At Year’s End, Several Colleges Face A Financial Reckoning

As 2022 draws to its close, several colleges – both public and private – are coming to terms with a grim financial future that has caused them either to announce their upcoming closure or warn that they face impending peril.

Earlier this month, Cazenovia College, a small liberal arts college in Cazenovia, New York announced that it would shutter its doors at the end of the upcoming spring semester, after 200 years of operation.

Cazenovia’s fate was anticipated ever since it defaulted on a $25 million bond payment in October. Contributing to the problem was a five-year enrollment drop of about 40% from a peak of more than 1,000 students.

The college reported operating losses of $3.3 million in the fiscal year ending June 30, 2020. It sustained another $2 million operational loss in the 12 months that ended June 30, 2021.

Attempts to refinance the debt, or merge with or be acquired by another institution proved unsuccessful. “We’re deeply disappointed that it has come to this,” Ken Gardiner, chair of Cazenovia’s Board of Trustees, said in a statement. “Considerable time and effort have been spent on improving the College’s financial position over the past several years. Unfortunately, the headwinds and market conditions were insurmountable, leading to a projected deficit of several million dollars for next year. As a result, the College won’t have the funds necessary to be open and continue operations for Fall 2023 and beyond.”

Cazenovia has been able to work out agreements with about a dozen other colleges in the area to accept its students who want to transfer, enabling them to finish their degrees.

This week, Holy Names University in Oakland, California also announced that it would close next year, after 154 years of operation.

In a press release, the university said the decision was caused by rising operational costs, declining enrollment, and an increased need for institutional aid.

“We have been doing our best to find a partner to keep the university functioning and continue HNU’s mission,” said HNU Board Chairperson Steven Borg. “While we’ve had interest in long-term collaboration from potential partners, we do not have the type of interest that would sustain HNU in continuing to offer its own programs and services, so we are forced to make the difficult decision to close and designate a transfer institution in the best interest of our students.”

Approximately 520 undergrads and 423 graduate students were enrolled at Holy Names University. However, only 449 in total were enrolled for spring 2023, according to the school. HNU students who complete their degree requirements by the end of the spring semester or are currently progressing in HNU’s graduate nursing programs will still be able to graduate from HNU.

HNU has reached an agreement with Dominican University of California to permit its current students to continue their studies at Dominican and complete their degree requirements on-schedule.

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Other schools have recently acknowledged they were trying to stave off closure or prevent unmanageable deficits due to growing financial woes.

In Alabama, Birmingham-Southern College (BSC), a liberal arts college, founded in 1856 and affiliated with the United Methodist Church, has asked for $37.5 million in public funds to keep its doors open. The requested funds would come in the form of $12.5 million from the American Rescue Plan Act, $17.5 million from the state’s Education Trust Fund, $5 million from the City of Birmingham and $2.5 million from Jefferson County.

In a letter to members of the Jefferson County Delegation of the Alabama Legislature, Sen. Jabo Waggoner and Rep. Jim Carns wrote: “Birmingham-Southern has been operating in financial distress for over a decade. Without support, it will not be able to continue to operate after May 2023.”

The university said its financial challenges began with “a building program in the mid-2000s that drew heavily upon the endowment and caused the College to take on significant debt. The financial crisis of 2008-2009 and an error in the accounting of federal financial aid further depleted the College’s resources.” It added that if it could not build back its endowment, “the economic model under which BSC operates is simply not sustainable for the long term.”

While the state considers the bailout, BSC President Daniel Coleman is trying to raise $200 million in private donations by May 2026 to replenish the college’s endowment. The university revealed on December 17 that about $45 million had been raised toward that goal.

After declaring a financial crisis in June, New Jersey City University (NJCU) announced major budget reductions this week. The university will end 48 undergraduate programs, 24 minors, 28 graduate programs, 10 certificate programs, and one doctoral program. The affected programs can be found here.

Along with the reduction in academic programs, up to 30 tenured faculty will be given notice that their positions may be eliminated as of June 28, 2023. Additionally, the contracts of up to 19 non-tenured annually-appointed faculty will not be renewed, and some professional staff will be laid off for the 2023-24 academic year.

“Today’s announcement is a difficult but necessary next step towards the long-term sustainability of the university mission,” said Joseph Scott, NJCU Board of Trustees Chair. “Our current financial crisis has made clear that the breadth of our current academic portfolio is no longer tenable for the size of an institution we need to be and the low enrollment in many courses can be linked to students’ inability to complete their degrees in a timely manner. I thank our academic leadership for their data-driven, painstaking work in determining which programs were mission critical and mission consistent, so our remaining resources can be allocated towards ensuring the strength of these academic offerings.”

NJCU began the current fiscal year with a deficit of more than $20 million. Despite previous cost-cutting measures, it still faces a $12.67 million deficit that must be addressed. It projects that the new round of reductions will allow it “to move forward beyond its current fiscal emergency.”

This month also saw one institution begin to right its financial ship. Earlier this year, facing a $12.5 million budget deficit and long-term debt of $78 million, Henderson State University, a public university in Arkansas declared financial exigency, resulting in dozens of academic program closures and dramatic reductions in the number of faculty and staff.

A new financial audit confirmed that the university was digging out of its hole. Its faculty and staff headcount has been reduced from 330 to 230 employees, resulting in a 23% reduction in personnel and benefit costs. Accounts payable have been lowered by 80%, and its net financial position has improved from $21 million to almost $32 million.

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Small, cash-strapped colleges are likely to face more tough budgets next year and into the future. Fitch Ratings predicts a deteriorating credit environment for higher education, citing “meaningful macroeconomic headwinds in inflation, labor and wage pressure, along with generally soft enrollment.” Although Fitch maintained a stable look overall for the higher ed sector, it also recognized that tuition increases – especially at small colleges – would probably not be enough to cover the increased expenses almost all institutions will face absent substantial efforts at cost containment.