Long -term debt in college and university institutional finance

The purpose of this study was to analyze institutional long term debt in four-year colleges and universities in the United States for the years 1988 through 1996, to explore whether financial leverage due to long term debt changed during this period, and to examine relationships between long term debt, financial leverage and other financial variables.;A conceptual framework for interaction between long term debt, risk, and financial leverage in the capital structure of nonprofit organizations, as outlined by Gerard J. Wedig, was used to identify relevant variables. Predictor variables for the study were annual revenue, value of endowment assets, value of facilities and equipment, and reporting year. Outcome variables of interest were outstanding long term debt and financial leverage, defined as the ratio of long term debt to the sum of long term debt and accumulated fund balance.;College and university financial data as reported in the annual Finance Survey of the Integrated Postsecondary Education Data System (National Center for Education Statistics, U.S. Department of Education) for fiscal years 1988–1989 through 1995–1996 were the source data. Approximately 730 private four-year institutions and approximately 370 four-year public institutions reported having long term debt.;For all private colleges and universities, the mean financial leverage ratio increased from .143 in 1988–1989 to .184 in 1995–1996. The mean ratio increased for all public institutions from .120 to .136. A multiple regression analysis of long term debt on the predictor variables indicated that 82% of the variation in debt among private institutions was related to the predictors. Among public institutions, the predictors explained 78% of the variation in debt. Variation in the predictors explained 2% of the variation in the leverage ratio for both private institutions and public institutions. Data analyses are also presented by Carnegie institutional classification.;The results of this study can be used by policy analysts examining trends in the financial viability of colleges and universities. College and university administrators can use the results in financial analysis and planning to compare debt and financial leverage characteristics of their institution to average characteristics of institutional groups similar to theirs.