Tough Love From Funders as Radical Colleges Flunk Traditional Financing Model

Next year was supposed to be a happy one for Hampshire College, with the small but high-profile liberal arts college in Western Massachusetts set to mark the half-century since it welcomed its first class in 1970. But over this past winter, a long-running set of financial and institutional challenges suddenly metastasized into a full-blown crisis, with the college’s new president and board moving to dramatically downsize its enrollment and staff, and to search for a strategic partner. Just as abruptly, in early April, the president and top board members stepped aside in favor of new leadership committed to keeping the college independent, leaving administrators, alumni and other stakeholders scrambling to stabilize its finances, while facing the prospect that the college may not live to see 50.

While Hampshire’s plight has been singled out for media attention, its predicament mirrors that at many other small American liberal arts colleges (SLACs) that can be loosely defined as “radical” or “experimental.” Among the quandaries is a reluctance on the part of outside funders to help such institutions overcome an increasing inability to succeed at the traditional tuition and alumni donation model of financing.

Of more than a dozen leading education-focused foundations contacted by Inside Philanthropy, only a handful would agree to comment on the unique challenges facing colleges like Hampshire, and how they can improve their attractiveness to funders. Meanwhile, a number of experts on higher ed financing and reform see foundations recognizing a growing “public good” component offered by many experimental liberal arts colleges, while offering success stories of engagement and best practices—as well as warnings—for institutions seeking engagement with philanthropy.

Unique Offerings, Broken Model

The first question involving experimental or radical SLACs like Hampshire is defining where such institutions reside in the larger higher ed ecosystem. Experts see a number of common characteristics, including a strong, baked-in social justice focus, non-traditional or highly individualized pedagogy, a lack of emphasis on providing entry into the higher-paid professions, and a related lack of the “boardroom” prestige or pedigree enjoyed by such elite SLACs as Amherst (which is part of a consortium with Hampshire, the University of Massachusetts, and the more staid and stable Smith and Mount Holyoke colleges).

These colleges also tend to have common problems, notably a reliance on a fragile tuition-dependency model further stressed by an institutional commitment to providing access to students from less-privileged backgrounds; small endowments and a dearth of alumni with the earning power to build them or otherwise mitigate shortfalls in net tuition; and a perception of being schools for pampered bohemians, which suppresses or obviates giving from outside funders. They also suffer from the increasing tendency of more traditional and larger schools, including state universities, to offer individually tailored curricula and other perks that were once the province of small, experimental colleges.

Such challenges are in addition to the headwinds faced by all but the most elite SLACs, including decades of rising costs and tuition, a shrinking overall pool of high school graduates—many of whom are increasingly focused on professional credentials—and a decline in alumni donor participation rates that, in some cases, is offset by a small number of very large gifts. There is also a growing understanding that some of the hoped-for panaceas, such as sharing services or partnering with larger institutions, are often not geared to specialized smaller colleges, many of which are geographically isolated.

More obvious is why foundations and other outside private funders have not traditionally considered such institutions a high priority. The realm of private liberal arts education has historically been one of extreme privilege, and a liberal arts degree far from an obvious public good. At the same time, the larger trend in higher education in recent years has been toward pre-professional training and away from the liberal arts.

But experts in higher ed policy argue that now more than ever, the liberal arts—and especially self-directed and other non-traditional curricula—should be seen as important public goods worthy of funding from outside the traditional mix of tuition and alumni giving.

“We need to return to the notion of higher ed as a public good. It shouldn’t be just alumni—it should be everyone in the country,” says Lynn Pasquerella, president of the Association of American Colleges & Universities. According to Pasquerella, it is the “unscripted” nature of experimental liberal arts colleges, rather than more structured or pre-professional approach to higher ed popular today, that is best suited to the rapid change and “obsolescence” of today’s world. “In higher ed, we spend too much time asking questions we already know the answer to. These schools are dealing with most fundamental questions of human interest. [And] there are philanthropists who understand this.”

Danette Howard, chief strategy officer and senior vice president at the Lumina Foundation, agrees that an ever more flexible and globalized economy plays to the benefits of the liberal arts and the smaller universe of experimental and radical colleges. “We need to be preparing citizens where we don’t even know what jobs are going to exist in ten, 15 or 20 years,” she says. “Sixty-five percent of people in elementary schools today will work in careers that don’t exist. So how do we help people modify how they think and engage? That’s what a liberal arts education does.”

Access a Funder Priority

Despite such broad expressions of support for the liberal arts and its more radical corners, in practice, funders have tended to focus on increasing access to such institutions for traditionally underserved communities. With foundation support, Hampshire dramatically increased the percentage of minority, low-income and “first-generation” students to roughly a third of enrollment.

While this shift was very much in line with the college’s strong commitment to social justice, such funder support also set the stage for the financial and institutional crisis currently underway.

“There is foundation support, but it doesn’t meet the full need, and isn’t guaranteed,” explains Jeffrey Wolfman, the college’s director of development. Wolfman gives the example of a foundation that believes in access to underrepresented students and gives a maximum grant of $20,000 toward a year of education, housing and support services that costs the college twice that amount. “The foundation feels they are doing good work—their goals are being met—but they are not really filling the need,” he says. “Foundations are always of the mindset that they are a catalyst, and that others will follow. [But] we needed to cobble together the resources to fill the financial gap.” And in Hampshire’s case, the college increasingly found itself unable to fill that gap.

Big funders appear uniformly uninterested in rebooting colleges that have hit the skids. “We want to hear about institutions that are building upon their assets and strengths, and when you are on the brink of closure, you are not asset- or strength-building,” says Danette Howard of Lumina. “We are not in the business of saving institutions when they find themselves in crisis. That is not our mission.”

This is even the case for Hampshire, which was founded on institutional philanthropy. In 1965, an anti-tenure campaigner named Harold Johnson donated the equivalent of $50 million in current dollars to get the college on its way, a gift matched by the Ford Foundation, which, in recent years, has retreated from the higher ed space. At the same time, Wolfman says that support from the Mellon Foundation—long a key funder of liberal arts institutions—was crucial in financing a “bridge to retirement” program that allowed the college to put certain senior faculty on phased retirement and enable a knowledge transfer to a new cohort of lower-cost faculty. Meanwhile, foundations helped the college to reinvent its library, turning a simple book depository into a modern “knowledge commons.”

Mission Critical

Experimental or radical SLACs can appeal to funders. There is a strong consensus that such institutions are best served by focusing on mission, often the one that made them special in the first place.

“Philanthropy is going to have to play an important role in these schools moving forward,” says a senior executive at one large U.S. foundation. “But schools need to get really, really clear about their mission.” According to this executive, the general prognosis for small liberal arts colleges in general is “terrible,” and many of the more experimental ones have lost sight of their missions and their strengths.

Phil Hills, president and CEO of development consultancy Marts & Lundy, says such institutions need to fight the temptation to go “off-mission” in fundraising drives, especially for one-time campaigns—“unless you’ve given up on your mission and have a good story as to why.”

At the same time, there is a healthy tension between retaining and refocusing an institution’s mission, often by reexamining its place in the larger higher-ed landscape.

Michael Poliakoff, president of the American Council of Trustees and Alumni, says struggling experimental SLACs should look for inspiration beyond the elite liberal arts colleges they normally consider their peers. He singles out Colorado Christian University and University of Science and Arts of Oklahoma as examples of specialized institutions with a “clear brand and constituency” that can appeal to donors beyond the normal pool of alumni.

Poliakoff stresses that donors will inevitably focus on whether institutions can offer compelling evidence of academic excellence, and signs that they are addressing the problem of runaway costs. “How can you make the case... that this is a public good? SLACs are coming up against places like Purdue, where [university president] Mitch Daniels can say we have gotten rid of grade inflation, frozen tuition, and expanded access. It’s hard to compete with that.”

But there are limits to the ways SLACs can compete, says the Association of American Colleges & Universities’ Pasquerella, who was president of Mount Holyoke College from 2010 to 2016, and currently serves on the board of Sweet Briar College, which was rescued from closure in 2015 by an alumnae-led donor group. “We need to focus on issues of affordability, but where a liberal education remains at the center of the mission,” she says. “And that kind of mission, with small classes, mentors, and a requirement that students engage with the community, is expensive.”

Meanwhile, others worry that in many cases, SLACs fail to create a “pull-together” culture that signals to funders the institution is a worthwhile bet, especially when such institutions are under financial stress.

One foundation executive says a renewed commitment to competitiveness and a positive campus culture can also be crucial given the increasing role of entrepreneurs—and entrepreneurial thinking—in private philanthropy. “There is a new generation of philanthropist, and they bet on winners,” the executive says. “If you’re not [going to become] a winner, they are not going to jump in.”

Hills of Marts & Lundy also cautions that experimental colleges with a social justice focus face a significant and growing constraint in terms of “mission match” with potential donors, stressing that it is not only the donor but students, faculty and others that may raise questions. This, he says, is very much the case with corporate giving, where even if a CEO is an alumnus, a college’s stakeholders may conduct their own informal due diligence and ask, “do we want their money, or what?”

Experts also say that old-fashioned fundraising prowess remains crucial, especially as alumni participation rates trend down and the role of high net-worth individuals grows. It’s no coincidence that a number of the biggest gifts to this category of liberal arts colleges have been to Bard College, led by the legendary fundraiser Leon Botstein. (Though this hasn’t insulated Bard from pressure; in 2016, its credit rating was cut deep into junk territory, with Moody’s Investors Service pointing to its heavy borrowing and thin cash cushion, and others questioning Botstein’s longtime insistence that institutions of higher education shouldn’t hoard their wealth.)

And despite the issues related to widening access and institutional focus, funders say helping underserved communities get high-quality credentials remains a key objective when considering SLACs of all types. “That’s where philanthropy has to put a stake in the ground,” says Danette Howard of Lumina.

Rebuilding

At Hampshire, the focus is now on leveraging energized alumni to raise enough money to keep the college afloat and independent, and to put it in a position where outside funders will consider it a worthwhile bet. Following a student occupation of the college’s main administrative offices, embattled President Miriam Nelson resigned on April 5, and the board of trustees appointed as her interim successor Kenneth Rosenthal, Hampshire’s first treasurer and an eyewitness to five decades of the college’s financial ups and downs.

By Rosenthal’s estimate, the college will need to raise $15 million to $20 million over the next year—roughly 50 percent more than its annual fundraising hauls in recent years—and close to $100 million over the coming half-decade. And while many students, alumni and other stakeholders are optimistic, a number of voluntary campaigns launched since the crisis broke in January have recorded pledges of only $3 million—less than the $3.6 million windfall Hampshire received in 2007 from the state-directed liquidation of the endowment of Bradford College, another troubled liberal arts institution that closed in 2000 after 197 years in operation.

Either way, most expect the challenges facing colleges like Hampshire will remain critical, and will continue to keep these institutions in the frame for funders. Ali Eskandarian, executive director of the American Council of Trustees and Alumni’s Fund for Academic Renewal, says the math points in one direction. “Looking at the financials of these colleges, if we have maximized the tuition amounts and the cost savings are not significant, the only other solution is philanthropy.”

Erik D’Amato, a 1988 graduate of Hampshire College, is a corporate intelligence operative and journalist, and the author of “The Little Book of Left-Right Equivalence: 350 Mutual Blind Spots, Dueling Hypocrisies, Double Flip-Flops and Other Uncanny Parallels Between the Two Tribes of Today’s America.” He is on Twitter @erikdamato.