Which Philadelphia Colleges Will Survive?

Our region is awash in institutes of higher ed. How many will make it through the coming shakeout?


Last spring, a week before commencement at Saint Joseph’s University, faculty in the business school voted 27 to one in favor of a resolution rebuffing St. Joe’s president, the Reverend C. Kevin Gillespie. He was the third member of the administration to be hit with a “no confidence” vote in just four months, a gambit by faculty to reshape the financial future of the Catholic college that straddles City Avenue.

In some ways, it was hard to blame the professors. Gillespie had announced a budget shortfall of more than $8 million for the second year in a row, followed by across-the-board budget cuts and a freeze on faculty retirement contributions. It wasn’t exactly financial doomsday — a senior vice president says the school’s money troubles have been exaggerated — but if this wasn’t a monetary bottoming-out, the administration’s actions were signs of a moral bankruptcy to many on campus. “We no longer trust these administrators to lead us through the terrible circumstances they are responsible for creating,” read an editorial in The Hawk, the student newspaper.

In the wake of this, Gillespie announced that he will resign at the end of the upcoming school year. Still, compared to many private colleges in the Philly area, St. Joe’s is actually facing much less austerity. As of May, 13 other local schools still had space available for the new school year, including Widener, La Salle, Arcadia and Immaculata. And last year, to offset financial pressures, Holy Family University reduced its faculty by 19 percent, trimmed 40 staff positions, and began selling some of its real estate.

Throw in the disruption of online learning, and you’ve got a landscape of higher education today that’s generating dire forecasts from prognosticators. “The scary thing is that 15 years from now, maybe half the universities will be in bankruptcy,” predicts Clayton Christensen, an economic futurist and professor at Harvard Business School. (Christensen, who wrote the influential book The Innovator’s Dilemma, is also the author of The Innovative University.) There’s no reason to expect that the Philadelphia area, with its 37 four-year colleges and universities, will be spared.

Part of the problem is skyrocketing tuition. Nationally, tuition has risen every single year for the past half-century, to the point that everyone from parents to banks to President Obama is now questioning the value of a degree from some schools. On top of that, the number of high-school graduates has been declining for years, and won’t return to positive growth until 2019 (when a rise in minority graduation rates is expected). “The youth population in Pennsylvania is relatively flat, so the pool from which the colleges are drawing is getting smaller,” says Joni Finney, director of the Institute for Research on Higher Education at Penn. Especially for private schools like St. Joe’s — which receives no direct funding from the state and gets more than 70 percent of its revenue from tuition — the shrinking number of high-school graduates means a zero-sum competition for enrollment and viability.

In that fight for students, schools have been offering discounts — sometimes sharp ones — off their pricey tuitions. When St. Joe’s decided to enroll another 225 students this fall, the strategy required an influx of $8 million in financial aid: Freshmen will receive an average of 41 percent off the sticker price of $40,420. That’s good news for the kids and their families, but for the college, it means the marginal revenue return per pupil will decrease.

The problem, though, isn’t just a shifting market. Colleges are also victims of their own behavior. There’s been much talk of the $1 trillion in student-loan debt we’ve amassed as a nation, but private colleges have also borrowed billions of dollars to satisfy capital-improvement projects, build dormitories and fund their edifice complexes. “There’s a less-discussed bubble on institutional debt,” says Ken Hartman, former president of Drexel University Online and now a higher-ed consultant.

Unfortunately, those lines of credit will soon be drying up. Since the Great Recession, Moody’s has been downgrading individual schools at a dizzying clip, and for the second year in a row, the ratings agency forecast a negative outlook for the entire higher-education sector. Plus, interest rates are expected to rise in 2015, when the Federal Reserve’s bond-buying binge officially ends. “As soon as money isn’t free, you’re going to see some schools go into a death spiral,” says Hartman.

In the worst shape will be colleges that have hamstrung themselves with superfluous upgrades on student services and additional layers of management and support. The higher-education workforce ballooned 28 percent between 2000 and 2012, driven largely by new administrative positions, not faculty. “In no other industry would overhead costs be allowed to grow at this rate,” wrote the authors of a 2012 Bain & Co. report. “Executives would lose their jobs.” Even Harvard University’s chief financial officer has cautioned that his school’s pace of spending is “just not a sustainable model,” despite a $32 billion endowment.

According to “Learning From Closed Institutions,” a study analyzing data from American colleges that failed in the past 10 years, there is a clear danger zone for overspending: an operating budget that exceeds three times the institution’s endowment. Most of Philly’s private colleges are steps away from that precipice, but tiny schools like Chestnut Hill College — with an endowment of $8 million and a budget of $37 million, a 4.6-to-1 ratio — will be facing a steep climb back to fiscal health. Having already grown from 400 to 900 undergraduates since 2002, the school is now seeking to add another 300 over the next few years, despite the nationwide enrollment crunch. “A school like that needs to think very carefully about its future,” says Finney, before throwing in a disclaimer: “But there have been amazing examples of schools who’ve gotten by on a shoestring and survived.”

Righting the ship will require borrowing a page from the community-college playbook, by adding employment-ready programs like nursing (as Holy Family has done) and computing to entice disaffected degree-seekers. Developing online and hybrid teaching methods might also raise revenue from adult learners. Mostly, self-preservation will require both professors and administrators to accept cost-cutting, which will hardly be easy. Even though St. Joe’s ended the year with a $7 million surplus by embracing some of these measures, its administration became cannon fodder for faculty. But if more schools don’t follow suit, it could spell closures. “For those college presidents unwilling to reboot,” Hartman warns. “I’ve got one word for them: Detroit.”

Originally published in the September 2014 issue of Philadelphia magazine.

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  • Dick_Wolf

    Good. It’s about time the ridiculous cost of college tuition finally began affecting the schools imposing the increases. It’s a joke that people in their 40s are still paying off school loans from their early 20s.

    • Three-times-funny

      Funny joke. I put three through, and they are wildly successful. Paying off the loans was not a problem. They make amazing money. They dont live off me. They are upstanding responsible citizens. Is it worse to pay off loans that let you leapfrog to the top by age 35, or is it better to be four times that in hock all of your life, because you will never earn enough to really live as you are? Wise education choices will never be a financial “joke”.

      • disqus_ox4N4HxlwA

        Its morons like you who keep the problem ongoing with your misguided defense of this broken system. Did it ever occur to you that not all situations are the same? Ppl like you make me sick.

      • Dick_Wolf

        Oh well then your three success stories absolutely justify the millions who are out of work and/or underwater despite college diplomas. All those silly stats indicating that college graduates are underemployed at historic rates and a quarter are working jobs that they could have got with only a high school education are bogus because you and yours made “wise education choices.”

        Solid input.

  • Rocco Lamagela

    Another scam exposed & bubble to burst! These professors are overpaid, under worked & have become zero value to our society!

    • JDL

      Professor are hardly overpaid. Try a ballooning number of administrators each year as well as their outrageous salaries. Students are also to blame — they want to attend a campus with recreation facilities like the Ritz Carleton. Many should be invested in a new dorm with stainless steel appliances to attract you. Instead, the money should be invested in infrastructure.

      • Rocco Lamagela

        Ok so they are not overpaid just under worked & zero value to society! Plus most spew their liberal BS any way!

  • Sean

    Going to St. Joe’s was the worst decision I could have made as far as going to college. I come from a middle class family so it was never really an option that my parents were going to pay my student loans but I never really thought of that as an 18 year old kid, I was desperate to go to college because that’s what you were supposed to do, right? I now live in California and work at another Jesuit Institution where I am in crippling debt. I pay over 800 per month in student loans, it’s more then my rent and my loans won’t be paid off for another 7-10 years (hopefully). I’ve consolidated my federal loans where I still pay about 500 per month on top of private loans and I barely can get by. If I could do it over again, I would have went to community college for 2-3 years then transfer into a state schools. What a joke. Thanks SJU.

    • Vincent Gaitley

      Why blame SJU? You knew the cost going in, and you borrowed and paid it. That’s no joke, and each year you’ll get closer to paying it off. Since your folks didn’t pay cash for your tuition you only postponed paying by spreading out the expense over years. Do you groan about your car payments? Your outrageous California taxes? SJU kept its side of the bargain, and you’re employed. Grow up.

    • liana

      Its saint joes’ fault that you signed up to go to a school without reviewing what the bill would be?

  • Skip

    You forgot Salus University in Elkins Park!

  • 1uncleduff

    If St. Joe’s sticks to its roots, it will produce docs, lawyers, accountants, and successful grads in business, foods and finance. Liberal arts grads who stick to teaching, writing and politics will continue to need to work two or more jobs to get by, but that’s also good for the soul. The spiritual gains of being wholly educated will be celebrated through life.
    I couldn’t imagine the cost of full tuition/board today. I’d need scholarships, side jobs and off campus digs to make it, but I would make it. Now I will contribute to see that, “The Hawk will never die.”

  • Proud Hawk

    Here is what I have to say as a senior at SJU, I am proud to be a Hawk. The issues that are present on campus in terms of money is scary, but when faculty and students stand together you do actually see change. I do not have any doubt in the two degrees I will receive in May. I will graduate with about $50K in debt but I have made many strives to alleviate my financial struggles. My family was not able to help me at all in my decision to come to Hawk Hill but I do whatever it takes to make ends meet: RA for three years, applying for any scholarship my eyes get a hold of, working two part time jobs, etc. The fact is that SJU has opened a lot of doors for my peers and I, it is up to every individual student to strive for more and put themselves out there for the many opportunities. Students need a wake up call though, your career begins Freshman year and not the Spring semester of Senior year when you need a job. And stop expecting everything to be handed to you, it is called work for a reason.

  • Vincent Gaitley

    One of those pennants pictured doesn’t belong with the others. LOL

  • Jackeeeeee

    First off, there’s more than one pennant that doesn’t belong with the others…..second, when will people learn that it’s not the college, it’s all about the majors (and minors) in which you get your degree.

  • Hawks2004

    St Joe’s will survive. THWND !!! Why put Penn’s flag up their? There endowment is larger then some foreign countries. I definately think that villanova is hurting financially with all of the expansion that they are doing. I wouldn’t be surprised or saddened to see there demise. My St Joe’s education has and always will be the best decision that I have ever made. We will survive and be stronger for it.

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