When tiny Sweet Briar College in Virginia tried to close last year, the state’s Attorney General got involved and eventually it was saved. Just about five institutions, on average, have closed in recent years, according to Moody’s Investors Service. Many of those closures have occurred among for-profit colleges, which have come under government scrutiny for the high debt and lackluster employment outcomes of their graduates.
But there are many non-profit colleges and universities that face mounting fiscal challenges, too. Recently, I contributed to a study by Parthenon-EY Education that found more than 800 campuses exhibit a range of risk factors putting them in jeopardy of closing. Those risk factors include enrollments under 1,000 students, discounts that reduce tuition by more than 35 percent, and high debt payments for campus improvements that have been made in recent years. Not surprising, nearly 80 percent of the troubled institutions are small colleges — with fewer than 1,000 students — but 9 percent of them have more than 10,000 students.
“We found small and large colleges that are thriving because they have either found a strong niche or they operate at a large scale,” said Seth Reynolds, a managing director of Parthenon-EY Education and one of the contributors to the report. “But for most institutions, the path forward is not one that they can take alone. They need to shift their mindset and consider collaboration in ways they haven’t before.”
The report notes that the biggest declines in enrollments since the Great Recession have been at small colleges, those with fewer than 1,000 students. Such institutions account for 40 percent of campuses in the United States. Since 2010, their enrollment has fallen by more than 5 percent. Nearly all of the 72 colleges that have closed their doors in the last decade had enrollments of less than 1,000 students.
One reason is that tuition discounts students receive at those schools weigh more heavily on the bottom line. Even a small decline in enrollment can have dire consequences given tuition dollars make up 56 percent of the revenue at small colleges, compared to 42 percent at colleges with more than 5,000 students.
The idea of mergers and acquisitions is rarely talked about in higher education. College leaders think of such partnerships as nothing more than neighboring colleges sharing so-called back office operations, such as purchasing or police forces, or on the academic side allowing students to take classes at nearby colleges.
The study notes that the market for students can no longer support the number of institutions operating today. That’s particularly true given higher education is still largely a bricks-and-mortar industry. In states where the population is shrinking, the Northeast for example, colleges have excess capacity, while in states like California there are not enough seats at public colleges for all the qualified students who get admitted. Unlike a retail store, colleges can’t just close up shop in Massachusetts and move to California.
As a result, this perilous economic future facing hundreds of colleges and universities requires them to consider “much deeper partnerships than higher education has ever seen before,” the study concluded.
The report gives examples of mergers in higher education that have largely worked when officials have focused on improving quality or giving students more academic options, not simply ensuring survival of the institution. Such was the case when the financially struggling Monterey Institute of International Studies, which offered only master’s degrees in international affairs, merged with Middlebury College, which had strengths in language instruction and international studies.
Higher education leaders seem to think that mergers and acquisitions are potentially a good strategy for the future. A survey conducted for the Parthenon-EY study found that 85 percent of campus leaders said they have engaged in some type of collaboration. But the same survey found that the biggest obstacle to deeper partnerships is pushback from various constituencies, including trustees, faculty members, students, and alumni.
For a sector that has been around since before the founding of the country, tradition is perhaps the biggest barrier to change in higher education. But if the current rich diversity of the American higher-education system has any hope of existing another few centuries, campuses needs to rethink their long-held position that the best way to survive is to operate on their own.