CINCINNATI — Union Institute & University has canceled the first half of its fall term as it tries to satisfy U.S. Department of Education concerns over unpaid student loan refunds from July.
While school officials say there are no plans to close, the Higher Learning Commission raised “serious concerns” about its ability to “support its educational programs” by adding a “financial distress designation” to its accreditation Sept. 7.
Union Institute Vice President Tom Frederick told students and faculty via email Friday that it will resume classes with the start of its “fall 2” term Nov. 6.
“We have not yet obtained the necessary funding to begin the fall term as planned,” he wrote. “While this news is not what any of us wanted to communicate, please understand it is necessary for both our students’ well-being and the long-term future of our university.”
In the meantime, faculty members have gone without pay since mid-July and without health benefits since the end of June, said Corina Smith, a Los Angeles-based, full time faculty member in Union’s criminal justice program.
“We had three separate employees go to have prescriptions filled (and) were told very specifically by the pharmacy that they had no coverage,” Smith said. “Those three employees immediately called United Healthcare and it verified they are not insured, retroactive back to June 30, 2023.”
Smith today called on Union Institute to furlough employees so they can file for unemployment benefits. She also wants the school to help its students complete their degrees — or help them find other schools that can.
“I have single moms who will not be able to test for their clinical testing to get licensing in January if these classes don’t go forward. And it’s just devastating to hear their stories. It keeps me up at night,” Smith said.
Union Institute has struggled to pull itself out of a cash crunch since March, when employees first complained to the WCPO 9 I-Team that they hadn’t been paid since Feb. 24. In April, employees filed a proposed class-action lawsuit alleging the school violated the federal Fair Labor Standards Act.
As Union contested those claims, it continued to sporadically miss payrolls through July, when students alleged the school used their student loan refunds to pay employees instead. In August, the federal education department placed Union on heightened cash monitoring, withholding future student aid payments until it proved all refunds were paid.
Initially, Union Institute President Karen Schuster Webb blamed “disbursement problems” and “unpaid tuition” for its cash flow problems. But it’s now clear the problems ran much deeper than that, based on the WCPO 9 I-Team’s review of tax returns and audited financial reports.
The I-Team’s analysis shows four straight years of operating losses eliminated 79% of Union’s cash reserves even though the school got a huge increase in government grants following the pandemic.
2018
Dr. Karen Schuster Webb joined Union Institute as its 6th president on July 1, 2018, replacing the retiring Roger Sublett, president since 2003. When Sublett retired June 30, Union had $6.3 million in cash and a $3 million endowment. It posted net income of $156,915 on revenue of $19.6 million in Sublett’s final year.
2019
In its first full year under Webb’s leadership, Union revenue declined 20% to $15.8 million and it posted a $1.7 million loss. Union spent $1.1 million less on salaries and $290,000 more on contracted services, according to its audited financial statements.
It also cut its advertising budget by 14% while spending 25% more on facilities and maintenance.
2020
Union’s annual loss increased to $2.6 million in the year that COVID-19 lockdowns began, prompting its auditor to “raise substantial doubt about the University’s ability to continue.”
In its notes to Union’s annual financial statement, BKD Advisors cited “recurring losses, liquidity concerns and negative cash flows from operations over the past two years.” It also said the school no longer complied with the liquidity terms in a $2.4 million mortgage on its headquarters building at 440 E. McMillan. Union cured the potential default by promising to sell the building.
2021
After listing its headquarters for $5.4 million in February 2020, Union sold the building and some additional parcels at a $681,862 loss in June 2021. The $4.7 million sale enabled Union to pay off $2.7 million in bank loans and end the year with only $8,766 in debt.
Also helping the bottom line was pandemic aid: Union averaged $4.1 million in government grants in ’21 and ’22, compared to $535,000 in the four years prior. That boosted 2021 revenue 16% to $17.9 million, but the school still lost $794,018 for the year.
2022
Union lost $539,668 in the 12 months ending June 2022, bringing its total losses under Webb’s presidency to $5.6 million. The university had $5 million less in cash reserves and its $2.1 million endowment was 31% smaller than its value at the beginning of Webb’s tenure.
Other striking differences: Revenue from tuition and fees declined 41% to $10.5 million over four years while program service expenses increased 2% to $15.4 million.
Tuition data from the National Center for Education Statistics show two troubling trends for Union: Total student headcount declined 36% to 1,169 between the fall of 2017 and 2021, while full-time enrollment fell 69% to 212 students.
Union has yet to release financial statements for the 2023 fiscal year that ended June 30, but we already know rising debt levels will be part of the story. That’s because its 2022 financial statements described a series of loans with increasingly onerous terms.
In April 2022, Union established a $600,0000 revolving line of credit with Fifth Third Bank. On Aug. 9, it increased the loan amount to $1 million. The variable rate loan carried an 8.5% rate in June 2022. Also on Aug. 9, Union borrowed an additional $200,000 with a separate loan that was 0.75% higher than the original line of credit. Union pledged its Fifth Third investment account as collateral for both loans, which had to be paid off by January 2023. The bank declined to comment on the loan’s current status.
In December 2022, Union borrowed $250,000 from one of its landlords. The loan carried a 12% interest rate and had to be paid by April 2023. Two Union landlords have since sued the school for nonpayment of rent. Neither mentioned a $250,000 loan in their eviction complaints.
In January 2023, Union signed two merchant cash advance agreements in which it received $750,000 up front in exchange for $1.1 million in future accounts receivable.
Both agreements led to lawsuits in May, alleging Union failed to pay. One lawsuit was dismissed. The other is still pending.
How much is still owed from the $2.2 million borrowed between April 2022 and January 2023? That is not clear. But Union also wasn’t done borrowing.
A Phoenix company told WCPO in April that it loaned Union $1 million in exchange for an undisclosed percentage of the roughly $3 million in employee retention tax credits the school was expecting from a pandemic-era relief program.
“Right up until the time President Webb was hired in 2018, Union Institute & University was in positive cash flow,” Smith said. “And then we fell immediately off a cliff. The faculty and staff are quite dismayed that this president time and time again blamed the students for not paying their tuition … It’s a complete lack of leadership and a failure of fiscal management.”
