Study: A third of colleges on unsustainable path

Ten Connecticut universities and colleges find themselves on a financial path of late that is unsustainable in the long term ”“ including Yale University, according to a study that arrives amid continued hand-wringing over the debt students and families are incurring to pay for their degrees.

Nationally, a third of all colleges and universities are in a weaker financial state today than before 2005, according to a study by Boston-based Bain & Co., whose consulting practice includes one focused on higher education.

Bain compared university equity ratios (equity as a percentage of assets, lower than in past year) with expense ratios (expenses as a percentage of revenue, up than in past year) and added that endowments are unlikely to recover to the annual growth trends they enjoyed leading up to the recession.

In short, Bain said, colleges have more liabilities, higher debt service and increasing expenses without the revenue or cash reserves to back them up ”“ and with only limited ability to pass those costs onto families who themselves are scrutinizing their options against available college tuition and financial aid packages.

In Fairfield County, Bain included Fairfield University and Western Connecticut State University in its quadrant of institutions deemed to have the least sustainable financial structure, along with Wesleyan University in Middletown and Yale.

Bain calculated an endowment of $1.4 million per student at Yale, which study authors Jeff Denneen and Tom Dretler acknowledged cannot be ignored in any assessment of a university”™s long-term financial stability.

Denneen leads Bain”™s higher education practice in Atlanta, while Dretler is the former CEO of Eduventures now with the private equity company Sterling Partners. Jeff Selingo, author of the forthcoming book “College (Un)Bound: The Future of Higher Education and What It Means for Students,” contributed to the report.

“If you are the president of a college or university that is not among the elites and does not have an endowment in the billions, chances are cash is becoming increasingly scarce ”“ unless you”™re among the most innovative,” Denneen and Dretler stated.

On the flip side of the financial picture, Sacred Heart University in Fairfield and the University of Connecticut had the best financial picture in contrasting its equity and expense ratios under Bain”™s formula.

The University of Bridgeport, which famously found itself on the brink of insolvency more than two decades ago, has a sound financial outlook today, Bain found.

Connecticut College, which this summer earned the U.S. Department of Education”™s inglorious distinction of being the most expensive school in the country before factoring in financial aid, numbered among schools in neutral territory, according to Bain.

Schools can determine if they are at risk if:

Ӣ tuition hikes are consistently near the top end of the range;

Ӣ admission standards have been lowered;

Ӣ financial aid has been cut;

Ӣ faculty has been cut;

Ӣ median salaries for graduates is flat;

Ӣ debt expenses are increasing far more rapidly than instruction expenses;

Ӣ tuition represents an increasingly greater percentage of revenue;

Ӣ bond ratings have gone down;

Ӣ government funding is harder to access; or

”¢ schools have had to take “drastic measures,” in the authors”™ words.

Much of the liquidity crisis facing higher education comes from having succumbed to the “law of more,” the study concludes, with many institutions having operated on the assumption that the more they build, spend, diversify and expand, the more they will persist and prosper. But instead, the opposite has happened: Institutions have become overleveraged, with long-term debt increasing at an average rate of 12 percent annually; and their average annual interest expense increasing at almost twice the rate of their expenses for providing instruction.