Drexel is cutting staff and benefits as it faces a $63 million operating loss and 15% fewer first-year students

Drexel University enrolled 500 fewer first-year students this fall than it did last year, a 15% decline that equates to a loss of $22 million, university officials said Monday.

That drop is among a series of financial pressures that have led the private university in West Philadelphia to announce plans for reductions in employee benefits and personnel, largely through a voluntary retirement program and the elimination of vacant positions.

Staff and administrative layoffs — not including faculty — also are under consideration for later this year to help resolve what university officials said is about a 10% “structural imbalance” in its $1.5 billion budget.

With ongoing revenues falling short of ongoing expenses, Drexel is facing a total operating loss of $63 million in fiscal year 2024. The university is still expected to end the year in the black — though the audit is not yet final — due to its merger with Salus University and strong endowment returns, said Helen Bowman, executive vice president, treasurer, and chief operating officer.

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Through a combination of expense reductions and increased revenues, the university is aiming to come up with an extra $150 million annually over the next three years — $105 million of which university officials say they have already identified.

“Our financial challenges are considerable,” university leaders said in a message to the campus community on Monday. “New and recurring revenues have not kept pace with recurring expenses.”

The $22 million loss due to the first-year enrollment decline has added “to our current operating budget deficit, which we must close as soon as possible,” the message said.

Drexel’s first-year enrollment for the 2024-25 year is 2,350, though that could change some when official census is taken in a few weeks, officials said. Overall, Drexel’s total enrollment increased by about 2% to 22,100, largely due to its Salus merger, which brought in 1,100 students. Another factor was an increase of 110 transfer students, 75 of them from the now closed University of the Arts.

The announcement came on John A. Fry’s last official day as Drexel’s president and as Denis P. O’Brien officially prepares to assume the role as interim president Tuesday. Fry, who led Drexel for 14 years, begins as president of Temple University on Nov. 1.

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O’Brien in an interview Monday afternoon said Drexel is facing some of the same serious challenges as other colleges, including “unfavorable demographics, rising costs, public skepticism [about higher education] and governmental scrutiny.”

“Our revenues and our cost structure are not in the right place,” he said. “So we’re going to have to make some changes and do some things to get ourselves in a more resilient and sustainable place financially.”

Bowman and O’Brien each blamed the decline in first-year students on ongoing problems nationally with the Free Application for Federal Student Aid (FAFSA). A third of Drexel’s students are eligible for Pell grants geared toward low-income families, and at least half apply for federal financial aid.

However, some colleges in the region — Temple, Rowan, and La Salle — saw double-digit percentage increases in first-year students this year, despite the FAFSA challenges.

“We’re a large first-time, first gen population [university] and large need-based aid, and so therefore FAFSA impacts institutions like Drexel more than it would other institutions that don’t have that makeup,” Bowman said.

First-year tuition and fees at Drexel run about $62,400.

Drexel has increased student aid, Bowman said, noting that of 21 peer institutions, Drexel is now the 17th most expensive, down from third most costly 13 years ago. Mental health and advising services and cybersecurity costs also have risen, she said.

The university has experienced a drop in net tuition revenue. In 2023, net tuition revenue stood at $610 million — $17 million less than it was in 2015.

Malpractice settlements have also contributed to some of the financial crunch, Bowman and Fry have both said. The cost was $22 million this year.

“This year should be the last year of those large hits,” she said.

The university also is paying $35 million annually for its health sciences building lease, a crucial investment that hasn’t yet begun to pay for itself, given a drop in nursing enrollment post-pandemic, she said.

“We just need to get nursing enrollment back and we’ll more than be able to afford that,” she said.

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Drexel already has identified $80 million in cost reductions, including space consolidations and cuts in benefits, such as the school’s decision last month to withdraw from the SEPTA Key Advantage program that gave faculty and staff large discounts on all-access transportation passes. Drexel said the service was too costly.

Earlier this month, Drexel asked several deans to step down as part of a consolidation of two colleges and one of its schools into a new entity, part of a larger academic restructuring that also includes moving from a quarter system to a semester system over the next three years. While the restructuring isn’t driven by the budget crunch, it’s likely also to lead to some savings, Bowman said.

The university also will continue to refrain from nonessential hiring and travel and is looking to end some leases, she said. A voluntary retirement incentive plan announced in June is also expected to yield savings, Bowman said.

“As is the case for any organization, personnel costs for salaries and benefits make up the largest share of Drexel’s operating expenses,” the university message said. “Therefore, we must make the more difficult decision to reduce our workforce and adjust our employee benefit program.”

Program cuts also are possible if they are not drawing enough students, she said.

On the revenue side, the university has identified $25 million in additional revenues to go after, including attracting more graduate students. It also is looking at selling or leasing property, possibly at its Center City or Queen Lane sites, and new or expanded partnerships such as the Salus merger.

O’Brien said Drexel will weather the financial difficulty and noted that the school earlier this month improved 12 spots in U.S. News and World Report rankings to number 86 of national universities.

“We have a great team here … and we will succeed,” O’Brien said.