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By just about every objective measure, the $88-million in debt that Wartburg College has carried since late 2005 poses a risk.
The college's debt load -- twice the amount that it takes in annually from tuition and other revenue -- has raised red flags with its accreditor, alarmed some faculty members, and left Wartburg with a credit rating just one notch above "junk."
It has also created some tensions with the citizens of Waverly, in northeastern Iowa, where the campus is located.
And with Wartburg's already modest endowment beaten down by a third in the past year from its high of $50-million, the college could soon find itself in violation of a bond covenant requiring it to have at least half as much in unrestricted assets as it has in debt and other liabilities.
College officials say that they are able to meet debt payments, and that even if investment losses do trip the covenant at the end of the fiscal year, in May, they don't expect repercussions, because the college's overall financial condition does not endanger the health of the bonds.
"Yes, we have high debt," says William E. Hamm, interim president. "A riskier position to be in, frankly, is to have insufficient enrollment" or inadequate facilities.
The new amenities the college built with its borrowing are attracting students, he says, noting that enrollment, now about 1,800, has been growing.
Signs of Trouble
But some of the financial stresses from that debt are beginning to show, particularly in the college's hometown, and indirectly from students. Two weeks ago, more than half the student body rose at dawn for a protest at Mr. Hamm's campus residence. The students planted small red flags imprinted with their grievances, which included an increase in tuition.
Some neighbors are even more unhappy. The town collaborated with the college on a jewel-in-the-crown amenity, the $30-million Wartburg-Waverly Sports & Wellness Center, which opened just over a year ago.
Now some of Waverly's 10,000 residents are upset that taxpayers are having to cover not only the minimum $150,000 a year the city promised to pay, but also the full additional amount, of up to...