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Liberal Arts College Mega-Mergers

An alternative path.

November 28, 2018
 
 

Every week or two, we hear about a liberal arts college closing its doors or cutting faculty and programs. Everyone agrees that for the remaining schools, competitive pressure is only going to increase, with declining enrollments and increased discount rates ahead. Many scholars have predicted that between 10 percent and 50 percent of these small colleges will be forced to close over the next two decades. Which institutions will survive and which ones will close? And how do we respond to this reality? 

In today’s competitive market, a college’s ability to survive depends on three factors: location, endowment, and reputation. Here’s the harsh reality. A college possessing a great location, large endowment, and strong national reputation is going to thrive.  A college possessing only two of those strengths will face some challenges but should be fine, as long as they have sound and positive leadership.  A college possessing only one of those qualities is in for a very rocky ride, with a high percentage chance of failure.  And colleges that fail all three tests – colleges in a poor location, with no national reputation and a small endowment -- are doomed.  For schools in this last category, there is very little hope.  No matter how good their leadership, or how successful they are in explaining the  value of the liberal arts to the outside world, they are not going to find traction in today’s education market. 

If a college is poorly positioned, based on these three factors, what should the board of trustees do? You have only three options. 

Option one: you stay on your current path, survive as long as you can, slowly spend down your small endowment, and then close. This is the option most faculty (and some staff) will prefer, because it sustains their jobs as long as possible.  It is also the option most colleges will pursue, from sheer inertia. 

Option two: you abandon your traditional mission and try to reinvent yourself by becoming primarily a vocational or on-line school. This option will appeal to some trustees, for it most closely mimics what a for-profit business would do when faced with a declining market share.  There are, however, two problems with this approach.  First, it will require everyone in the institution to abandon their core belief in the value of the liberal arts.  Some trustees may be able to swallow this change, but many faculty would prefer to close rather than reboot the school along different lines, particularly if their discipline will no longer be offered.  Second, there is no reason to believe that new on-line or vocational schools with bad locations, limited reputations, and a small endowment are going to be any more competitive than small liberal arts colleges.  A few may find a sustainable market niche and survive, but most will not. 

That leaves option three: merger. Right now, there are probably 200 small liberal arts colleges facing potential closure over the next decade. If they follow options one or two, virtually all will close. But what if they merge? 

When we talk about college merger, we typically imagine two schools in the same geographical area throwing in their lot together.  This kind of merger is unlikely to change a college’s trajectory toward demise.  But what about a mega-merger?  What if ten small, uncompetitive college merged together to create one stronger entity? What would that look like?  What would that accomplish? 

Imagine that the boards of ten struggling colleges decided to merge and combine their strengths. They could retain one campus, in the most competitive location. The land of the other nine colleges would be sold off and the proceeds put into endowment.  If each school brought $25 million in endowment and land value to the deal, the resulting institution would possess a $250 million endowment, enough to support a small liberal arts college in the tough times ahead.  The newly merged institution would retain the best 25% of faculty, raising average teaching and scholarship quality.  Each college would name three trustees to the new board: hopefully, the best three from each campus.  College leadership could create a new brand or retain the name of one of the ten schools, if that name had market value.  The names of the other schools would be placed on academic buildings and dorms of the newly created entity, to preserve some institutional memory.  The result would be a strong college capable of continuing the liberal arts college mission into the future. 

Could this happen?  Yes. Will it?  Probably not.  The collective action problems are severe, and faculty and staff opposition would be intense. But wouldn’t this scenario be better for the liberal arts, long term, than an endless series of small college closures?  Wouldn’t it be better to have twenty strong institutions than two hundred failing ones? Wouldn’t it be better to preserve 25% of the teaching jobs rather than none? Shouldn’t colleges consider mega-mergers before it is too late? 

 

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