Signs That the End Is Near

From: TIPS on Higher Education Leadership^[1]

These signs point to major problems that, if not addressed immediately, could lead to the collapse of the college.

1. Deficits are growing at double-digit rates;
2. Expendable Net Assets to Debt ratio is increasing faster than the median national and regional ratios;
3. Cash reserves will not cover the next payroll;
4. Vendors are not being paid;
5. Banks will not make short-term loans;
6. Accreditors have warned the college that it will lose accreditation at the end of the academic year.
7. When the Burnout Score© is computed, if it is less than 1, it indicates a high probability of failure within a year.
8. The board of trustees miss signals that the college faces a financial catastrophe.
9. The board needs to receive sufficient and accurate information about the financial condition of the college.
10. Cash reserves are less than two months, and the next federal tranche is not expected to arrive until after cash is exhausted.
11. Over-collateralization of property eliminates the college’s flexibility of selling property for cash.
12. Handbook rules that prevent an immediate reduction-in-force plan or lead to ambiguity over who has decision authority over academic matters.
13. Third-party enrollment contracts in which a contractor receives a portion of the tuition and fees from new students. A college with a high tuition discount rate, and if it is combined with the contractor’s rate, can find that it receives little or no cash out of new student tuition. For example, here is a case where a college discount has a discount rate of 75% and contracts with an enrollment agency that charges 25% of new student tuition revenue; this college will only receive 5% of new student revenue.
14. Buildings that are empty and have been financed by loans. These buildings are a dead weight on the college’s finances.
15. Very low student-faculty ratios result in too expensive faculty and insufficient tuition revenue to support their compensation. Even worse, many colleges have low tenure bars that make it challenging to reduce the force or even reduce pay.
16. Board meetings fail to have a quorum.
17. Neither the president nor the board practices due diligence on plans or contracts.
18. Neither the president nor the board involves legal counsel who is experienced in higher education law to vet strategies and operational plans.
19. Either the president or the board chair or both publicly announce that they expect the college to close. The result is devastating. New students withdraw their applications, and donors stop giving to the college.

This brief will be available on the expanded edition in TIPS on Leadership in Higher Education that is coming out in the Summer of 2025. ↑