ATLANTA (CBS Atlanta) — Nearly one-third of colleges and universities are in “real financial trouble,” according to a new study.
The report issued Monday by Bain & Company found that higher education institutions are facing a liquidity crisis.
“Institutions have more liabilities, higher debt service and increasing expense without the revenue or the cash reserves to back them up,” the report states.
The authors of the study, Jeff Denneen – a partner at Bain in Atlanta — and Tom Dretler — an executive in residence with Sterling Partners, found that universities are spending more than they can afford. 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.
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 report explained.
Denneen and Dretler say that the “Law of More” needs to be overturned for colleges and universities to be financially stable 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. 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.”