In the past several years, the number of universities and educational institutions dealing with financial issues has increased. Various factors, including tougher competition, has led three universities to seek bankruptcy. Many others are relying on short-term loans to remain open.
Borrowing Just to Keep the Lights on
Universities that are dealing with fewer enrolments are experiencing financial difficulties. The sharp decreases in their student bodies result in less income, making it difficult to remain open. In fact, some institutions are obtaining bridging loans to hold them over until they receive student fees.
Bridging loans are short-term loans that are primarily used to fund development projects and refurbishments. They are used when a borrower needs fast access to funds whilst waiting for other funding to come through. For example, a developer may obtain a bridging loan to cover development and then pay off the loan when they sell or refinance the property.
These universities are essentially borrowing money from lenders just to get by until the next semester of classes starts, similar to an individual living paycheck to paycheck.
Many universities are experiencing a significant decrease in new student enrolment; there are several potential causes and most of them are related to government reforms. One of these reforms was the removal of caps on the total number of new students that universities can accept.
Universities that previously had to limit the number of students that they accepted are now scrambling to bring in more students. The competition has forced many smaller universities to be hit the hardest.
To deal with the increased competition, many universities have lowered their requirements for entry. When some of the top universities lower their requirements, interest in the smaller institutions decreases even more. The smaller universities located near popular universities are more likely to experience this decrease along with universities in remote areas or unattractive regions.
Whilst the government forms play a large part in the issues that universities are facing, financial advisors also point out that many institutions have never been financially secure. There are quite a few universities that were already struggling before they experienced a decline in enrolment.
Alternatives to Obtaining Bridging Loans
Many financial advisors recommend that universities avoid bridging loans to remain afloat. Borrowing money until the following semester does not guarantee that they continue operating.
Instead of borrowing money, these financial advisors recommend that they attempt to sell real estate holdings and land. However, unions warn against those recommendations, stating that the sale of real estate by universities may have a negative impact on the region.
Not everyone agrees on how universities should handle their financial issues. However, most advisors agree that universities are often essential to the local economies where they are located, especially in more remote regions where the university may be the primary spending power.
In the end, bridging loans may offer a temporary solution for universities that are struggling to pay their bills. However, there is a risk that some of these universities may never experience the same enrolment numbers as in the past.
