Facing the Future: Consolidations, Partnerships, and Mergers in Higher Education

Moody’s Investor Services recently asserted that the rate of colleges and universities that will go out of business is likely to triple annually in the years ahead. Small, private independent institutions of 1500 students or less will find it increasingly challenging to meet enrollment goals. What are educational institutions doing to address this projected future?

To build toward sustainability, schools will continue to increase online programs. Mergers will occur, as will acquisitions and purchases of non-profit schools by proprietary institutions and groups. Nontraditional adult learners will be a premier target audience for enrollment and admission. International student recruitment methods and practices will change, due to travel bans, visa problems, and xenophobia. It is expected that international student enrollment will decline this year, as it did in fall 2017. Higher education leaders are understandably concerned with the present and future viability of their organizations.

In the face of the present challenges, traditional economic models in higher education are changing. Universities must balance costs, quality, and sustainability, on the one hand, with innovation and compelling learning experiences, on the other. Colleges and universities are increasing considering and engaging in consolidations, partnerships, and mergers to decrease costs, enhance institutional strengths, and acquire infrastructure required to effectively deliver programs and support services.

By consolidating underperforming or noncompetitive offices or programs, some colleges and universities seek to add to their mutual capacity for producing educational effectiveness. Those schools may find that by consolidating, say, their individual offices of the registrar or financial aid into a single office that serves both institutions, they attain greater efficiency of function at a reduction of cost.

Entering into partnerships with third-party educational vendors is not uncommon today and is likely to increase. A few customized models are worth mentioning. Vendors, Wiley Education Services, among others, offer, as part of their partnership selections, customized models: fee for service, co-investment, and tuition revenue share, to name a few.

The fee for service model provides services and solutions for support of specific projects. Targeting needs to be addressed may include enrollment management or program development. This model is best suited for educational institutions that possess developed infrastructure, capital, and resources.

The co-investment or “risk sharing” model has both the third-party vendor and the university making joint investments in an educational project’s start-up costs and ongoing expenses. The university can pay either a flat amount annually or a portion of the projected expenses. This models best serves a school that has some infrastructure, capital, and resources to effectively maintain projects.

The tuition share partnership option has schools providing a share of its tuition generated revenue to the vendor. This partnership model option requires a limited up-front investment by a school and therefore carries lower risk. The vendor provides a suite of student life cycle support of a wide range of university services. This model works well for schools with limited infrastructure, capital, and resources.

While the consolidations of offices or academic programs or the entering into customized partnerships with educational third parties allow universities to maintain their distinct identity defined through their mission, vision, and values, mergers are a more radical option that may or may not result with their school’s brand identity and tradition intact. In the face of inevitable closure or acquisition by another institution, schools may intentionally choose to merge. Mergers can be beneficial to both organizations or not. Leadership and bargaining strength play significant roles in such outcomes.

In 2017, the financially struggling 130-year old Wheelock College and its neighbor Boston University announced they had merged. In that case, the merger proved mutually positive, as the smaller Wheelock maintained its name, tradition, and niche in the field of educational psychology. A portion of Wheelock’s staff and faculty moved over to be employed by Boston University. As a result of the merger, it is now the Wheelock School of Education and Human Development-Boston University. A much different scenario took place at Mount Ida College, where a merger resulted in the loss of the college’s name and educational identity. Its 84 acre campus was divided up among different members of the Massachusetts State University System. Unlike the situation at Wheelock, alumni of Mount Ida have no current school to which to identify and support.

In the face continuing costs, dwindling enrollments, increased competition, failing public confidence, and a capricious economy, higher education leadership is well advised to consider multiple option scenarios that should include consolidations, partnerships, and mergers. Even so, small schools without a substantial endowment or ongoing financial subsidy will continue to close.