Hard times on campus: Economics behind merger of Phila. U. and Jefferson

Thomas Jefferson University and Philadelphia University announced a preliminary agreement to merge. At the signing table (from left): Staphen Klasko MD MBA President and CEO, Jefferson, and Stephen Spinelli, Jr., PhD, President, Philadelphia University, trade ball caps after signing the agreement.

Philadelphia University president Stephen Spinelli Jr. describes the decision to become part of Thomas Jefferson University as proactive, not defensive.

The merger "makes us stronger. Neither of us needed to merge," Spinelli said this month at an East Falls community meeting.

But Spinelli did not gloss over the underlying economic forces confounding some colleges and contributing to his board's decision to let the 132-year-old school be taken over by Jefferson.

Asked by an East Falls resident about the merger's impact on staff and faculty jobs, Spinelli said: "They are probably more assured of a position with this than they would be without it."

As his comments suggest, the future could be bleak for some small schools, as the number of high school graduates stagnates and resistance to borrowing for ever-higher tuition bills grows.

Moody's Investors Service said in a September study that the number of college closures could triple to 15 a year by 2017, from an average of five annually from 2004 to 2014, with the losses concentrated in small schools.

Already, an Inquirer analysis found, seven of 20 private colleges and universities in Southeastern Pennsylvania had operating losses last year, up from three in 2010, when one of the money losers was the wealthy Swarthmore College.

It's a dramatic shift for higher education, which has long been one of America's great growth industries, as federal loans unleashed a flood of money that allowed average tuition collected from students to grow even faster than health-care costs.

That trend can be seen in the average operating margin for 14 four-year schools with fewer than 4,000 students, which dropped into slightly negative territory last year, from 4.5 percent in 2010.

The damage could be worse. Cabrini College, which experienced mounting operating losses after slashing its tuition for the 2012-13 academic year, said it would report another loss next week. And Chestnut Hill College, Peirce College, and Rosemont College do not have the publicly traded bond debt that requires them to make financial disclosures.

The lack of growth in high school graduates in Pennsylvania and New Jersey is particularly hard on some small area universities because most of their students come from those states.

Holy Family, for example, draws 98 percent of its students from Pennsylvania and New Jersey. At Widener the percentage is 84 percent. At Eastern, it is 80 percent.

By contrast, only 20 percent of Bryn Mawr's students are from those two states.

Increases in tuition sticker prices have continued, but bidding wars for students are common, resulting in larger aid packages. Since 2010, the total amount of discounting at small area schools - cuts in the sticker price - has risen 32 percent, while net tuition is up just 8 percent.

Experts say small private schools with great brands and big endowments will still thrive.

That group includes such colleges as Swarthmore (which ranks ninth nationally in endowment per undergraduate), Bryn Mawr, and Haverford, despite its core operating losses for at least six consecutive years.

"But increasingly what we're going to find is that expensive private schools that don't have endowments and don't have the kind of prestigious departments or niches are not going to be able to meet costs through tuition," said Jeremy Nowak, who has consulted for universities.

"They will have to adapt, through technology, consolidation with somebody else, through relationships with other countries, through lowering costs, changing curricula, you name it. Everybody's out there trying to figure that out."

A big piece of the puzzle for university officials is developing the right mix of degrees - the product in higher education - to end enrollment declines.

Neumann University, whose enrollment based on full-time equivalents this year is 14 percent below that in 2010-11, though the school remains in the black, is modifying some majors and adding new degree programs in response to market demands.

Neumann added a social work major and is considering adding engineering and mathematics majors, said Lawrence DiPaolo, Neumann's vice president of academic affairs.

The school's communication and media major is becoming communication and digital media arts. Business administration degrees will have tracks in banking and finance, DiPaolo said.

Because Neumann has no tenured faculty, "we have the ability to modify and change programs over the course of a few years to fit the market needs," DiPaolo said.

University of the Sciences, which has been consistently profitable and this month announced the end of a possible merger with Salus University, has been filling all the seats in its new physician assistant program.

A Gwynedd Mercy University official attributed a fiscal 2015 loss of $1.18 million to added nursing faculty for an accelerated program, a new position in international learning, and a full-time lacrosse coach.

While that was Gwynedd Mercy's first loss since 2000, others have had years of recent losses.

Eastern University, for example, has lost money from operations in four of the last six years, including last year's $3.7 million loss. As part of a restructuring of its academic divisions effective in the 2016-17 academic year, Eastern fired 46 employees, or about 5 of its workforce, according to a disclosure to bondholders last month.

Arcadia University has operating losses from its core operations in Glenside in three of the last six years. A spokesman said the university had "more than adequate reserves" to cover its operating shortfall. Arcadia has had enrollment gains and strong incoming classes in recent years.

Haverford and the University of the Arts are the only two institutions in the analysis to have losses each year back to 2010. Haverford declined to provide comments.

David Yager, who became president of the University of the Arts this month, said the Center City institution has "all the ingredients to really turn the tide." Enrollment at the school has fallen by 483, or 21 percent, in five years.

The school is not as well-known as it should be, said Yager, a photographer and designer who has been an executive at a publicly traded company. Boosting the public image will help bring in more students and more money from private foundations and corporations, he said.

Yager embraces the business side: "You can be the most successful art school and be out of business. As much as people don't want to hear that, we're running a business."

Spinelli, a cofounder of Jiffy Lube, took a business perspective to Philadelphia University in 2007. He kept up the tradition of change at the former Philadelphia College of Textiles and Sciences, which became a university in 1999.

Philadelphia University turned out to have the highest operating margin in the region last year.

"If we were still Philadelphia Textile, we'd be closed," Spinelli said.

hbrubaker@phillynews.com

215-854-4651

@InqBrubaker