Unsustainable College Finances

Princeton

It’s not just college students and recent graduates who are suffering from financial problems due to education debt. Colleges themselves might be in some trouble.

A recent study conducted by Bain & Company indicated that many American universities stand on the brink of financial trouble. According to an article by Goldie Blumenstyk at the Chronicle of Higher Education:

One-third of the institutions have been on an “unsustainable financial path” in recent years, and an additional 28 percent are “at risk of slipping into an unsustainable condition.”

The new analytic tool classifies colleges based on whether their expense ratios increased or their equity ratios decreased, giving the harshest rankings to those with changes of more than 5 percent, moderate rankings to those with changes of 0 to 5 percent, and good rankings to those where expense ratios didn’t increase and equity ratios didn’t decrease.

“Unsustainable,” however, doesn’t actually mean the universities are in danger of financial collapse. It means merely that their current financial plans and distribution of resources may not cover expenses in the future; institutions may have to set other priorities.

The report recommends that “colleges tap into their real estate, energy plants, and other capital assets more creatively to generate revenue for new academic investments, and it concludes that colleges have too many middle managers.”

Critics contend that the report is misleading since it looks at college finances from 2005 to 2010, when many endowments suffered huge losses due to the recession, losses from which they have since recovered.

Read the report here. [Images via]

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer