What Led Concordia Portland to Close?

In December 2012, Concordia University, in Portland, Ore., hosted a presentation for its bondholders in which it spelled out what it saw as a changing higher education landscape.

A market would persist for traditional 18-year-old high school graduates, the presentation said. But private colleges and universities' long-term sustainability depended on their ability to “strategically expand into areas that fulfill their mission, provide high margin return, and leverage their existing infrastructure.”

The presentation went on to spell out three initiatives already under way that would position Concordia to survive this changing future. One was a law school it had launched in Boise, Idaho, that fall. Another was a pilot program newly launched in homeland security that it hoped to scale up quickly. And the third was a massive expansion of online graduate education.

“While the marketplace is significant, the ability to effectively and economically market and recruit remains a challenge,” the presentation said. “Concordia University delivered its Masters Degree in Education in an online format for over 10 years with some success, but needed large critical mass.”

Two years prior, in 2010, the university had partnered with a third-party service provider with marketing and recruitment expertise. Enrollment went on to double each year, jumping from 350 students in 2010 to 700 in 2011 and about 1,400 in 2012. Looking forward, leaders expected to enroll 2,500 students in 2013.

By all accounts, Concordia was massively successful in the ensuing years. Total enrollment more than doubled from over 3,000 students in 2012 to more than 7,400 in 2014, according to federal data. Much of that growth was among graduate students, where enrollment spiked from about 1,700 students to more than 6,000. Enrollment of adults aged 25 to 64 went from about 1,100 in 2011 to 3,697 in 2014.

Fast-forward several years to this week, and Concordia shocked the Portland area and many of its own students by announcing that it will close at the end of the spring semester. A statement from the institution said the university’s board decided to close after “years of mounting financial challenges” and a changing landscape for education.

“After much prayer and consideration of all options to continue Concordia University-Portland’s 115-year legacy, the Board of Regents concluded that the university’s current and projected enrollment and finances make it impossible to continue its educational mission,” Thomas Ries, the university’s interim president, said in a statement Monday. “We have come to the decision this is in the best interest of our students, faculty, staff and partners.”

In the ensuing days, the university revealed to a state agency that its closure will result in more than 1,500 people being terminated from their jobs between Feb. 25 and Sept. 30.

Students were not pleased. Some joined a class-action lawsuit seeking tuition refunds because they believe they were misled about the university’s financial condition. On Thursday, students staged a walkout and then a sit-in of the president’s office, charging that the university failed in its responsibility to protect students, staff and faculty and demanding the release of financial records.

Observers in Portland and across the country were surprised by the Concordia Portland announcement -- both because it came suddenly and because the university’s leaders shared little additional information about the circumstances that contributed.

The university also had few details to provide to students about where they could finish their degrees. When it announced its closure, a website answering student questions said little about firm teach-out or transfer plans, stating that “Each situation is unique, and our advising team is available to ensure your transition is supported” and that “Students may also choose to transfer to another school of their choice.” Later in the week, news surfaced that the Portland university’s accelerated nursing program would be absorbed into a separate sister Concordia University in St. Paul.

A spokeswoman for Concordia University Portland did not make any administrators available for comment and declined to answer a list of 14 detailed questions about the university’s enrollment, finances and relationship with the Concordia University system and different Lutheran Church organizations to which it is related.

“Thanks for reaching out and following up,” the spokeswoman, Liz Loulan, said in an email. “We have shared all of the information available to date. We are now highly focused on helping our faculty, staff and students with their transition plans. Let’s reconnect in a few weeks when we have more information.”

Those involved in higher education in Portland and across the country continue to wonder about the unfolding situation at Concordia. Some clues can be found. And a Thursday report raised questions about whether the university's conservative parent organization tied financial help to changing a campus resource center for gay, lesbian, trans, queer and nonbinary students.

Publicly available documents paint an incomplete picture of the university’s recent history. But they nonetheless reveal an institution that experienced massive growth by emphasizing online education, that found itself under intense federal scrutiny because of an online partner’s recruiting practices and that struggled to meet the expectations of its bondholders. Almost everyone who will speak about the university -- including its regional accreditor -- claims surprise that the end came so suddenly.

In that way, Concordia University Portland isn’t just an important story to watch in the Pacific Northwest. It’s one to watch across higher education. If this can happen to a university that grew rapidly in Portland, a burgeoning urban market, what does it mean about the future of other private liberal arts colleges showing more outward signs of stress?

Experts Surprised

In retrospect, experts were able to identify some causes for concern about Concordia University Portland from audited financial statements, other information that the federal government makes public and information the university itself had previously released. The university had experienced turnover among its administrative ranks recently. It had run deficits in two of the four most recent years for which audited financial statements are available, 2015 through 2018. In 2017, it posted a considerable loss, about $11 million, against revenue of $94 million.

Still, the university did many of the things in vogue in higher education strategy circles. It diversified its revenue, branching out from relying on full-time undergraduates and adding graduate students and online muscle over the last decade. The university was still reporting total enrollment of nearly 6,000 students. Its foundation added net assets in 2018, growing from $11.2 million to $12.1 million.

And while it may have had an interim president, that interim president was Ries, who is well respected in higher education for implementing a tuition reset while he was at Concordia University in St. Paul. Tuition resets are controversial today, but the example of Concordia in St. Paul is often held up as a successful example of the strategy.

It didn’t seem to add up to Concordia University Portland being on the brink of closure.

“It strikes me as bizarre,” said Lucie Lapovsky, an economist and former Mercy College president. “It seems to have done the sorts of things that one would think are necessary.”

In some ways, the situation at Concordia University Portland appears similar to that of another small private university that decided to close last year. Green Mountain College in Vermont had done many of the things experts recommend: carve out a niche in the market, start offering online graduate degrees and refinance debt to relieve short-term stress on the budget.

Green Mountain was much smaller than Concordia, so the comparison is far from perfect. But the parallels may suggest that some colleges and universities struggle to execute sound strategies in the face of challenges.

“The big thing that strikes me is that in higher ed, we have chased the silver bullets,” said Rick Staisloff, founder and principal of the higher ed consulting firm rpkGroup. “It raises a reminder that even if they are the right things in the moment, the moment changes. You’ve got to keep with it, and you’ve got to build the muscle and the discipline to continue looking at whether you are being responsive to the world that you now operate in.”

It may also suggest that the popular strategies aren’t enough, at least in some cases. Many colleges and universities are built on a business model that assumes annual growth in enrollment, in revenue or in both. As the economy changes and student populations change, that model may no longer work.

“This idea of sustainability is a much bigger play,” Staisloff said. “Higher ed’s capacity to think about and build sustainable business models is, quite frankly, pretty limited.”

Red Flags

Even if Concordia University Portland is not a sign of a larger problem, its last decade was marked by several causes for concern.

Concordia University Portland advertised giving financial aid to nearly all of its students, a sign it might have been struggling to draw students willing to pay full tuition.

The institution struggled to meet agreements with its bondholders multiple times. The reason it was presenting to bondholders in 2012 was that it wanted to modify a bond covenant requiring it to keep a certain debt-to-equity ratio. Then in January 2017, the university filed notice that it had failed to comply with a coverage ratio covenant. It provided a certificate indicating “non-compliance with the provisions of the agreement … which constitutes an event of default under the agreement,” documents show. It’s not clear how the university navigated those events, but bond covenants can be renegotiated in such cases.

A short time later, in the fall of 2019, the institution needed to restructure its debt, The Oregonian reported Thursday. Concordia defaulted on bond covenants with a bank and the Lutheran Church Extension Fund. The fund bought Concordia's bonds from the bank. Its parent organization, the Lutheran Church-Missouri Synod, agreed to provide a $4 million line of credit to the university, the newspaper reported, citing synod Board of Directors minutes.

The synod board passed a resolution at a November meeting indicating it would not provide more financial help “until the university has substantively addressed the issues regarding the Gender and Sexuality Resource Center and brought its articles and bylaws back into conformity with the requirements of the Lutheran Church-Missouri Synod,” according to the newspaper. The synod has posted documents on its website stating that "God categorically prohibits homosexuality."

When The Oregonian reported on the resolution, spokespeople for the university and synod referred its requests for comment to each other.

Signs of tension between Concordia Portland and related institutions in the Lutheran Church have appeared in the past. The university has described itself in financial statements as “operated under the auspices of the Lutheran Church-Missouri Synod,” and the synod elects some members of the institution’s Board of Regents.

In 2017, Concordia University Portland posted a statement saying that the Lutheran Church-Missouri Synod asked it to consider becoming an independent Lutheran university. The university’s board decided to “move forward with an exploratory process,” the statement said.

It’s not clear how that process ended. Thursday, a spokesman for the synod disputed the idea that the university had been asked to become independent.

“The assertion that ‘In 2017, the LCMS asked Concordia-Portland to leave the Synod and become an independent university’ is incorrect,” wrote the spokesman, David Strand, in an email. “The LCMS can’t speak to any supposed ‘exploratory process’ of the Board of Regents, but I can tell you that no decision, proposal or recommendation was made by the Concordia University System or by the Lutheran Church-Missouri Synod regarding any significant changes at Concordia University-Portland.”

An important piece of the financial picture leading up to recent events is the university’s relationship with the Silicon Valley company it hired to operate its online graduate degree program, HotChalk Inc. A two-year U.S. Department of Education investigation into that relationship concluded in 2015, The Oregonian reported. A federal prosecutor alleged their arrangement appeared to violate laws preventing colleges from paying recruitment incentives or outsourcing more than half of any particular educational program.

The parties settled for $1 million. Under the agreement, they admitted no wrongdoing.

“To me, it appears to be a story of hubris based on online education growth,” said Phil Hill, a partner at MindWires Consulting and publisher of the blog Phil on Ed Tech. “That’s both about the school and the OPM relationship itself.”

Relationships with online program management companies have in some cases led to fantastic growth online. That addresses earlier financial and enrollment issues as new students from across the country pay tuition. Then, however, institutions sometimes believe they’re on Easy Street or at least out of the woods.

“There is no preparation or thought of, ‘What if the situation doesn’t last?’” Hill said. “The whole online market is changing. It’s no longer an ‘If you build it, they will come’ type of market for graduate programs.”

Audited financial statements show a steep drop in revenue at Concordia University Portland. In 2015, the university booked $148.4 million in revenue. Four years later, that total had declined by almost 40 percent, to $90.1 million.

One more sign of stress can be glimpsed through information revealed by the university’s regional accreditor. The Northwest Commission on Colleges and Universities was monitoring Concordia University’s finances. It was requiring the institution to submit resource reviews, although it hadn’t placed Concordia University Portland on probation or levied any other formal sanctions against it.

“The recommendation made by the financial resources review committee said, essentially, the committee accepts,” said Sonny Ramaswamy, president of the accreditor. “But continued monitoring. And I think, really, they have been essentially saying that Concordia is headed in the right direction, but we need to continue to keep track of them.”

Concordia University Portland provided its accreditor with no advance warning, according to Ramaswamy. NWCCU did not know until days ago that the university would be closing.

“We knew they were having some potentially major changes,” he said. But those were changes like restructuring and program cuts, not closing the doors.

Picking Up the Pieces

The ramifications of the closure will be felt throughout the Portland area and beyond.

Within the Concordia University system, leaders scrambled to tell students and the public that they were separate institutions from the closing university. The Lutheran Church-Missouri Synod did much of the same.

“Concordia, Portland, in substantive ways, is independent from the Synod, just as the Concordia University System is a separate corporation,” said the Synod’s spokesman, Strand, in an email. “The LCMS does not manage the school or its operations. We’re not intimately familiar with its finances. And the decision to close the school came from the Portland Board of Regents, not anyone here in St. Louis.”

The synod and one of its related entities are involved, though. In addition to all the details about lending becoming public, Concordia University Portland has said its northeast Portland campus will return to the synod and the Lutheran Church Extension Fund.

The Lutheran Church Extension Fund is a separate corporate entity from the Lutheran Church-Missouri Synod, although it is governed by the synod’s members and Board of Directors. It is tasked with providing financial resources and services to advance the synod’s mission.

The fund lent money to several Concordia universities. The Portland institution had the largest balance outstanding when the fund issued its 2019 annual report and offering circular -- $38.6 million.

Joseph Russo is senior vice president at the fund. It does not publicly share details about its loans, he said in an email.

“Lutheran Church Extension Fund (LCEF) has had a longstanding lending relationship with Concordia University-Portland,” Russo said. “We are saddened by the university’s decision to close. Concordia University-Portland reached this decision after it had conducted due diligence and determined that declining enrollment and financial problems necessitated a closure at this time in order to have the resources to finish the semester for the students and allow time for faculty and staff to consider their options going forward. LCEF did not pressure or encourage the university to reach this decision nor did LCEF call the university’s loans.”

The fund defers to the university “regarding the reasons and resources that are available related to the closure,” Russo added. He could not share some other details because of client confidentiality, he said.

Meanwhile, in Boise, Idaho, Concordia University Portland’s law school is in merger talks with other institutions. The law school, one of only two in the state, boasts of a 100 percent bar-passage rate, according to the ABA Journal.

Back in Portland, higher ed leaders pledged to help. They also wondered why Concordia didn’t reach out to make plans for students before announcing its closure. Offering a path for students and clear alternatives for them to finish their degrees would have saved them shock and pain. But that didn’t happen.

“I regret that, because, frankly, it makes higher education in general not look good to not take care of students,” said Wim Wiewel, president of Lewis & Clark College and former president of Portland State University. “Now everybody is scrambling.”