Part II: Financial meltdown and recovery

By Justin Henry, Editor in chief

“Fundamentally, organizations will face significant choices about capital investment, appropriate staffing levels and prudent endowment spending policies in an environment where little about the future can be predicted with confidence.” – Moody’s Investor Service commenting on the aftermath of the 2008 financial crisis

The story of Ithaca College’s split community begins with the crash of the housing market in 2008 when the college’s finances were devastated. The endowment, the college’s savings fund, decreased by one-third—from 237.3 to 150.0 million dollars—by the spring of 2009. The college lost much of its expected tuition revenue since many middle income families couldn’t afford the steep cost of tuition even with the college’s unprecedented discount rate of 36.1 percent.

The discount rate measures the average percentage of a student’s tuition the college discounts. A 36.1 percent discount rate in 2009 amounted to nearly 68 million dollars which the college doesn’t receive in tuition income.

In the years following the market-meltdown, the college faced declining rates of students who could pay the climbing price of admission. This posed a tremendous challenge to the administration to maintain a competitively low cost of attendance while keeping the college afloat.

The Office of Business and Finance had to reckon with a tension between tuition and discount rate. The budget for the 2012-13 academic year reports that the college attempted to create an image of “prestige” for itself by aggressively raising the cost of attendance while offering high discount rates.

This proved to be a misfire, however, since the college lost about 3 million dollars in tuition revenue. Without knowledge of the college’s established discount rates, parents simply refused to pay the high cost of attendance.

This was a pivotal moment for the college’s current “corporate” identity: the administration discovered its greatest appeal to prospective students was a competitively low cost of attendance and high rates of discount. All cost cutting would then be justified by the goal of reducing tuition increases from year to year and offering high rates of discount.

Since the 2009-10 fiscal year, when a discount rate of 36.1 percent shocked the budgeting team, financial aid has nearly doubled to over 120 million dollars, equal to a 45 percent discount rate for the 2017-18 academic year.

In order to liberate itself from enrollment dependency, the administration has made efforts to diversify its income by courting donors and adding funds to the endowment. Healthy colleges regularly depend upon charitable donors, especially alumni, which for Ithaca College has led to the establishment of the college’s most richly endowed programs—for example the Park School of Communication and the Park Center for Business and Sustainable Enterprise.

Ithaca College isn’t alone in its attempt to keep tuition low and raise discount rate; the college’s efforts correspond to a similar nationwide trend, according to a study by Cornell University Economist Ronald Ehrenberg entitled “American Higher Education in Transition”. At all but the wealthiest institutions with the most economic freedom, the average discount rate climbed by an average of 26.7 percent in 1990 to 42 percent in 2008, according to Ehrenberg’s study.

Due to sharply decreasing rates of student enrollment in recent years, the narrative for the 2017-18 academic year budget predicts the college will be left with only 233 thousand dollars after its expenses by the end of the 2017-18 academic year, compared previous years when the college’s net revenue always exceeded 10 million dollars.

Tom Rochon entered as the college’s 8th president in the spring of 2008, just months before the college would undergo financial trauma. Rochon’s administration was immediately tasked with “strategically re-imagining” the college’s future—to somehow secure the college’s sources of revenue while continuing to deliver quality education to students. These goals were first attempted by in the Integrative Core Curriculum (ICC), originally called “IC squared”, which grew into the colossus IC 20/20.

In the beginning, IC 20/20’s rhetoric from the college’s Board of Trustees was one of optimism and gratitude to the campus community for uniting behind the college’s new vision. This was expressed by the Board of Trustees’ constitution which ratified the implementation of the college’s new plan, “IC 20/20: Focusing Our Vision on Student Learning.”

“We expect that with the accomplishment of this vision, Ithaca College will augment its reputation, increase its organizational alignment, sustain operational excellence, and be widely known as the home of a distinctive and valuable model of higher education,” declared the preamble.

The ideal IC 20/20 model was intended to fulfill all the qualities of a financially healthy college: administrators “invest” in student-centered educational features, and IC 20/20 and the ICC deliver a dynamic and integrative learning experience, thereby securing student income. By cultivating a faithful student body, the college would ensure long-term financial security by growing its alumni network, said Chris Biehn, vice president of institutional advancement. Robust alumni networking is a key feature of any financially sustainable college.

“The more we enhance the student experience, the more you have a successful alumni body, the more successful you’ll be as a college but you also do well in the world and that’s what we want,” Biehn said.

All expenses would then be evaluated in terms of its contribution of this new reimagined student experience, Biehn said. If they didn’t contribute, then their funds must be reallocated to areas of the budget which did support the vision.

“We are always looking at all the resources and looking for ways to strategically allocate them to the student experience,” Biehn said. “We’re always making tradeoffs.”

For example, if a certain academic program doesn’t have sufficient students enrolling, whose tuition payments would support hiring a full-time, tenured-track faculty member, the college may fill that position with a contingent faculty member and save hundreds of thousands of dollars on a long-term scale. That money will then support new staffing for the ICC, IC 20/20 or financial aid.

This is how IC 20/20 became a financial vortexby investing in efforts to secure student tuition and build its alumni network, the college had less funding to support the academic careers of professors. The college community then revolts against this perceived dehumanization of the academic experience while the college sees devastating drops in student enrollment. The college must cut more costs and invest in student retention leaving them with greater expenses and less net income.

For the 2017-18 academic year, the Office of Business and Finance, currently led by Vice President Janet Williams, plans to invest $1.8 million dollars in mental health resources for students and technological resources for administrators, a combined effort from the college to retain students.

Click here to read Part III: Market values and human values

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