The death of a college

The most important news in higher education this week comes out of rural Virginia. Sweet Briar College, a historic women’s college, announced it would close over the summer. Liberal arts colleges across the country are stunned. I have no personal connection to Sweet Briar, but I feel compelled to review this story. Students across the country should take note of Sweet Briar’s collapse.

I feel a tremendous amount of sympathy for the current students of Sweet Briar College. Yes, the college still has a full campus even though it shuts its gates this summer. A small college, Sweet Briar enrolls only a few hundred students. Internal reports put her final enrollment at just over 561 students. In its decision to close, the college cited concerns over decreased interest in small, rural colleges. In the words of its president, “we are 30 minutes from a Starbucks.” Indeed, fringe voices are already calling this the start of a chain of closures, referring to “efficiency of the markets.” Demand decreased, and supply adjusted accordingly.

And yet, this explanation leaves me wanting. We are far removed from the intersecting supply and demand curves of introductory economics. There is more to this story than supply and demand, and by extension, more to the narrative that college is a business. In crude parlance, Sweet Briar had customers and assets. The latter strikes me in particular: Sweet Briar College closed its doors with an $85 million endowment in the bank, a bit smaller than Concordia’s. While it’s unthinkable for a business to shut down with millions of dollars in assets, it can be a prudent choice for a college.

Supply and demand explanations fall short of explaining how a college can spend its endowment. The knee jerk reaction is to view it as money in the bank, and while technically true, this understanding is oversimplified. First, a good portion of endowments are often restricted to specific purposes. The lump sum colleges report is thus misleading. In Sweet Briar’s case, only about $20 million of its endowment was unrestricted. Moreover, colleges consistently spend endowments. A typical goal is to spend 5 percent of an endowment on operations annually, but Sweet Briar’s final tally was an alarming 9 percent. (The $85 million was $94 million last year.) Finally, viewing Sweet Briar as the victim of a shrinking demand neglects their other financial reality: debt. Standards and Poors reports Sweet Briar owes about $25 million – which is more than the college’s unrestricted endowment pool. When a college closes, reports an S&P analyst, banks move quickly to protect bondholders. Students, unsurprisingly, are not part of this calculus.

A small and shrinking liberal arts college closed. A popular explanation purports this is a natural reaction of a saturated higher education market and lowered interests in rural colleges. Reality is more nuanced. Yes, there may not be much room for rural, single-sex colleges in the 21st Century. A good deal of concern should still rest on how colleges finance their operations: how an endowment works, and how they accumulate debt. This should concern other colleges, regardless of how much they have in common with Sweet Briar. And hopefully, if nothing more, other colleges can learn lessons from Sweet Briar’s departure.

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