"Where's the money, you…?"

I’ve been writing about the financial stability of seemingly solid institutions:  the hundreds of colleges and universities in the Middle.  What exactly is the Middle?  It’s the great swath sandwiched between the seventy or so Elite universities that have amassed the resources to set their own directions and a handful of For-Profits, the proprietary institutions that are able to grow income and profits while serving an increasingly larger share of the American market for higher education.  The Elites have brands that will carry them through financial storms.  The For-Profits have a plan.

A growing number of institutions in the Middle see a bubble of  increased costs, declining enrollments and vanishing endowments.  Like Frank Capra’s George Bailey in It’s a Wonderful Life , they are looking for an Uncle Billy to rail at: “Where’s the money, you stupid old fool?”

Any one who doubts that the Middle sits precariously atop an economic bubble has not been following events closely enough. The U.S. Department of Education issues a regular report on the financial health of  degree-granting colleges and universities.  It is a sort of test of financial strength.  When I started tracking the course of these institutions for my book, there were about a hundred non-profit colleges  that failed the test.  By 2008, that number had risen to 127.  The Chronicle of Higher Education has just reported that 150 non-profits now fail the Education Department’s test.  That certainly looks like a trend.  In that same period, the number of failing For-Profits actually fell.

There are some venerable institutions on the list, but that is not surprising. Venerable institutions can fail.  The death in 2007 of  Antioch College — the university founded in 1852 by Horace Mann — was announced in an obituary masquerading as an op-ed piece in the New York Times. I remember Antioch in the 1960s as a thriving haven of liberal thought.  At the height of its popularity it enrolled nearly three thousand students.  Coretta Scott King was an alumna, and her sister was the first African-American admitted to its fully integrated curriculum. Who would have thought that Horace Mann’s college, guided by his admonition  to every graduating class to “be ashamed to die until you have won some victory for humanity, ”  could quietly wink out of existence with an enrollment of two hundred students and an endowment of less than five million dollars?  Not every school on the 2009 list is destined for extinction. Some will tighten their belts, rethink their value and pull through.  Some will be purchased by For-Profit universities.  Some, like Antioch, will simply die.

Officials of some of the schools on Department of Education list claim with complete deadpan candor that they are victims of a collapsing market that undermined their financial strength. It’s probably true, but those officials need to talk to the executives at Lehman Brothers to understand how little it matters.

Here’s the scary thing.  There are no public institutions on the list.  That’s not because public universities are uniformly healthier than their private counterparts. In fact, the finances of public institutions are uniformly opaque. It’s hard to tell whether they are financially sound or not.  Public support for a university means that the Education Department does not test financial strength.  Public universities are too big to fail.

The plan for the Middle — public and private —  seems to be to ask, “Where’s the money?”   George Bailey had a plan to stave off the run on his Building and Loan Association. His plan was to demonstrate that his bank had value that small homeowners could not get anywhere else:

You’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here. Your money’s in Joe’s house…right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re going to pay it back to you as best they can.

Better than screaming at Uncle Billy.