An Analytical Framework to Diagnose the Financial Challenges Facing Small Private Liberal Arts Colleges and Specific Turnaround Strategies for Those Institutions
Abstract
Student demographic changes, an evolving job market, and educational cost increases are some of the key factors that have shaped today’s operating environment for small private liberal arts colleges (SPLACs). This challenging climate exacerbates many ongoing problems including SPLACs’ suboptimal economy of scale, limited resources, downward pressure on net tuition, and tuition dependency. This research aims to investigate (a) the manageable risk factors contributing to the financial challenges for a tuition-dependent SPLAC and (b) specific turnaround strategies that mitigate the risks contributing to the economic challenges. The investigation adopted a mixed-method approach. First, the study used the grounded theory research approach to derive a literature-based framework that suggests three manageable risk factors are shaping the financial challenges of the sub-group. The risk factors include institutional cost structure and scale, institutional financial stewardship performance, and market-driven value proposition that impacts institutional resources allocation. Second, the risk factors framework was assessed and tested by case study findings involving two colleges sampled from the SPLAC sub-group of total enrollments of less than 1,000 in 2020. Third, the measurable risk factors and their correlation with institutional financial sustainability were statistically tested by regression-based models. The statistical findings suggest that financial stability, measured by institutional equity ratio, is positively correlated with revenue’s investment returns weighting and endowment-to-core expenses ratio, and negatively correlated with tuition dependence. There is a statistically significant correlation between measured financial stability and risk factors. The case study findings further demonstrate the grounded theory-based risk factors framework, which encompasses the statistically tested risk factors. The framework suggests how to address and understand problems and how to create revival strategies for financially challenged tuition-dependent SPLACs. The framework also suggests that reviving SPLACs need to redesign curriculum, match cost structure to revenue mix, and practice diligent financial stewardship to grow the endowment as an offset to tuition and fees over-dependence. Finally, the case study describes the difference that change-adept and professionally competent boards can bring to support leadership teams’ turnaround actions.
Subject Area
Education finance|Educational leadership|Finance
Recommended Citation
Kwan, Harry kam Lun, "An Analytical Framework to Diagnose the Financial Challenges Facing Small Private Liberal Arts Colleges and Specific Turnaround Strategies for Those Institutions" (2022). Dissertations available from ProQuest. AAI29254558.
https://repository.upenn.edu/dissertations/AAI29254558