It is interesting that Forbes gave Earlham College an “A” financial grade in 2017.
Forbes is not infallible. I would give more credence to those closest to the situation, than to a broad based rating service unfamiliar with the specific concerns of a particular school, business or other entity.
That being said, this thread has piqued my interest in Earlham.
The article provides a wealth of stats that suggest a vicious cycle and likely bad ending. Consider the following:
Currently they are planning a $12.8mm operating deficit that is being drawn from the $150mm unrestricted portion of the (438mm) endowment. The total size is irrelevant the unrestricted is the true measure of financial flexibility when it come to weathering their cost revenue imbalance.
Unfortunately the schools ability to stem this imbalance is hamstrung. They have lowered their expense budget 12% from $47.6mm in 2008 to 42mm next year. During this same period tuition fees are down 34% from $21.3mm to $14.1mm. Tuition declines are far outpacing cost savings. With further cost savings will come greater student dissatisfaction, less demand for the school and a need for the school to discount tuition to attract students. How do you incentivize students to pay more for less? Failing to do so however this school will become insolvent in less than 5 years. And that is the death cycle in a nut shell.
Of further concern is the magnitude of the underfunding. With a deficit of $12.8mm versus tuition of $14.1 mm you would have to increase tuition income by 90%!!! How do you do that when the product (education) you are selling is being squeezed?
I am hoping to be wrong and welcome a counter argument based on the numbers but this appears to be a perilous situation. Of course I would need a lot more disclosure for a proper analysis but these simple facts are damning.
This is a school thst consistently ranks very high in undergraduate teaching (often top 10.). It is indeed on the smaller side - a challenge when it comes to covering fixed costs - and a lot of its grads are in “helping” jobs which don’t necessarily translate into big donations. But the sense that students there are dissatisfied and will be more so simply doesn’t resonate for me.
Certainly this school, and at least 100 like it, have some real challenges as schools need to offer more and more to be competitive while the universe of full pay students shrinks.
But this is a quality institution that has a very high level of commitment to its students and offers an excellent education.
Gardenstegal in all due respect show me how the numbers can work? The unrestricted portion of an endowment is intended to offer benefits from interest to perpetuity, the school is drawing on principal it to support ongoing operations. They have already cut costs but been outpaced by 3x declining tuition.
I would love to see them find a way but please enlighten me as to the path you see from a finance point of view.
Seems as if @Nocreativity1 : has pinpointed the issue. How can a school draw over 8.53% a year from its unrestricted endowment survive ? So, while things may be going well at this small college currently, some major changes have to take place in order for Earlham to survive beyond the next decade or so.
Not saying I have their answers, but lots of schools are struggling with this (although they have not made their struggles so public.) But any school that is increasing its full pay foreign student numbers might be worth digging into. Or publics enrolling more FP OOS students.
They have highlighted that they need to do something to avoid doom while it is still possible to correct course. Doom is not inevitable unless they do nothing. It sounds like the issue here was reaching agreement on what that should be. I am going to speculate that setting this out this way was intended to make those in favor of doing more of the same to abandon their position, but that is just a guess. I would also guess that as a Quaker school, focusing on ability to pay in the admissions process is in conflict with their values (even if it is essential ).
What this school does extremely well, which is teaching, is where the focus probably should stay, and in my mind, that’s a great strength if you’re working on strategy for a school.
Solutions other schools have considered include increasing enrollment, less generous FA, cutting departments, focusing on in-demand programs of strength, etc.
All I am saying is that the tone of this thread suggests a school that will collapse in the next year or so. Does it need a plan? Absolutely. But the end is not immediately upon them. Nor on the dozens of others with the same challenge. (And it’s not just small private schools that are squirming.) There is a real problem with higher ed in general, and this thread exposes one piece of it.
“But this is a quality institution that has a very high level of commitment to its students and offers an excellent education”.
Kodak, Blockbuster, Toy R Us were all “quality” companies, committed to their customers and offered in their day state of the art products. Unfortunately they didn’t recognize that their business model was failing until it was to late. Gardenstategal I just don’t think being a good School is enough anymore and the fact that they are as you point out 1 of 100 speaks more to the broken model then the long term viability of the individual school.
But they are addressing it. That’s how you know about it!
They do not plan to do more of the same, but we don’t yet know what they will do. (And frankly, it is not clear yhey do either!) The first step of cutting expenses probably is what can be done without being completely disruptive this year. But they have done that.
A thread titled do not go to xyz makes it sound like they will not last 4 years. My point is that they will, and beyond that if they adapt properly.
And as to higher ed needing an overhaul, on that we agree…
The financial numbers I mentioned are inclusive of a 16% year over year expense reduction (current $42mm vs last year $50mm). So that change in approach/spending is clear and well defined. The impact on the student experience can’t be quantified yet, but clearly those types of reductions will have some negative consequence (if not why didn’t they do it previously).
Embedded in the article is a quote from the school’s faculty representative “it’s not clear we have a lot of time”. He has more visibility on the situation then either of us and he is talking in existential terms.
So here are the facts we have. The school is trying to formulate a response (none that works appears to be at hand) to continued dramatic shortfalls in revenue. Effective immediately they are slashing costs which invariably will diminish students experience and lastly this is a situation that is existential in nature.
So while I can’t definitively say that they won’t last 4 years under the current structure. I can however definitively say that those joining the school should not expect a similar experience to prior students because the school is dramatically cutting costs and needs to change to survive. (In fact you highlight the complete uncertainty surrounding the school in your response). Why would I student commit to such uncertainty of purpose and vision when alternatives exist
Lastly while I can’t put a time frame on it I can agree with Tom Hamm from Earlham when he suggests that time is of the essence and the school’s eventual survival is at stake.
If the right leadership is not currently in place and the “board of directors” realize and recognize that shortcoming; if they are able to recruit and hire a turnaround specialist, the problems can be rectified in a reasonable amount of time.
So “if” and “if” (which are by no means easy or certain) it can be rectified. Alternatively if “not” or “not” the colleges failure is inevitable.
So why would an applicant with options commit to 4 years and hundreds of thousands of dollars of expense to be exposed to that type of uncertainty?
The only way to attract the aforementioned student is to offer aid and reduce the cost, but that digs you into a deeper financial hole. You can lower the addmissions standards but once again that creates long term problems for what becomes a mid tier liberal arts school as students gravitate towards more pre professional or top tier liberal arts schools.
Pancho123 I respect your optimism and don’t know your ties to the school. The question is would you recommend to a competitive applicant they choose to attend Earlham as a full pay student with these uncertainties? The vast majority of informed people (and before spending $300k people become informed) will not, and attracting that exact cohort is the only path that will save the school.
I think that there are FP students for whom Earlham could be the best choice. (Actually, I have known a few.) For a FP student for whom a school like Duke or ND – prestige, sports, highly selective, grad schools – is holding serious allure, it probably isn’t. But for a kid with aptitude who needs a different kind of environment -small classes, less pressure, non-high engagement --, it could be perfect. Earlham’s challenge is identifying and attracting them. Where i live, it is not well known, and kids who might love it look at Bard and Hampshire, for example. As I have said before, the graduates I have met from this school are impressive .
This school is tiny, so changes at the margins have a big impact. And as the article points out, this is not a run of the mill struggling small school. Like @poncho123, I am optimistic that with its strengths, the situation can be addressed.
“This school is tiny, so changes at the margins have a big impact”.
Not to belabor the argument but your point about size works against them. With an annual operating deficit of $12.8mm (inclusive of an $8mm cost reduction impossible to replicate) , and 1,000 students the college needs to raise $12,800 per student to avoid continued endowment reductions.
According to their own website 96% of students receive financial aid so raising base tuition does nothing. They will have to withdraw aid from current students and or offer less aid going toward. Once again this appears to lead to a never ending cycle of decline.
Gardenstategal I understand your emotional tie to the school but are my numbers wrong?
Your number is right but only one piece of the whole equation. Unless you are on the finance committee of that board, which I am pretty sure you are not, you only are working with one element. Nobody disputes that doing exactly what they are doing will lead to a bad ending but they are looking for a change.
Several schools have inched up enrollment (usually by about 10%) to bring in extra $. Others have cut programs with low interest and beefed up those that played to strengths successfully. Again, I don’t know what they are thinking. It is clear that you are convinced that disaster is inevitable. I believe that if they put their minds to it, that will not happen. We should leave it at that. These forums are not meant for debating.
Actually these forums are for sharing opinions and information. Speaking for myself I don’t think “disaster is inevitable”. I would not however send my child to a school where “doing exactly what they (Earlham) are doing will lead to a bad ending”, without a comprehensive, plausible and realistic turnaround plan in place. Why would anyone take on that uncertainty and attend a school were the administration clearly doesn’t have their act together when so many alternatives exist.
Like getting on a cruise ship where the captain has no navigation, safety or maintenance plan for your voyage because prior guests enjoyed the buffet and conga lines. Yeah you may arrive safe but I would choose to fly.
@Nocreativity1 – it isn’t that your numbers are “wrong,” per se, but they aren’t complete either. Did you notice my post that mentioned that in the last year-or-so, Earlham received special gifts of a $7.5million endowment, and two separate $1million dollar gifts for scholarship funds? Also, alumni giving last year was the highest that it had been in over a decade. Alan Price’ resignation this summer caught the attention of alumni and so new alumni groups have activated and alumni engagement is up significantly. A group of alumni flew in last weekend to hear a report from the board. A group of alumni are flying in this weekend to welcome and help with moving in new first year students.
So… it isn’t that you are “right” or “wrong” about the numbers. But you don’t have the whole story. No one can anticipate what will happen once the school has the attention of a significant group of talented, community-minded, activism-oriented people, most of whom absolutely adore their alma mater.
We will have to wait and see what giving is this year. What initiatives may develop from the activation of Earlham alumni (and they should not be underestimated. For the most part, Earlham produces talented and passionate intellectuals with a set of well-developed skills and a habit of engagement. And a deeply-rooted love for the school where those skills and habits were formed.
People who graduate from Earlham are, overall, an extraordinary group. If they are commiting to involvement, it should be a difference-maker for the school. We will have to watch to see, I suppose. But, I would expect it to be significant if the alumni have decided to get together and get involved.
I’ve been trying to follow this issue in the press. Earlham alumni posted an update. Link below.
My oldest son graduated in 2015 and had a great experience at Earlham - terrific professors, down to earth and engaged students, opportunities for research with faculty, beautiful campus. My youngest started at Earlham a month ago and is having a great experience so far!
BB, Thank you for your thoughtful responses. Not sure what the relationship your debate partner has with Earlham, but they seem not to be a friend. In spite of their stated “hope” that Earlham succeeds, they are highly invested in painting a picture of gloom, warning students to stay away. Not a great strategy for supporting Earlham in it’s path to success! I do wonder about their motives.
My oldest son had a great experience at Earlham. My youngest just started as a freshman. He’s having a great experience so far. What makes Earlham special is the people – students, faculty, alumni. I am confident that Earlham will come out stronger than ever!