Colleges across the United States are struggling to make ends meet, and to understand the depth of the problem, look no farther than Main Street in Buffalo.
Canisius College – the region’s largest private college – relies too much on state students to fill seats at a time when potential customers are on the decline throughout New York.
Like many schools, its revenue depends largely on tuition, but more than ever, students and parents are pushing back against rising college costs and shopping for better deals.
And while Canisius has dangled generous aid to lure students, the college cannot afford to keep discounting tuition as it has in recent years.
All of this has left Canisius facing a recurring budget deficit that may require some difficult changes at the Catholic college founded by the Jesuits more than 140 years ago.
Those are a few of the findings from a recent confidential report out of Canisius that The Buffalo News obtained.
“I’m concerned,” Canisius President John J. Hurley said, “and in looking at the national trends and the New York State trends, it’s something I’m taking very seriously.”
“Am I running around saying Canisius is all alone? No,” Hurley said. “I know, for example, virtually every one of the 28 Jesuit schools is going through some version of this right now. I know from talking with colleagues in Western New York that every school is going through some version of it.”
In fact, about one-third of nearly 1,700 U.S. institutions – both public and private – have been on an unsustainable financial path in recent years, and a growing number are in financial trouble, according to a report released last year by Bain & Company, a Boston-based management consulting firm.
Moody’s Investors Service issued a report in January forecasting a negative outlook on the entire higher education industry during 2013.
Debt is piling up from those shiny new campus projects.
Returns on endowments have been unpredictable.
Funding for research is uncertain.
Competition is fierce for a shrinking pool of high school graduates.
And frustration continues to grow over the high cost of tuition.
Until recently, many colleges and universities simply raised tuition to meet rising costs, said David Jacobson, a Moody’s spokesman.
“But universities can no longer continue to raise tuition rates like they have in the past,” Jacobson said. “There has been a lot of push-back on tuition increases. Price sensitivity is starting to be a problem.”
It’s those small-to-midsize private colleges – 10 of which are in Western New York – that are feeling the financial stress, said Jason E. Lane, deputy director for the Nelson A. Rockefeller Institute of Government at the University at Albany.
Some are dropping their price of admission as much as 70 percent just to get students through the door, he said.
“Everything you described is happening across the country, particularly the Northeast,” said Lane, an assistant professor of higher education policy. “I think we’ve seen the perfect storm, and that has really shifted the conversation.”
President recognizes need to adapt
A turning point came with the financial collapse in 2008, which not only hurt endowments, but also elevated the public debate about the soaring cost of college.
Now, Lane said, some colleges are struggling for their very survival. They need to lower their cost of operation – or else.
“The old model is not going to work, at least not for most of them,” Lane said. “There will be a handful that will be just fine, but there will be a handful that will close. I’m not sure which ones, but I’m pretty sure that will happen.”
Canisius will be all right, Hurley said.
Founded in 1870, the college of 4,900 students is coming off its largest-ever fundraising campaign, enrollment in the science programs is on the rise, its accounting program is well-respected, and its endowment has rebounded and grown to nearly $100 million, Hurley said.
Still, the president said, the college needs to control costs and do that with some urgency – as do others.
“Some may think they can just hunker down and wait for the storm to pass, and then we’ll go back to the way it was,” Hurley said.
“Everything you read suggests we’re not going back,” Hurley said. “There are really some sands shifting under all of higher education, and the ones who are going to thrive in this are the ones who can adapt.”
The president has been open with faculty about the situation. And while the college didn’t make the internal report public – The News obtained a copy through other sources – Hurley was upfront when questioned about it.
‘Unimpressive’ graduation rate
For the past several years, he said, Canisius has been working to become more efficient in its operation, and last year the college hired Pappas Consulting Group to look for potential savings.
The analysis showed that Canisius is overdependent on tuition, which accounts for nearly three-quarters of its revenues. That also demonstrates, the report said, that the college has not generated a sufficient endowment and annual giving to maintain current enrollment and operations.
In addition, Canisius discounts its $33,000-a-year sticker price – that’s tuition and fees – at significantly higher levels than its peers. That practice cannot be sustained.
“As tuition went up, there was a lot of pressure on us to make up the difference with more financial aid,” Hurley said.
“It’s been difficult to manage that really tightly and predict exactly how many students are you going to be able to recruit and what’s it going to take in the way of financial aid,” Hurley said. “This region, where we draw so many of our students, is not a rich area.”
In fact, 94 percent of Canisius students come from New York State. The college needs to diversify its student-geographic base, because projections show New York is at the beginning of 16 percent slide in the number of graduates coming out of high school by the end of the decade.
“We’ve got to be into new markets,” Hurley said.
That’s a challenge because similar demographic trends persist throughout the country, and Canisius is competing with a lot of other colleges and universities in the Northeast.
Canisius’ debt, meanwhile, is on par with similar institutions – though the report warned about incurring more.
Furthermore, the analysis pointed to an “unimpressive” four-year graduation rate of about 56 percent.
“That’s about the national average,” Hurley said, “but frankly, for a school like Canisius, our rate should be better.”
The rate at which the college retains students between freshman and sophomore years is also on the low end and needs to improve. That will better the bottom line, as well.
The analysis concluded that Canisius has a structural budget deficit of between $7.5 million to $8.8 million..
Determining what must go
Part of the cost-cutting for Canisius will include taking a closer look at courses and programs that the college may no longer be able to afford or that are no longer in big demand.
“We need to ask ourselves some fundamental questions about what things can we really do well and what things should we maybe not do or do in a different way,” Hurley said. “That’s a tough issue to navigate, and it’s one we’re going to talk about with the faculty.”
But those are the questions more schools need to be asking, said Lane, and it’s going to take leadership to make some tough choices ahead.
“I don’t think we’ve seen significant changes yet, but it’s coming,” Lane said. “People are much more serious about the conversation and recognize the current way of operating isn’t sustainable.”
“Leadership and governance is going to be a very critical factor,” said Jacobson of Moody’s.
Is Canisius in trouble?
It’s a question Hurley gets these days.
“No, Canisius is not in trouble,” Hurley says. “Canisius is a boat on a river that’s moving very quickly, and we want to make sure we don’t run aground.”