets about it.

In the short-term, these closures are good news, ironically, for larger schools.  The few hundred students at Wells will no doubt transfer to some other school, and big universities like Syracuse or Cornell may benefit.  It is like a herd of gazelles - the lions take out the weak and infirm first, which allows the young and swift to escape.  Real shame about grandma, but hey, more grass for us to eat!

The crises will become more evident when a major university goes bust - or a university system, such as SUNY profiled in the article linked above.  Maybe then, college deans will sit up and take notice and maybe change will occur.  Sadly, this will likely lead to a call for more government bailouts or "free college" as they (used to) have in the UK and elsewhere.

Or maybe colleges will realize they need to make structural changes to make a college education a value proposition rather than a black hole to throw money into.


I am not sure I have any answers, only that college was a 14-year experience for me (1978-1992) and I worked the whole time.  I think I got a better education and had a better (and less expensive) experience as a result, too.   Maybe if more companies can be induced (through tax credits) into hiring co-op students and interns, college could be more attractive, more relevant, and more cost-effective than in the past.

That, or maybe we need a new student center named after a wealthy alumni who contributed 10% of the construction cost.  Make sure it has a rock-climbing wall!  Or maybe a bouncy house!