New York College Dodging Closure Shows Squeeze on Small Schools

  • Dowling College will remain open after it planned to shutter
  • Moody’s expects school closures to triple in the coming years

At its commencement a year ago, Dowling College awarded an honorary degree to Gloria Gaynor, who performed for the 2015 graduates her Grammy-winning song, “I Will Survive.”

The 2,000-student private school on Long Island’s south shore did just that this month, walking back its plan to close for good amid last-minute negotiations with a for-profit education network over a possible financial rescue. With $48 million of municipal bonds outstanding, Dowling is the first-ever college rated by Moody’s Investors Service to default and has been relying since last year on temporary agreements to keep creditors at bay.

Even though it staved off imminent death, other institutions won’t be as fortunate: Moody’s expects the closure rate for small colleges to triple to 15 in the next few years. The landscape is a new reality for investors in the $3.7 trillion municipal market, which mostly consists of states and cities that exist in perpetuity.

“Some institutions are taking a harder look at closure as an option,” said Roy Eappen, a municipal debt research analyst at Wells Fargo Securities in New York. “Many small schools that are very regional in nature and really depend heavily on tuition continue to be stressed, especially in an environment where you have fewer students.”

Colleges are struggling to increase tuition as the pool of graduating high-school seniors shrinks and students think twice about taking costly loans. The difficulties are particularly acute for small schools that have certain specialties or cater to a specific cohort. Sweet Briar College in Virginia brought the strains to the forefront last year when the 115-year-old women’s college abruptly said it was closing. Like Dowling, it avoided shuttering thanks to a last-minute campaign.

Other schools may face a similar test in the coming years. Of 85 private colleges analyzed by Bloomberg with no more than 5,000 students and credit ratings no higher than A1 by Moody’s or A+ by S&P Global Ratings, 10 were downgraded in the past year and another four had their outlooks lowered. Eleven carry speculative grades and another 13 are one step away from junk.

For a list of those colleges and their ratings, click here.

In the case of Dowling, a confluence of factors led to a 50 percent enrollment decline in the past four years. At first, the closure seemed unavoidable, after months of negotiations with prospective academic partners fell through.

“As painful as this announcement is we want the student body, faculty and alumni to know that we made every effort to form a suitable academic affiliation so that we could keep the college open,” Albert Inserra, Dowling’s president, said in a May 31 statement.

Yet the school’s tune began to change. On June 3, Dowling announced negotiations with Global University Systems, a Netherlands-based company that has subsidiaries and affiliated institutions ranging from University Canada West in Vancouver to the London School of Business and Finance. By June 8, those talks went far enough for the board of trustees to rescind its motion to close.

Negotiations “may allow Dowling to continue on the path of stabilizing the college and providing quality educational opportunities to our students,” according to a statement from the board. The school anticipates remaining open for the fall semester, said Howard Cannon, an outside spokesman for the school at Rubenstein Associates.

If bond trading is any indication, investors are skeptical about Dowling’s future.

The largest portion of the college’s debt, about $20 million that matures in June 2036, tumbled after news that the school was going to close. It traded June 1 at an average 82.8 cents on the dollar, down from 89 cents just nine days earlier, data compiled by Bloomberg show.

The securities, which are insured by ACA Financial Guaranty Corp., haven’t rebounded to their previous level, trading June 9 at an average 84.4 cents, the data show.

OppenheimerFunds Inc. owns about $8.65 million of that debt, part of the $21 million of Dowling bonds it owns. The company was among investors that agreed a year ago to give the school time to fix its finances. As part of the arrangement, bondholders were given extra security to offset losses with expanded mortgage pledges on buildings.

Meredith Richard, an OppenheimerFunds spokeswoman, declined to comment.

Dowling and Sweet Briar’s resilience show that the specter of widespread failures of small schools is probably overstated, said David Warren, president of the Washington-based National Association of Independent Colleges and Universities. While economic and demographic forces are straining the institutions, it’s causing them to retool for the future, he said.

“There are reasons why so many of the schools continue on, and it’s because they’re clarifying what they’re about, who they’re going to serve,” Warren said in an interview. “They have a lot more clarity than they had 10 or 15 years ago. They’re asking -- what’s my niche?”

Dowling began in 1955 as an expansion of Adelphi University, a private nonprofit college based in Garden City, New York. It became independent in 1968 after Adelphi bought it a more permanent home -- the remains of a 900-acre estate in Oakdale that the grandson of railroad magnate Cornelius Vanderbilt built on the Connetquot River in the 1880s. It was named for Robert Dowling, a real estate planner and aviator.

The college has carved out specialties in business, education and aviation. About 85 percent of undergraduates came from New York.

As it looks forward to its seventh decade of operations, potentially under the umbrella of Global University Systems, it has to win over students who felt frustration with attending a college grappling with fiscal strains. The same thing happened at Sweet Briar, where enrollment plunged as students fretted it would close again.

Dowling’s administration may find motivation in Gaynor’s song, as she suggested to the 2015 graduates if they encountered rough patches:

Did you think I’d crumble?
Did you think I’d lay down and die?
Oh no, not I.
I will survive.

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