Higher Education Consolidations in the Post-COVID World

Daan Braveman

Daan Braveman

  585.231.1403

  dbraveman@hselaw.com

Rochester Business Journal

Campuses have returned mostly to pre-COVID life, but the pandemic continues to impact institutions of higher education.

From Spring 2020 to Spring 2022, enrollment dropped 5.8% at public four-year institutions and 4.7% at private nonprofit four-year schools. Enrollment declined at many institutions, creating a financial strain that is only temporarily alleviated by the influx of COVID-related federal monies. The pandemic intensified and accelerated existing long-term challenges for higher education.

Even before the pandemic, many predicted significant enrollment declines over the remainder of this decade because of changing demographics that include a decline in the number of students graduating from high schools. Additional disruptive forces, including declines in international student enrollment, an increase in the number of students who decide against higher education because of cost concerns, growth of online programs, and an emerging narrative that questions the value of a college education are also impacting enrollment.

Tuition-dependent smaller colleges are most likely to be affected by these challenges. The typical response is to increase scholarship assistance to help attract additional students. Even if successful, however, this strategy often results in lower net tuition. As a result, schools are required to make cuts in programs, staff, and faculty.

In the most extreme cases, schools will be forced to close or merge with another institution. One expert predicted that one half of schools will fail by the end of the decade while another expert estimated that 500 will close. Many believe that these estimates are too high but agree there will be a significant rise in the number of failed institutions. According to a recent Wall Street Journal article, there have been 95 college mergers in the past four years compared to 78 over the previous 18 years. This trend will intensify in the next several years.

In a previous column, I suggested that institutions of higher education should consider strategic partnerships, including shared administrative services and collaborative academic programs. While it may be controversial, I believe that schools faced with long-term disruptions in higher education should also proactively consider a potential consolidation with another institution as one possible strategy well before they are in an extreme position with little to offer a partner school.

One report observed that other industries, such as healthcare, banking, automobile manufacturing and electronics manufacturing, responded to disruptive forces with “an unprecedented wave of mergers.” In contrast, higher education institutions are reluctant to explore this alternative. Every part of a campus community — faculty, staff, students, administrators, alums, and trustees — is likely to oppose a consolidation. This opposition is certainly understandable given that members of a campus community develop deep emotional ties with their schools.

The decision to move forward with exploring a merger ultimately lies with the board of trustees, which is often comprised of alums who agree to board service precisely because of such strong sentimental connections. As one study noted, few members of the community want to contemplate the disappearance of their school and alma mater even if it is in the best interests of the institution.

In addition to the deep emotional attachment, faculty, staff, and students may well have legitimate concerns about differences in the culture and mission of the partner school, as well as the quality of the experience in the resulting merged institution. Faculty and staff also will be worried about their future employment. In resisting a consolidation, they may ignore the likelihood that some of these very concerns will be present if the school is required to make significant cuts or even close.

Despite the expected resistance, a consolidation should be among the strategies explored, especially if the alternative is slashing budgets or closing the institution. There may be additional reasons, independent of dire financial troubles, to pursue a consolidation. In the past few,years, for example, several states have considered consolidation plans for their public universities to promote efficiencies.

A recent discussion of mergers observed that some institutions may consider consolidation to expand into new markets, as evidenced by Purdue University’s acquisition of the online Kaplan University. Similarly, a merger may provide opportunities for an institution to expand program offerings to its students without the need to incur the substantial costs associated with developing programs that a potential partner already offers.

Initiating a consolidation discussion is an especially delicate matter. A school may be reluctant to even initiate a preliminary discussion because it may suggest a weakened position and negatively impact the school if the discussion becomes public in the very early stages. While I am aware of one school that sought proposals for consolidation by sending a RFP to several other institutions, in most instances the discussion is initiated through private, confidential conversations between campus leadership or trustees.

A consolidation may take a variety of legal forms and is a complicated, lengthy process. It needs approvals by the boards of the partnering institutions, the accrediting body, the state board of education, and the courts (to resolve endowment or other matters). A list of the many details that must be addressed is too long to cover in this column. The following essential elements, however, are at the very core of any consolidation:

  • The missions and values of the schools must be compatible.
  • The consolidation must make good sense financially and
  • Sensitivity must be given to the histories and legacies of the partnering schools.

A TIAA report added that a successful consolidation negotiation requires a “committed and understanding governing body; the right leadership; an appropriate sense of urgency; a strong project management system; a robust and redundant communication plan; and sufficient dedicated resources.”

Notwithstanding the complexities, schools should include the possibility of a consolidation as part of their strategic planning to address emerging challenges. In some instances, consolidations can lead to expanded academic opportunity, reduced expenses, increased efficiencies and, most importantly, added value and benefit for students.

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