School Consolidation: Considerations and Alternatives
Things have been looking up in higher education. Schools have been able to manage and pivot as the pandemic evolves. Earlier this year, S&P Global revised its outlook for the sector to stable after four years of maintaining a negative outlook.1 Meanwhile, the sector has been boosted by federal emergency funding, record investment gains and strong fundraising.
Still, plenty of challenges are contributing to the trend of consolidation within higher education. Between 2016 and early February 2022, there were 71 closures and mergers among public and private nonprofit universities, predominantly among institutions with under 1,000 students.2 These closures are typically driven by a strain on limited financial resources in a competitive environment and shifting demographics.3 And while the pandemic accelerated the closures of some schools, it likely also delayed the closures of others that received significant HEERF funds to support COVID-19-related costs and pandemic-driven lost revenue.
Given that there are 3,928 degree-granting institutions in the U.S., this is a relatively small number and is significantly lower than the decline in for-profit institutions, which have decreased by 565 over the same period. 4 Nonetheless, Edmit determined there are 345 institutions considered “low financial health,” meaning these institutions are at risk of depleting their net assets in the near future.5
And for some schools, consolidation is an attractive option. But it’s hardly a simple proposition, and some schools may want to consider alternatives to maintaining their viability.
Key Considerations
The reasons behind mergers and acquisitions in higher education are typically the same for any industry—cutting costs, consolidating resources and increasing competitiveness. But there are also more specific considerations, including improving the student experience and adapting to changing demographic, political or economic realities. While merging private-sector companies are often focused on shareholder value, colleges and universities have to take other stakeholder considerations into account. Most notably, the impact that changes to their institutional identity could have on their board members, faculty, staff and students.
Creating synergies is often touted as a major benefit to school mergers. The most prestigious examples are Case Institute of Technology and Western Reserve University forming Case Western Reserve University, and the Carnegie Institute of Technology and Mellon Institute of Industrial Research forming Carnegie Mellon University—both occurring in 1967. Today, the most common mergers have been where a niche school is absorbed to become its own college within a larger university, such as a fine arts, law or theology school. This allows the larger university to expand its offerings and attract students to a field it didn’t previously offer.
Consolidating administrative functions or entire campuses has become more and more common for public universities. Back in 1974, the University of Wisconsin system combined with Wisconsin State Universities system to avoid program overlaps and enhance cost efficiencies. More recently, the University System of Georgia merged 14 of its colleges into seven institutions beginning in 2011 to free up more funds for student success initiatives.6 In the years following these consolidations, data has shown increases in student success with higher retention and graduation rates.7 Many other state systems have followed or considered merging institutions, include Maine, Connecticut, New Hampshire, Alaska, Vermont and Pennsylvania.
But such success isn’t guaranteed. Before considering a merger, schools need to weigh the pros and cons from perspectives of both acquirer and seller, as well as other factors.
Acquirer Pros
Acquisition of additional assets (and debt).
Acquisition of more students.
Brand expansion. Mills College, an all-women’s college in Oakland, California, agreed to be acquired by Northeastern University in Boston to create a bicoastal university. The deal is expected to be completed in July.8
Expanded programming.
Seller Pros
Preserve educational opportunities for students. A merger can allow students in financially distressed schools to complete their degrees, as opposed to being left with student loans and no degree.
Being acquired can create opportunities for (some) faculty to teach at the new institution.
The potential to preserve school identity as a college within a larger university.
Cons
The lack of buy-in from key constituents. Each school works to develop a unique brand to attract students and faculty to learn and teach at the institution. The idea of losing this identity can be a tough pill to swallow for many interested parties, including:
Faculty. Objections typically raised are job security, concern for students, maintenance of academic quality and lack of input during merger or closure discussions.
Alumni. We’ve seen a number of instances where alumni have attempted to fundraise to save a school from closure. In some instances, it’s not enough to sustainably maintain the school. In other instances, substantial financial support from alumni has saved schools from closure, most famously Sweet Briar College in Virginia.
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The board. Members typically join based on passion for the work being done by the school or their own memories as a student at the school, and they bring expertise to help the university be its best. Most boards will look at all possible options before weighing opportunities for a merger or acquisition.
Regulators, particularly accreditors or the state higher education commission. Valparaiso University had hoped to transfer its law school to Middle Tennessee State, but the deal was rejected by the Tennessee Higher Education Commission, resulting in the law school’s closure.
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Community impact considerations
Rural universities are often one of the largest employers in the area, and a school’s closure could have ripple effects for local businesses such as restaurants, shops, and arts and entertainment venues. The special purpose of the assets can also make mergers sometimes difficult and result in a school’s closure.
Finding alternative uses for shuttered campuses can be a challenge. After its 2018 closure, Concordia College Alabama’s campus was purchased at auction to be used for Christian missionary activities.11 After its 2020 merger with Boston’s Emerson College, Marlboro College’s campus in Vermont has become the permanent home for the Marlboro Music Festival.12 In some cases, however, there aren’t many options for such adaptive reuse.
The alternative: collaboration
For private institutions, consolidations are less feasible given their separate and distinct governing versus state institutions, which rely on more government support (and demands). Agreements among private colleges can look different based on needs. Several states have established consortiums to support public policy or purchasing power using economies of scale for independent colleges. Some extend further to shared academic and social opportunities.
In some cases, schools are finding benefits in their common histories and proximity. For decades, the University of Notre Dame, St. Mary’s College and Holy Cross College have shared close ties in these areas to enhance the student experience. The same goes for the suburban Philadelphia Tri-College Consortium of Bryn Mawr, Haverford and Swarthmore Colleges, which also offers cross-registration with the University of Pennsylvania (as well as shuttle buses and trains to connect these campuses).13 Also, articulation agreements with community colleges are common, with varying success based on both schools’ commitments to the relationship.
Regardless of an institution’s size, an in-depth analysis on mergers and acquisitions can be a beneficial exercise. For small universities, it can help the school understand its strengths, weaknesses and breaking points at which a sale or closure may be necessary. At the same time, it can help identify areas in need of strategic change that may help the school achieve long-term sustainability. Larger universities can use the exercise to assess new opportunities to expand geographically, its academic offerings, access to talented educators and its applicant pool.
4 National Center for Education Statistics
5 Edmit
6 Chronicle of Higher Education
11 Association of Governing Boards of Universities and Colleges
12 VermontBiz
Kathleen Belden
Vice President, Education
