The Business of Private Christian University Education
In today’s newsletter:
- The Business of Private Christian University Education
- The Future of Advertising, Market Watch, and Demographic Collapse
- The Tax Code is Going to Change – Tips on How to Stay Ahead of the Curve
It’s complicated.
College enrollment has been steadily declining for over a decade, down 8.5% since 2010, especially among males. However, this decline is not evenly distributed. Many 4-year public colleges have managed to increase their undergraduate enrollment by about 15% from 2010-2021, while enrollment at private for-profit colleges fell 54% over the same period of time. Private non-profit colleges increased enrollment modestly, at about 2.7%. Full-time, first-time undergraduate enrollment market share for Christian institutions grew from 5% in 2011 to 9% in 2021, and the total number of students enrolled in Christian colleges nearly doubled over this same time period.
Notice, however, that these numbers come from datasets that end in 2021. It’s been rough since then.
The pandemic lockdowns, which hit hardest after 2021, had an outsized effect on Christian colleges, however, with over 40% of the institutions that closed or consolidated being Christian.
“The market for students interested in a Christian education… is small,” says Johanna Trovato, principal analyst at Encoura.
“Many Christian universities,” explains Matthew Smith from The Gospel Coalition, “have become overpriced, ineffective, and increasingly secular… Private Christian universities are bleeding students and losing money. Some colleges have closed permanently.”
CNN recently did a story reporting that “Small private colleges are struggling to keep their doors open as declining enrollment leads to financial instability.” Their first example? A small, Christian, liberal arts college in Pennsylvania that will close its doors for good this summer.
So who are the winners and losers in this constantly shifting environment, marred by a generalized decline of interest in going to college, a generalized decline in faith, an ongoing ideological war between students, faculty, and donors, and sharply rising tuition rates? And what can we learn from those who have managed to thrive?
The Winners
Grand Canyon University, a for-profit Christian college in Arizona, continues to set personal records for enrollment, as does Liberty University in Virginia. GCU recently had 118,000 students enrolled, and Liberty boasted 130,000. But here’s the trick –
At GCU, 92,000 of those students (78%) were online students.
At Liberty, 115,000 (88%) were online students.
Online universities have long since lost the stigma they once had, according to Forbes, and the tradeoff looks an awful lot better. In-person tuition, on average, costs three times as much as online tuition for an identical credential from a private institution. This represents a much-needed market adjustment for the consumer, who has seen a 4-year public university tuition rise 179% over the past two decades and a 124% increase in the already much higher tuition costs of 4-year private universities. Since online courses cost much less for universities to provide, it’s a financial win-win for students who are generally just looking for a credential and universities trying to remain profitable.
Far too many universities get distracted by diversity initiatives, student programming, administrative bloat, and prestige when the somewhat uncomfortable fact remains: Students (customers) just want a degree so they can get a job that pays well, has benefits, or is in a field that requires a diploma.
The… Not Winners
“Losers” just seemed too harsh because it really is a tough environment for smaller schools with differing aims and resources. That said, not everyone has successfully navigated these changing times.
Take Lincoln Christian University, for instance. A small, Christian university in Illinois that had been proudly operating for nearly a century, LCU tried to downsize last year in order to survive, by only offering two ministry-related majors. But this year they’ve had to announce that they will close at the end of the current school year.
“Schools [with enrollment] under 2,000 we know are at greater risk,” says LCU president Silas McCormick. “Rural schools are also at a greater risk… There are a lot of causes.”
As larger schools capitalize on economies of scale, and the internet allows more recognizable collegiate brands to compete more directly with small, Christian colleges, many simply won’t survive.
Christianity Today even published a list of many such Christian institutions that shut their doors since the pandemic, and more recently, universities such as St. Katherine in California and Wells College in New York have announced their closures. Wells College has operated for 156 years. Both universities cited extreme financial pressures, and one college now closes every week in the United States.
The Primary Takeaway
The university is such an iconic institution, tied to nostalgic memories, tradition, history, and high ideals. The reality of the current situation, however, is that we live in a country that sees credentials as a requirement, subsidizes degrees at taxpayer expense, and the economy is making it increasingly difficult for the younger generations to get ahead. If school administrators and trustees are thinking inside-out (starting with their own thoughts and preferences), they will spend resources and time on the student experience, niche degree programs, and costly buildings. If they are thinking outside-in (starting with what the consumer wants/needs), however, they will focus their efforts on a streamlined, low-cost solution that disrupts a student’s life as little as possible.
As business owners, it is far too easy to fall into emphasizing what we want for our customers, as opposed to starting from the need. There is a reason low-cost airlines have become the norm – travelers do value comfort, but at the end of the day, they’d rather save a couple hundred bucks and just get where they need to go. College, increasingly, isn’t much different for the majority of students. The schools that recognize this (and put resources toward attracting an 80% online student body) seem to be doing better than their top-heavy counterparts.
So ask yourself – what do your customers need? What do they really need, beyond anything else, from your business?
If you can answer that quandary honestly and provide a quality solution, your business will thrive even in an adverse business climate.
Just look at GCU and Liberty.
INDUSTRY INSIGHTS
The Future of Advertising, Market Watch, and Demographic Collapse
The Future of Advertising
Streaming services now account for 18% of total advertising spending in the U.S. as traditional TV continues to lose traction and relevance with both viewers and advertisers. Streaming alone doesn’t make up for the loss of what was once a monolith of viewers watching cable TV. Companies “have to build reach across multiple platforms,” according to one expert cited by the Wall Street Journal. Nearly $1 trillion has been spent on social media advertising since 2017, and the category is expected to reach $255 billion/year in just the next few years. Live sports are an exception to the ‘no mass media’ trend, as 96 of the 100 most watched broadcasts last year were sporting events, making advertising space in these broadcasts increasingly sought-after and expensive. In related news, Warner is likely to lose its NBA broadcast rights next year, and it is probable that sports, including the NBA, will continue to become more easily accessible via streaming services in the future.
Market Watch
The Dow Jones rallied with over a week of consecutive gains, and the S&P 500 is close to an all-time high. There is a lot of movement in the markets anticipating Wednesday’s CPI report. Among consumers, inflation outlook is rising, driven mostly by expected increases in housing costs. 30-year fixed interest rates were down slightly last week to about 7.5%. J.P. Morgan, Citi, U.S. Bank, and others have begun testing a blockchain-inspired system called “the regulated settlement network” that could legitimize cryptocurrency if the dollar shows instability. Crude oil is up about 7.5% YTD, and a U.S. oil CEO has been accused of colluding with OPEC. The U.S. Q1 GDP fell well short of expectations, missing the 2.2% target by six basis points. The lackluster 1.6% annualized growth was blamed primarily on a pullback in the growth of consumer spending and persistent inflation.
Demographic Collapse
According to a shocking, comprehensive report by the Wall Street Journal, the world is now reproducing at below replacement rate. In the U.S., there was a very small bump in birth rates in the wake of the pandemic, but 2023 saw the lowest rate on record: 1.62. The World Bank has already warned that the 2020s are likely to be a “lost decade” in terms of economic growth, and the demographic decline isn’t helping any. Efforts have been made in various regions around the globe to reverse the falling birth rates, but “no country has really got it right,” says some experts, and policy efforts do not seem to be producing significant fruit in Japan, Hungary, etc. The upside-down demographic trends put increased strain on Social Security, Medicare, and other entitlement programs in the US, according to the Office of Social Security Administration, which now reports that the worker-to-beneficiary ratio will soon be 2:1. Billionaire Elon Musk has said that there is a “big reckoning coming due to low birth rate” and has encouraged people to have more children. Pope Francis, this past week, likewise encouraged women to “go against the current” and have children.
Sunday School
Q. What is the Greek word used in the New Testament for “save”?
A. σῴζω (Sozo). This word means to deliver out of danger and into safety, and is often used to mean “heal” as well. This is where we get the theological term “soteriology” (the study of salvation).
“Listen, Terry – I want to believe that you have a passion for the U.S. Tax Code… But some of the others are starting to think you just carry it around for exercise.”
TIPS & TRICKS
The Tax Code is Going to Change – Tips on How to Stay Ahead of the Curve
Big changes are coming.
The Trump administration’s Tax Cuts and Jobs Act of 2017 is sunsetting in 2025, and we don’t yet fully know what (if anything) will replace it. What we do know, however, is that tax liability for medium-sized businesses and especially for small-businesses is very likely to sharply increase.
“With the [government’s] growing debt, you can expect our discounted tax rates to increase. Most of my clients have seen an increase of 2.2-2.8% in the last year, and after these provisions lapse, you’re going to see a 5-8% liability increase for small businesses,” says W. Jack Sells, an enrolled agent who represents small businesses before the IRS.
“It’s logical to see that the debt ceiling is rising, the government needs to pay for the wars [in Ukraine and the Middle East], the crumbling infrastructure needs to be addressed… There is a need for cash in our government, so you’ve got to be focused on tax as the taxes are rising.”
It’s hard to argue with his logic. The New York Times, in a recent report, agrees, stating:
“If Congress does nothing, the tax code in 2026 will suddenly shift to what it would have been if the law had never changed, effectively generating trillions of dollars in extra liabilities for taxpayers and an equal amount of revenue for the federal government. As if that weren’t complicated enough, the tax code before the 2017 law included provisions for future inflation adjustments – and there has been a lot of inflation over the last few years.”
In 2026, if nothing is done, the child tax credit will essentially be cut in half, as will the standard deduction. Of more interest to business owners is the business pass-through deduction, which allows some self-employed individuals to deduct up to 20% of qualified income.
The loss of this provision would most affect businesses making less than $400,000 a year. “It’s going to be the difference in keeping the lights on for many small businesses,” says Sells.
Tax brackets will likely shift downward even as tax rates shift upward, meaning every tax bracket gets more expensive while simultaneously including people with lower income levels.
The last few years, has been relatively easy to track expenses, meet with an accountant once a year, and not worry too much about taxes because of the beneficial policies stemming from the 2017 Tax Cuts and Jobs Act. Going forward, however, this may not be the case.
Sells gives business owners a couple of tips for staying on top of the uncertain and evolving situation.
“Most business owners don’t understand how different streams of revenue are taxed,” he explains. “Capital gains, versus investment rates, versus income tax, versus self-employment tax, AMT, payroll tax, recapture… If you’re reviewing history and you see large changes in certain revenue streams, you need to account for a shift in your liability.”
In other words, most people are laser-focused on income tax – and for good reason. But if your business suddenly sees a change in what kinds of revenue are coming in (such as earning more on investments, selling assets, etc.), then it is important to anticipate how this can affect your tax burden.
“Have more conversations with your accountant throughout the year,” Sells recommends. “Access is very important.”
On the personal finance side, as estate tax law may change in the next few years, wealthy families interested in passing down their success to future generations may want to start using this time to prepare, according to Tracy Craig, partner at Seder and Chandler’s Trusts and Estates Group. For some, that may mean it is advantageous to do an early disbursal of estate gifts, or setting up a trust might be the way to go.
For small to medium-sized businesses, making sure that you are structured in the most advantageous way is a must.
At the end of the day, as Christians, we need to render unto Caesar what is Caesar’s… but Caesar has an awfully convoluted tax code these days, and as long as our tax preparation falls within the confines of lawful behavior, leaders need to be proactive to keep as much of their income as they can, to wisely steward its use. Don’t put off next year’s tax planning just because this year’s tax season is over.
Look ahead to the next few years and prepare accordingly.
Sent to Win is for entertainment purposes only, and its articles in no way represent financial advice. For financial advice, visit a local certified tax planner or personal finance professional.
Quick Hits
- Website Builder Squarespace will no longer be a publically traded company, after $7 billion private equity purchase.
- In another blow to the record labels, Oliver Anthony of “Rich Men North of Richmond” fame recently released an independent album, titled “Hymnal of a Troubled Man’s Mind.” Oliver previously turned down an $8 million contract.
- “The Chosen” is now the most-translated T.V. show in the world, available in 50 languages.
- Open AI revealed their newest AI model on Monday, GPT-40.
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