Private Nonprofit Colleges Need to Adapt or Die

Virginia private nonprofit institutions with enrollment of 500 or more.

by James A. Bacon

With the college-age population expected to drop 15% between 2025 and 2029, Virginia’s 28 private liberal arts colleges are facing hard times ahead. And Governor Ralph Northam’s proposal to make community college free for lower-income students won’t help. The tuition gulf between private colleges and publicly supported colleges will get only wider.

Writing in the Richmond Times-Dispatch, Phyllis W. Jordan, editorial director of the Washington, D.C.,-based FutureEd think tank, raises the alarm. The private colleges, many of which are located in small towns and rural areas, are economic anchors of their communities. If they fail, they knock out an economic underpinning of communities with few alternative sources of business activity and employment.

So, what’s the solution? Unfortunately, Jordan’s proposal — to match bigger state subsidies of public colleges with bigger subsidies for private colleges — is just plain awful. Subsidies replace one set of problems with a different set of problems.

While Jordan’s proffered solution is terrible, the dilemma she describes is real. Fertility rates are dropping, fewer young people are emerging from the K-12 pipeline, and college enrollments are shrinking. Higher ed in the United States is suffering from overcapacity. Public institutions have about 6.4% excess capacity, she says, while small private colleges have about 28%.

Not only is there excess capacity in the higher-ed system but small private colleges lacking large endowments (which is most of them) suffer a competitive disadvantage against public institutions receiving millions of dollars in state support.

In a recent analysis of the finances of 933 private not-for-profit colleges with enrollments greater than 500, Forbes found that the wealthy, elite schools are getting richer and most of the rest are getting poorer. A Forbes financial ranking gave eleven Virginia colleges grades of C or C+, and four grades of D.

Virginia’s private colleges employ 23,500 people and pay $1.2 billion in salary and benefits. “When economists contemplate how to revive struggling rural areas,” Jordan says, “they often recommend opening colleges in these communities can ill afford to let this institutions die out.”

Virginia does offset a part of the competitive advantage by granting up to $3,200 in grants who attended private colleges in the state, and Governor Ralph Northam calls for raising that amount to $4,000 annually. On the other hand, Northam also calls for boosting state support to public colleges, and he proposes spending $145 million to make community college essentially free for low- and moderate-income students. Four thousand dollars for private colleges is not enough, says Jordan. “He could easily double that and still spend far less than the dollars devoted to community college.”

Whoa, Nelly!

Free college is a bad idea all around. Sure, one can argue that it’s in the public interest to make college more affordable, especially for students from lower- and moderate-income families. We want to provide avenues of upward social mobility for everyone. But one can also argue that students and their families need to make some sacrifices on their own behalf. They need to have skin in the game. If they don’t, many students might utilize public resources carelessly or frivolously. While Jordan may be comfortable with the idea of tapping taxpayers for another $480 million (120,000 full-time-equivalent students at $4,000 a pop), the idea can’t be taken remotely seriously.

Three points worth making:

  • It’s interesting to note that Jordan is not urging bigger subsidies for private for-profit colleges with whom the private non-profits compete with no tax breaks or public subsidies of any kind. Why should the private nonprofits be privileged?
  • A preferable way to make public and private nonprofit colleges more affordable is not to continue subsidizing them but for them to cut costs. Indeed, subsidizing higher-ed institutions insulates them from the necessity of making hard choices.
  • Private nonprofit colleges not blessed with giganzo tax-privileged endowments have to be innovative to survive. They need to re-engineer their cost structures. They need to identify niches where they can excel and compete.

No one weeps for private colleges — which, to repeat, don’t receive any state subsidies or tax breaks — when market conditions force them to restructure, downsize or go out of business. What possible claim should private non-profits have on the taxpayer?

Yeah, I get it, private nonprofit colleges are anchor institutions in rural areas that can ill afford to lose the jobs. But the same can be said for coal mines, timber mills, or aging manufacturing plants, or any number of other types of employers — and we can’t subsidize them all just to support rural jobs. When there’s excess capacity in the coal industry, coal companies shrinking by shedding their least productive assets. That’s the way it works for every industry. That’s the way it should work — it’s how the economy reallocates resources from low-return uses to high-return uses. It should work that way in higher-ed, too.

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16 responses to “Private Nonprofit Colleges Need to Adapt or Die”

  1. johnrandolphofroanoke Avatar

    There is no doubt that the schools must adapt to survive. Colleges have done this over and over in the past. Randolph Macon moved from Boydton to Ashland after the Civil War. It was the only way to survive the Reconstruction Era. VPI dropped the mandatory membership in the Corps of Cadets in the 1960s. It was the only way to attract students. St. Pauls in Lawrenceville was not able to adapt and it is a memory now.

  2. Alumni will fight hard to save them, but fact is, fewer seats in higher ed will be needed. Smaller, private institutions are disadvantaged, many have been on life support for years, and it is time to let go, not throw $ at them.

  3. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    “Yeah, I get it, private nonprofit colleges are anchor institutions in rural areas that can ill afford to lose the jobs. But the same can be said for coal mines, timber mills, or aging manufacturing plants, or any number of other types of employers — and we can’t subsidize them all just to support rural jobs.”

    I strongly disagree for several reasons.

    We must find new ways to help these endangered private non-profits college to survive and thrive. Much of our future depends on them being successful.

    And the prospect of all state run schools is a frightening one, straight out of Orwell. For many decades, we have been grossly mistreating these smaller private schools. Beware too of free school proposals whose sponsors’ hidden agenda is to wipe out private colleges, so as to usher in State control of American education. That is the end of America. God knows this lesson is now plain to see given what is going on in America today.

    1. johnrandolphofroanoke Avatar

      Mr. Reed I think they can survive. Private colleges can remake themselves to offer more for less. A lean mean education machine can do things that the bloated public colleges can only dream about. After the Civil War, Washington College did not dwindle even though it was hard times. Great leadership and a vision to do more with less expanded enrollment and landed the school on the map as a place of excellence.

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        I agree, John. And will try to expand, and also answer my friend CrazyJD but must head out the door for mtgs for now.

    2. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      Don’t worry, Reed. I think Harvard, Princeton, Yale, etc. will survive and avoid any “state control of American education”.

  4. Peter Galuszka Avatar
    Peter Galuszka

    What’s up with Sweet Briar?

    1. Sara E. Carter Avatar
      Sara E. Carter

      Sweet Briar’s finances are doing much better after their restructuring:

      And as an added bonus, as a Sweet Briar parent (Go Vixens!), the tuition reset has made the college both more affordable and transparent in its pricing.

      1. Dick Hall-Sizemore Avatar
        Dick Hall-Sizemore

        Vixens? Now, that is a mascot I would like to see.

        1. LarrytheG Avatar

          sounds like you may have found the Super Bowl halftime show , good?


  5. Reed,

    I have to strongly disagree with your post, at least as currently posted.

    Why, exactly, must we find new ways to help these endangered private nonprofits? Why does “much of our future depend on them being successful”? Who is the “we” who has been “grossly mistreating the smaller private schools”? And how have they been mistreated?

    I may be willing to accept any bare assertions of fact you may have in support, but it’s hard to accept just the bare assertions. For the time being, I wouldn’t put it past the public education monopoly to have the hidden agenda you cite, it would be in keeping with their general attitudes as I see them, but I guess I’d like to have more.

    1. LarrytheG Avatar

      the heck you say Crazy… geeze! 😉

  6. LarrytheG Avatar

    Smaller private colleges DO have the opportunity to compete against the bigger colleges on cost… Not everyone wants to pay out the wazoo to go to a “big name” college.

  7. Small, private colleges may need to merge to become slightly bigger private colleges–the dearth of economic efficiencies are insurmountable for many. Heck, it’s hard for bigger schools to have a German department, a philosophy department, creative writing faculty. School mergers are only slightly harder than getting the Catholic church to allow priests to marry.

    1. LarrytheG Avatar

      agree… and perhaps offer online…

      The four-year on campus college experience has been the gold standard for middle and upper class folks and in the past the bigger colleges were often just a bigger version of the small colleges but thats changed and it’s a real question just how much demand there is anymore for plain jane basic small college in small towns verses the VaTech/UVA swiss army knives.

  8. johnrandolphofroanoke Avatar

    From my observations of the past 27 years teaching: most kids from the middle class and elites are going to college to find themselves. They are fools! The cost is prohibitive! If you need to go and find yourself I would recommend Key West, Florida.

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