Last month, the Upper Iowa University (UIU) in Fayette, IA announced the layoffs of 55 staff members, the termination of five degree programs, and the closure of seven regional centers. This follows a previous announcement that the university would terminate funding for seven sports programs, and two declarations of “financial exigency,” which allow the school to terminate tenured faculty.
UIU is a private, non-profit university. In addition to its campus in Fayette, the school also operates campuses in Kansas, Louisiana, Oklahoma, and Texas. According to the administration, declining enrollment and loan repayments to the US Department of Agriculture have strained the school’s finances to the breaking point. These conditions have forced the school to both cut millions in expenses and raise millions more in cash to prevent a financial collapse.
The school’s enrollment declined by more than one-third between 2016 and 2021. That decline has triggered additional financial problems for the school. In 2010, the Iowa Higher Education Loan Authority issued more than $44M in bonds on behalf of Upper Iowa. The school used those funds to build a new academic building, a student center, and dormitories. In 2012, the school borrowed an additional $22.5M to build additional dormitories and renovate the Fayette campus’s Science Building.
In 2016, the university combined both loans into a single loan and refinanced it. Upper Iowa refinanced the 2016 loan in 2018, exchanging it for a $75M, 30-year loan from the US Department of Agriculture. The monthly payment on the USDA loan exceeds $337,000.
Last November, the USDA lowered the monthly payment on the loan to less than 10% of the agreed-on terms through the end of this month. For the next year, the loan payments will double to $60,000 through June 2024.
Upper Iowa University may not survive
None of this has helped Upper Iowa, which guaranteed the USDA loan using its general fund revenues. A recent audit determined that the school’s monthly net income barely exceeds its original loan payment. In fact, Upper Iowa’s operating revenues dropped nearly 23% between 2015 and 2022, leaving very little working capital. In the last four fiscal years, the school accumulated $10.6M in operating losses.
The school’s financial situation is dire, even though it received nearly $13M in federal COVID-19 relief dollars. Earlier this year, Upper Iowa, Iowa Wesleyan University, Graceland University and William Penn University asked for additional COVID-19 relief funding from the State of Iowa. After Iowa Governor Kim Reynolds declined Iowa Wesleyan University’s request, that institution subsequently announced that it would cease operations at the end of May. The requests by the other three schools are still pending.
The lesson here is that in times of serious enrollment decline, mortgaging future revenues to pay loan debts is nothing short of reckless. Construction loans are among the riskiest of loans for both the lender and the borrower. And it doesn’t matter what the borrower is building, or how much it costs.
Any loan that a higher education institution guarantees based on its future enrollment is dangerous. Even if the borrower doesn’t default, the loan payments can become monstrously difficult to manage when revenues turn down. That leaves the school with only one option: raising tuition. At the community college level, raising tuition virtually guarantees enrollment declines. It is the beginning of a downward spiral that is very difficult to pull out of.
That’s probably not what anyone wants, so why risk it?
Photo Credit: Geoscience Division of CUR, via Flickr
