Report Highlights Financial Resilience of Small and Mid-Sized Private Institutions

Financial Resilience report coverA new CIC research report puts to rest the myth that most small to mid-sized private colleges and universities will not survive. The Financial Resilience of Independent Colleges and Universities highlights the extraordinary adaptability of CIC institutions in the face of a major economic recession and a decline in the number of high school graduates. Released in August with the generous support of the TIAA Institute, the report is the ninth in a series that CIC has produced as part of the Securing America’s Future initiative and is available online as a PDF.

“Headlines in recent years have questioned the financial resilience of small and mid-sized private colleges and universities,” noted CIC President Richard Ekman. “But only a handful of private colleges has closed each year, and this pattern has remained the same for decades. These closings have been little influenced by cataclysmic events as the headlines suggest.”

Through analysis of extensive institutional financial data spanning 14 years (2000–2014), the report details several key findings:

  • A large majority (88 percent) of small and mid-sized private colleges and universities have maintained or improved their financial standing, no small feat with the timeframe including the 2007–2009 recession;
  • Most institutions have shown significant improvement in key financial indicators, including the Composite Financial Index (CFI), since the recession;
  • The long-term financial resilience of small and mid-sized independent colleges is not dictated by particular institutional characteristics, such as geographic region, financial resources, or enrollment size; and
  • Factors beyond the data analyzed, such as strong institutional leadership, may be most important in determining the financial health of an institution.

The study’s data were extracted from 14 years of benchmarking reports that are prepared for CIC members as CIC’s Key Indicators Tool (KIT) and Financial Indicators Tool (FIT). The analysis was guided by the methodology developed by Ronald E. Salluzzo, Frederic J. Prager, Philip Tahey, and Christopher J. Cowen and reported in Ratio Analysis in Higher Education (1999).

The Financial Resilience of Independent Colleges and Universities highlights trends using the four ratios and the CFI—which is comprised of the ratios. These four ratios measure resource sufficiency, debt management, financial asset performance, and operating results. The ratios compare an institution’s operating commitments (Primary Reserve Ratio) and its outstanding long-term obligations (Viability Ratio) against its expendable wealth; calculate the ability of an institution to generate overall return of its net resources (Return on Net Assets Ratio); and determine whether colleges and universities are living within their means (Net Operating Revenues Ratio).

These financial indicators for small and mid-sized colleges and universities, measured by median scores of the sample, were at their highest point during the period studied in 2006–2007. The ratios all experienced significant decline in 2007–2008 and reached their lowest point in 2008–2009 during the recession. The following year broadly saw ratios and CFI scores rebound before a slight decline in 2011–2012 (see Figure below)—indicative of a soft recovery in the economy. Since 2011–2012, all ratio medians have been on a gradual rise, indicating institutions’ resilience as they continued to recover from the recession despite lower numbers of high school graduates and the rise in tuition discount rates. As Salluzzo et al. emphasize, it is important to view trends over time and not rely on a single year’s results to determine the financial health of a college or university.

Line Graph: Median Composite Financial Index of the Sample Private Colleges and Universities  

Institutional characteristics such as student enrollment, tuition and fees, discount rates, and endowments offer no clear indication of whether an institution gains, maintains, or loses financial stability. Further examination of institutions that increased, maintained, or decreased financial performances as measured by the CFI over the 14 years shows small differences by region, financial resources, Carnegie Classification, and enrollment size. Yet none of the institutional characteristics is systematically related to financial condition over time.

Hollie Chessman, CIC director of research projects and the report’s principal author, remarked, “One hypothesis of the study was that the data would point to a leading characteristic as a determinate of institutional financial health, but that wasn’t what the data analysis showed. Although reasons for strong financial health likely vary from institution to institution, strong institutional leadership is probably a key factor in many cases.”

While small and mid-sized private colleges and universities face significant challenges, a review of their financial health over the last 14 years provides ample reason for optimism about their future. “Many private colleges and universities have adapted—and continue to adapt—to economic and demographic challenges, by creating new, innovative programs, reducing expenses, and generating new sources of revenue,” said CIC President Richard Ekman.

James C. Hearn, professor of higher education and associate director of the University of Georgia’s Institute of Higher Education and principal author of two of CIC’s past research reports, remarked, “This new report on independent college finances is solid work and will ideally address the misperceptions regarding the sector’s financial health.”



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