(Bloomberg) -- Across the Potomac River from Washington, DC, Marymount University — a small Catholic college — is doing everything it can to turn around its finances.
The school drained its already small endowment by one-third and cut some academic programs. It’s spending millions to spruce up dorms and is renting out office space to raise cash. Officials even established a high-end daycare that charges parents roughly $30,000 per year.
The measures offer a glimpse into how far some colleges around the US are going amid an increasingly challenged landscape for higher education. The number of high-school graduates is expected to drop in the next several years, reducing the pool of applicants. That demographic cliff is compounded by students increasingly questioning the worth of a private-school degree as tuitions at many schools climb.
Marymount pulled $16.5 million from its endowment in the 2023 fiscal year to help finance investments that school officials said are needed to right its finances. With some of the funds, it upgraded dorms with new flooring, paint, windows and furniture in a bid to convince more students to enroll.
“An endowment that just sits there, what’s the point?” Barry Harte, vice president for finance and operations at Marymount, said in an interview. “An endowment is there to give stability and help the university grow.”
He also said the school’s efforts are paying off. First-year undergraduate enrollment rose about 16% last year, according to data posted on the school’s website.
Founded in 1950 by the Religious of the Sacred Heart of Mary, Marymount fits the profile of US colleges that are struggling financially. Small, private schools like Massachusetts’ Eastern Nazarene College and Clarks Summit University in Pennsylvania are among those that have announced closures this year after enrollments fell.
From 2018 to 2023, Marymount saw its full-time, degree-seeking undergrads drop by roughly 370 students to about 1,700, data posted to the school’s website show. Still, that enrollment last year climbed slightly — by about 50 students — from a year earlier.
“We’re growing our student body, but at the same time, we’re looking at ways to diversify our revenue so we don’t have the total dependency on tuition,” said Marymount’s President Irma Becerra.
This is a key metric because more than 90% of the school’s revenue comes from tuition. Marymount’s fees, including room and board, total about $58,000 for the coming year.
The university’s board voted last year to phase out several majors including art, English, history and mathematics. The programs lacked demand and had low enrollment, according to a university spokesperson. They are still available as minors.
While school leadership says dipping into the endowment is a temporary measure to bolster growth, bondholders and rating analysts are more skeptical. Investors in some of Marymount’s $111 million of outstanding muni debt peppered college officials with questions during a May conference call after the school disclosed the drawdown in its financial report published in late March.
An analyst from T. Rowe Price asked if the school had a plan to rebuild the endowment’s balance and if officials had considered the impact on the school’s credit rating or its ability to access the bond market.
Another analyst from the Vanguard Group Inc. said her team had sent over an “extensive” list of questions for the school. A spokesperson for Vanguard said the company’s muni analysts constantly engage with borrowers to provide the best opportunities for its investors.
Debt sold by Marymount due in 2030 traded in July for the first time since 2015 at roughly 80 cents on the dollar, according to data compiled by Bloomberg. That’s down more than 20 cents since its last trade.
And earlier this year, Moody’s Ratings and S&P Global Ratings slashed the school’s credit rating deeper into junk. Moody’s grades Marymount debt as Caa1, which is seven notches below investment grade, while S&P has it four steps higher at BB-. In a report last month, S&P cited Marymount’s “unexpected and significant decline in liquidity.”
Endowment Loan
A handful of colleges are taking out what are essentially loans from their endowment, according to Beth Bishop, an analyst at S&P who covers higher education. More schools may take a similar approach going forward, she said. Marymount’s endowment stood at about $32 million in fiscal 2023, down from $49.3 million the prior year, according to S&P. The college also borrowed $12 million from a line of credit to support its operations, the ratings company said.
Harte, Marymount’s financial officer, said that the school plans to start paying back the endowment with interest, though the details are still being worked out. The school didn’t use donor money since the university largely funds the endowment. He also said the school’s efforts are paying off.
Part of the endowment draw was used to refresh real estate that the school rents out to other tenants. It leases three floors of a building to a consulting company that extended its lease for 11 years. Harte said that will bring in $11 million of value for the school over that term.
“I definitely want to see the endowment return to its previous size and then double,” he said. “That’s not going to happen if we don’t have a bedrock of students coming here.”
--With assistance from Sam Hall.
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