Recently the news was published that St. Michael’s College in Vermont has been authorized by the court to make withdrawals up to $30 million from its restricted endowment fund. This request followed a public notice from NEASC that the college was running dangerously low on cash.
According to President Richard Plumb, they had no other option but to request the court to authorize the withdrawal. Plumb stressed that without the extra cash the college faced a credible risk of being forced to cease operations.
Enrollment seems to be the culprit in the need for cash because it has fallen by nearly 45% over the past ten years. Given that tuition is a prime source of funds for tuition-dependent colleges, the enrollment collapses of this scale create a major financial risk for the college. As enrollment fell, the college began to report serial deficits, which are a warning sign of rising risk. Even though a large proportion of the college’s enrollment comes from outside the state, the nearest states have also been vulnerable to shrinking student pools. It should not be surprising that a college in Vermont is facing serious enrollment challenges because the New England region is the weakest when it comes to the size of the potential student market.
As a result, Moody’s credit rating service has downgraded it credit making it more expensive for the college to borrow from public lenders. This may explain why St. Michael’s chose to take money from the endowment fund rather that going after a loan from public lenders.
You would think that an elite college like St. Michael’s, a second-tier elite institution, would be a safe haven. However, as daily reports of colleges in trouble are showing there may be any safe havens except for the super wealthy institutions.