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Sunday, 21 February 2016 23:31

EDUCATED BET: Davenport University pursues expansion despite 33-percent enrollment decrease

Written by  Steve Miller
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Crews from Rockford Construction continue to work on the new Donald W. Maine College of Business facility at Davenport University’s campus in Caledonia. The $15.5 million, three-story building is one of several projects the university has taken on in recent years despite losing one-third of its student body. Crews from Rockford Construction continue to work on the new Donald W. Maine College of Business facility at Davenport University’s campus in Caledonia. The $15.5 million, three-story building is one of several projects the university has taken on in recent years despite losing one-third of its student body. PHOTO COURTESY OF ROCKFORD CONSTRUCTION

CALEDONIA TOWNSHIP — Despite losing one-third of its student body since 2012, Davenport University has embarked on a wave of spending, including expanded facilities, new dormitories and the addition of a football team this fall.

A review of federal filings and public statements by Davenport officials over the past four years shows that enrollment at the Caledonia-based nonprofit university system dipped to 8,715 students in 2015 from a self-disclosed 13,000 in the 2011-2012 academic year. Davenport has 11 campuses throughout Michigan’s Lower Peninsula, as well as an online programs in business, technology, health, and arts and sciences. 

Davenport isn’t alone in experiencing an enrollment drop. The nationwide decrease in college enrollment coming out of the recession has been well-documented, with studies showing that the largest share of those opting out of college are the coveted, big-dollar 18-year-olds who attend classes full-time and take advantage of generous student loan programs.

But in losing a third of its student body over three years, Davenport’s attendance decline has been heavier than most other mid-sized private universities, according to the most recent study from the National Student Clearinghouse Research Center, a Herndon, Va.-based nonprofit provider of data to schools and policymakers. The NSCRC study found college enrollment at four-year private nonprofit universities actually increased five out the past seven semesters, although it dipped 0.2 percent and 0.3 percent during the spring 2015 and fall 2015 reporting periods, respectively.

At an estimated cost of $105,000 for a four-year degree (based on a Payscale.com analysis of U.S. Department of Education data for Davenport), the loss of nearly 4,300 students amounts to a potential reduction of millions of dollars in tuition revenue annually for the university, which opened its doors as Grand Rapids Business College in 1866. 

As a “tuition-dependent” institution, Davenport uses tuition revenues to pay the majority of its bills, as opposed to tapping into outside funding such as endowments.

Davenport’s enrollment “will not be declining any more,” University President Richard Pappas told MiBiz in a recent interview. Pappas blamed the enrollment decline on a market shift that sees college enrollment increase during economic downturns and then drop again when the job market improves. Plus, he added, “we imposed some of the decline on ourselves” by instituting new academic standards and removing associate degree programs. 

Pappas, who came to Davenport in 2009, has been bullish on the university’s prospects in the past. In early 2010, he announced a plan to boost enrollment to 18,000 students by 2015, and said the university would need to lower tuition rates, according to a report in the Grand Rapids Press.    

In an interview for this report, Pappas said the 2010 plans evolved later in the year when “we changed how we did business so that instead of being enrollment driven, it was student-outcome driven.”

Since the 2010-2011 academic year, Davenport’s graduation rate has increased 67 percent, according to federal data. At $633 per credit hour today, tuition has increased 25.5 percent over the past three years, according to information provided by Davenport. 


SPENDING SPREE

A review of Davenport’s available federal filings shows tuition revenues peaked in the 2011-2012 school year at $127.36 million and had dropped nearly 10 percent by the 2013-2014 school year to $114.81 million. Over the same period, the university employment dipped 7 percent, as Davenport shed 171 employees. 

How the university’s finances fared in the last academic year — 2014-2015 — remains unclear because Davenport officials declined to share a copy of its most recent IRS filing.

Despite the financial hit from the loss in tuition revenue, Davenport has pushed forward on plans for continued growth, both in terms of programming and new construction. In September, the university announced it had raised more than $18 million toward a fundraising goal of $25 million by 2018.

At the time, Pappas said the money would help fund a $15.5 million three-story building devoted to the Donald W. Maine College of Business, which remains under construction at the university’s campus in Caledonia Township. In addition, the university put $4 million into student scholarships and another $5.5 million toward its College of Urban Education, according to statements.

In releasing the university’s Vision 2020 plan last July, Pappas said Davenport would look to add another Detroit-area campus and build more dorms at the school’s main campus in West Michigan, which currently houses 800 students. 

Davenport also opened an expanded Lansing campus in August 2013 in a centrally located building in the downtown area. The $10 million project includes a 50,000-square-foot facility that’s able to accommodate up to 2,000 students. A university spokesperson said the Lansing campus has 942 students. 


FUNDING FOOTBALL

This fall, Davenport’s first-ever college football team will begin play at the newly constructed Farmers Insurance Athletics Complex, which cost the university a reported $6 million to build.  The Panthers will compete as part of the National Association of Intercollegiate Athletics (NAIA) conference before moving to the NCAA Division II level in 2017 as part of the Great Lakes Intercollegiate Athletic Conference (GLIAC), which includes teams like Grand Valley State University and Ferris State University.  

But creating a football team can be a risky endeavor for a small school like Davenport, a bet that pays big if it works and fails miserably if it doesn’t, according to industry sources.

“Football is extremely expensive,” said Michael Sion, a principal at Boston-based global management consultancy Bain & Company, which has a specialty in higher education. “There is also limited appeal, so you need to understand who your prospective students are and see if they want great school spirit and athletics and that emphasis. Having a football program is a big bet.”

Pappas said Davenport’s football team, which was created to add vibrancy to the suburban campus, won’t be overly expensive for the school.

“There is a perception that it’s very expensive, and if you look at Division I sports, it is,” he said. “The majority of those athletes are on scholarship.”

At Davenport, a low percentage of athletes get free rides, he said. 

For the university, “one of the goals is to have university life, and football is the one sport that brings it all together,” he said. “We felt that financially, it was achievable.”


SUSTAINABLE EXPANSION?

Davenport for years thrived as the Davenport College of Business, which focused on accounting and other business programs. In the last two decades, the school has expanded widely with programs in technology, health professions, arts and sciences and education. From 2010-2015 alone, Davenport added more than a dozen programs, many of them at the graduate level. 

It offers 25 bachelor degree programs, 14 master’s and one doctoral degree, along with 15 certificate programs.

That type of growth strategy can often lead to problems for colleges and universities, according to the authors of “The Financially Sustainable University,” a 2012 study from Bain & Company that outlined how universities can handle the enrollment downturn.

“The healthiest organizations … operate with a discipline that allows them to stay true to their core business. The core is where high-performing institutions invest the most and generate the greatest returns. It is the area where they are the clearest about the value they add. It is the domain where they are the most differentiated and the place from which they derive their identity,” according to the report.

By adding programs and getting away from their initial missions, institutions can run into key financial and operational risks, said Tom Dretler, co-author of the 2012 study and CEO of Shorelight Education, a Boston-based education consultancy.

“Too many colleges have followed the law of more,” Dretler told MiBiz. “That is, they said, ‘We’re going to expand ourselves across all disciplines and multiple geographies, take on more debt and at the end of the rainbow, students will choose us and we will make up the money on tuition.’ But that isn’t happening.”

The 2012 report found that instead of prospering as a result of expansion, many colleges and universities became overleveraged as long-term debt grew. At the same time, the institutions faced rising administrative and student services costs and higher fixed costs and overhead, according to the authors.

While enrollment at Davenport has declined, the salaries of executives have inched upward in recent years. According to Davenport’s 2013 tax returns, the most recent publicly available filings, Pappas was paid a package worth $707,000, a 9.5-percent increase from 2011. Davenport Provost Linda Rinker’s pay package increased 33 percent, from $302,559 to $405,079.

The university refused to release its most recent tax filing or to provide updated compensation data. Pappas declined a request to discuss salaries at the university.


CUTTING BACK 

The enrollment drop at Davenport has resulted in several waves of layoffs and the closure of campuses in Battle Creek, Kalamazoo and Flint, as MiBiz reported in July 2015. At the time, Pappas said the closures were the result of higher numbers of students taking courses online.

Sources familiar with the closures say at least 50 people have lost their jobs as a result.

“We estimate that by the fall of 2017, we will be rising in students in all areas,” Pappas told MiBiz at the time. 

While industry sources said Davenport’s enrollment decline could be a hangover from the rise of students during the Great Recession, they also said such a steep drop could be a sign of miscalculation.

“You don’t see that much volatility in enrollment usually,” said Brendan Cantwell, an assistant professor in the Department of Educational Administration at Michigan State University. “Davenport is tuition dependent, and places like that, when faced with serious enrollment declines, have to cut back. And in the long run, that might not be a good sign … in terms of viability.

“Places do close their doors.”

Steve Miller is an author and investigative journalist for the likes of Texas Watchdog, Dallas Morning News and the Washington Times. He can be reached at [email protected].


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Editor’s note: This story has been updated to clarify the data cited in the National Student Clearinghouse Research Center study.

Read 14211 times Last modified on Wednesday, 24 February 2016 14:28

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