Almost one-third of colleges and universities in the U.S. are in “real financial trouble,” according to a new study from Bain & Company.
“Institutions have more liabilities, higher debt service and increasing expense without the revenue or the cash reserves to back them up,” the report states.
Simply put, several colleges and universities are facing “liquidity crises” because they spend far more than they bring in, according to the study’s authors
Jeff Denneen, a partner at Bain, and
Tom Dretler, an executive with Sterling Partners.
“The reason for the crisis, they say, is due to the equity ratio being down, the expense ratio rising and the lack of endowments for schools,” CBS Atlanta reports. “The economic crisis didn’t help matters for higher education as many families have been unable to afford to send their kids to college. Student loan debt has also topped $1 trillion in the U.S.”
“Regardless of whether or not families are willing to pay, they are no longer able to foot the ever-increasing bill, and state and federal sources can no longer make up the difference,” the Bain & Company report notes.
What needs to happen if these colleges want to be on financially stable footing again?
“Universities simply cannot afford to increase costs in nonstrategic areas and take on more debt, if they want to survive. It is imperative that universities become much more focused on creating value from their core,” the report states.
Translation: Run your business like a business.
“That will require having a clear strategy, streamlined operations, a strong financial foundation, trust and accountability, and a willingness to invest only in innovations that truly create value for the institution,” the report adds.
Front page photo source: The Associated Press.