Exploring Options

Higher education institutions consider mergers amid financial instability

When the credit rating service Moody’s released its report in 2014 indicating that one in 10 public and private colleges is experiencing “acute financial distress,” it came as no surprise to the higher education community. With decreased funding and rising costs, as well as increased scrutiny over the value of a college degree, institutions of higher education are looking for creative ways to address the issue.

One such solution being considered by more and more colleges and universities — aimed at cutting costs and increasing efficiencies — is merging.

[Above:  The Student Center at Clarkson University, located in Potsdam, N.Y. (left) and Union Graduate College in Schenectady, N.Y. (right)]

“When we think about the market, there are more than 4,000 colleges and universities in the U.S. alone,” says Timothy Fournier, a managing director in the higher education consulting practice at Huron Consulting Group. “The population of traditional 18- to 24-year-old, first-time, full-time students is declining, so mergers and closures are going to happen until we reach equilibrium again.”

With the sheer number of higher education options available to prospective students, colleges are struggling to remain competitive. In addition, increased pressure to provide a quality education to more students amid skyrocketing overhead costs is leaving some schools on shaky ground.

“The decline [in funding] in some years has not been actually a decline in dollars, but it’s been a failure to keep the funding at levels that match the increase in enrollments and the increase in costs,” says Ronald Ehrenberg, an economist and the director of the Cornell Higher Education Research Institute at Cornell University.

While public and private colleges alike are faced with finding ways of overcoming these challenges, small private colleges are the most vulnerable, Ehrenberg says. “That’s where we will see the most potential for mergers and the most possibilities of closures,” he says.

With 1,600 private, nonprofit higher education institutions nationwide that have an average student enrollment around 1,900, these “tuition-driven” schools face unique challenges that come with smaller student populations. Faced with flat enrollments, some have been forced to make tough decisions that are made more difficult by strong opposition.

One such example is Sweet Briar College, a women’s liberal arts school in Virginia. When the college announced its decision to close in March due to mounting costs and falling enrollment, it faced harsh criticism.

Former Sweet Briar board member Paul G. Rice defended the board’s decision, saying, “We have moral and legal obligations to our students and faculties, and to our staff and alumnae. If you take up this decision too late, you won’t be able to meet those obligations.”

But the college’s decision to close was short-lived.

Alumnae quickly banded together to form the group Save Sweet Briar and, in just several months, raised $5 million to help save their alma mater. In June, merely three months after the school’s decision to close, the Virginia Attorney General announced that the college would remain open, with the stipulation that alumnae must contribute $18.5 million to the college over the next five years.

Sweet Briar’s predicament provides an example of how identity and heritage — as well as sentiment — can impede progress. While Fournier believes heritage and culture are important to any institution, he says that the future success of students should be a school’s major concern.

“In higher education, we believe our institutional culture and identity to be so unique, and … that makes it very difficult for any of us to be able to step back and put that baggage behind us,” Fournier says. “My belief is that institutions in some ways have a social compact with their students, an obligation to provide an educational program that enables students to move forward in their academic or professional careers. If an institution no longer does that … then that institution isn’t meeting the social compact.”

A Proactive Approach
Although small private colleges continue to struggle with enrollments that can’t keep up with overhead costs, many often wait till they are in the red before even considering mergers. However, some — like Montserrat College of Art in Beverly, Mass. — see value in exploring options early.

In September 2014, Montserrat, a private college with an undergraduate enrollment that hovers around 400 students, approached the larger public institution Salem State University about a merger. Montserrat, a 19-building campus four miles from Salem State, was looking to improve its programs in addition to strengthening its financial situation.

“I think there’s been a lot written lately about mergers and how institutions are smart to explore [this option] before their financial situation is so dire that no one would want to touch them, and I certainly think that’s the case with Montserrat,” says Scott James, vice president for enrollment management and student life at Salem State. “I think they recognize that they compete in an incredibly competitive marketplace and [that] one or two students make a big difference in their bottom line, and that’s a hard place to live.”

However, in July, after more than six months of talks, the schools announced their decision not to merge. While the arrangement initially seemed like a win-win for both — it would have allowed Salem State to expand its footprint and Montserrat to become more financially sound, while creating a bigger, better art program at Salem State — the numbers simply didn’t align.

“Philosophically and academically, program alignment was all there; geographically it made sense, from a facilities perspective it all made sense, but we just could not get the bottom-line finances to work out,” James says. “We were perfectly willing to say, ‘well, for the first couple of years, we might lose money on this venture, but it’s going to get us to a better place in the long run,’ particularly in terms of art facilities and strengthening our programs. But even when we modeled five and seven years out, we couldn’t get it to show a positive margin.”

Mergers, already difficult processes, are even more complicated when they involve both a private and public institution. However, Fournier says that finding complementary strengths — like the potential for expanding art education at Salem State because of Montserrat’s strong art background — along with having similar cultures and missions, are important elements to any successful merger.

“If you have an institution that’s really good in engineering and the other school’s very good in biology, you could come together and look at biomedical engineering,” he says. “If you’ve got two [schools] that are really good at mechanical engineering and nothing else, then you’re going to end up getting a lot of faculty resistance, and a lot of cultural resistance, because they know you’re not going to have both programs anymore.

“The mission and culture both have to be considered for both parties in the merger,” Fournier adds. “That’s not to say that they have to have an identical mission and culture — because they won’t — but certainly you want to look for complementary missions and cultures.”

Strength in Programming
Last year, the board of trustees at Union Graduate College (UGC), located in Schenectady, N.Y., began thinking strategically about the future of the institution and decided to search for potential partners for a merger.

When UGC reached out to Clarkson University, a private, nationally ranked research institution in Potsdam, N.Y., Clarkson jumped at the opportunity.

“We were at a point where we felt that to be more efficient, we needed to create a graduate school infrastructure, and we also were interested in connecting more strongly and more directly to alumni and corporations,” says President of Clarkson University Tony Collins. “Strategically, it matched up very well with our longer-term strategies, so it was mutually beneficial.”

While both schools have similar programs, Collins says that the arrangement will help strengthen their offerings and expand activities. In addition, he says that no layoffs or tuition increases are expected due to the merger.

“We’re not looking to lay people off or consolidate activities, so I think having both [institutions] in a financially strong position … is best for the people we serve, and that is our students,” Collins says. “You’ve got to put students first. You want the highest quality education; you want as many opportunities, alternatives, and a breadth and depth of offerings. I think all of those [are things] we can check off as positives for the merger we’re going through.”

Through the merger, expected to be completed in January 2016, the UGC campus will become Clarkson University Capital Region campus and will house all of Clarkson’s graduate programs.

Identity Assessment
In the case of Montserrat and UGC, both institutions recognized the benefit of assessing and evaluating their financial situations before they became too dire — a practice Fournier recommends.

“My belief is that every couple of years, every institution would be well served by thinking critically about its strengths, about its ideal student — the kind of students who succeed at its institution — and about its pedagogical approach and, through that very critical assessment, adapt what they’re doing to best meet the needs of those students,” Fournier says.

In recent years, the University System of Georgia has done just that, not just for one but many of its formerly 35 colleges and universities. In an effort to ensure it “has a 21st century structure with the right network of institutions offering the proper range of degrees,” the system’s board of regents began assessing the potential for multiple consolidations in 2011.

“My belief is that every couple of years, every institution would be well served by thinking critically about its strengths, about its ideal student — the kind of students who succeed at its institution — and about its pedagogical approach.”

— Timothy Fournier, a managing director in the higher education consulting practice at Huron Consulting Group

Using a set of six principles for determining if a merger is a viable option for select institutions, the system has completed five consolidations, with another one currently underway between Georgia State University and Georgia Perimeter College. These six principles consider a wide range of factors: educational attainment levels, accessibility and geographic location, students’ backgrounds, duplication of programs, cost and administrative efficiencies, and economic development, among others.

The system’s most recent merger involved the consolidation of Southern Polytechnic State University into Kennesaw State University (KSU). Ken Harmon, provost and vice president for academic affairs at KSU, says that the merger led to some “operational efficiencies” due to some layoffs of administrators and staff. He believes the merger serves to benefit students.

“I think [the merger’s] a good thing, and I think it will result in dollars being taken out of the administration function and being put right back into the classrooms, into the research labs, and into student support,” Harmon says. “As we put more dollars toward student life and the student experience, I think we can provide a more efficient education.”

He also believes the merger opened the door to more opportunities, in particular, for Southern Polytechnic students, whose previous academic options centered mainly on engineering education. Now with 13 colleges — 10 of which are degree-granting — KSU has options for students who may decide on a different path mid-academic career.

However, as beneficial as the Southern-Kennesaw merger may have been, it was not without criticism.

“I’d say there was a lot of resistance — you might even call it hostility — on the part of the Southern Polytechnic students and some of its faculty and staff,” Harmon says. “They were losing the name and the heritage of their university, so I think they felt like this was being imposed on them and something was being taken away from them.”

And while Harmon says layoffs were minimal — and no faculty were cut — this is not typically the case with large public mergers. “Often public higher education institutions are the major employer in an area,” Ehrenberg says. “If mergers lead to job cutbacks or eliminations of entire campuses, this will have a negative effect on the geographic areas in which they are located.”

A Bigger Piece of the Pie
Merging, though a difficult, lengthy process, can be especially difficult for small private colleges that place great emphasis on their identity. “Most institutions are not part of systems; they’re independent, so asking a bunch of independent institutions to think about merging sort of hits them in the face of who [they are]. It makes it very difficult,” Fournier says.

However, identity issues are fairly common at institutions of higher education. In fact, at schools that are experiencing declining enrollment and financial issues, Fournier says there often is a disconnect between who a school believes it is and who students perceive it to be. Sometimes, to counter this, schools attempt to appeal to more prospective students by adding a plethora of degree programs, leading to increased costs.

“Not everyone can be all things to all people,” says Fournier.

“Every organization evolves over time. Sometimes we … think we still have an identity that existed five years ago, but [it] is no longer relevant to the core student prospects we recruit,” he adds. “The biggest challenge is figuring out where we can differentiate our institution and how we can best communicate that to the students who best resonate with us.”

But small schools with low enrollments — and even some larger public institutions — are finding it harder and harder to compete in today’s higher education landscape. According to James at Salem State, maintaining enrollment is one of the most difficult issues institutions like Montserrat face.

“With a pie that’s getting smaller and smaller, they need to get a bigger piece of that pie to maintain their enrollment every year,” says James. “We certainly have the same pressures on us [at Salem State]. I do feel like we have to do more every year to attract the same number of students — to market to, recruit, and then retain [them].”

Brighter Futures
As colleges and universities face more and more financial challenges, mergers and consolidations will continue to offer a viable solution for some institutions — but not for all.

“I think there are mergers that are done simply to defer the hard decisions, decisions about whether to eliminate programs or close,” Fournier says, “and there are others that have come together in ways that are beneficial for everyone around, from students to fostering economic development.”

With the intention of cutting costs and increasing efficiencies, some institutions are considering other options short of mergers; some of these include cutting programs, partnering with other institutions on joint programs and sharing facilities, or even closing. Salem State and Montserrat, for example, have discussed similar ways of partnering, such as allowing students at both institutions to cross-register for classes.

But for institutions still considering merging, Ehrenberg cautions schools against making hasty decisions that could actually have the opposite of their intended effect.

“Mergers could be in the best interest if the merged institution is financially better off and provides more stability,” he says, “but … as in the corporate world, sometimes when there are mergers, the result is actually worse for both parties.”●

Alexandra Vollman is the editor of INSIGHT Into Diversity.