A Plan to Save Small Colleges

The notice of a college closing is almost a weekly occurrence now. We have known for more than a decade that the combination of a declining number of high school graduates and tuition and fees that are too costly for most lower- and middle-income families would result in significant decreases in enrollments. Fighting over a declining number of available students with ever-increasing tuition discounts is a doomed strategy. Recruiting more adult students has been a stopgap for some institutions, but the competition for these students is now intense and dominated by the online behemoths. And the number of potential graduate students in their 20s and 30s is now starting to decline as well.

The challenges are significant. But there is a way to increase the probability of survival for many small colleges or spare them from a spartan existence. It involves groups of colleges affiliating under a particular structure that would facilitate both (1) a significant reduction in operating costs for each college and (2) a rationalization of each college’s academic offerings to concentrate on its strongest programs.

Before considering a proposed solution, one might ask if it is worth saving these smaller colleges. I suggest we need to save some of them and not just the few highly endowed ones. The strength of the higher education system in the United States has long been the diversity of types of institutions, with a variety of pedagogical and developmental approaches. In many other developed countries, higher education is much less expensive or it’s free; however, it mostly relegates its students to large, publicly supported institutions, where individual support and attention are rare.

In our country, large public institutions work for some students who have the desire and self-discipline to take advantage of the university’s resources. There are many students, however, who are more likely to thrive academically and develop personal traits that will make them active, engaged citizens in a college that offers small class sizes, individual attention from faculty (including faculty mentors for every student) and personal and academic support systems that can compensate for high school experiences that may have been mediocre or worse.

The institutions that have large endowments are too few to meet the demand for this kind of personalized education. Ironically, the small, tuition-dependent colleges also enroll and graduate a higher proportion of low-income and underrepresented minority students. The elite small colleges provide generous financial aid to enrolled students who demonstrate the need, but for most of them (with a few exceptions), 40 percent or more of their students pay the full, exorbitant price of tuition. In other words, the rich institutions get richer by catering to the upper echelons of the income distribution.

Therefore, it is important to maintain the stability of many of the small and medium-size colleges that are so important to the vitality of their surrounding communities and educate a population that will reap the greatest benefit from the education and the credential that goes with it.

How do we prevent some of these important institutions from disappearing over the next decade? My proposal is that clusters of three to five colleges join forces as part of one organization under an integrated supporting-company structure. A nonprofit supporting company would become the sole member (think of it as tantamount to a sole shareholder) of each participating institution. The colleges partnered in this supporting company structure would each retain their names, identities, accreditation, audited financial statements, assets and liabilities, and fiduciary boards of trustees. Obligations would not be cross-collateralized.

The process of building such a structure involves forming and naming a new nonprofit corporation (the supporting organization) for the purpose of supporting and coordinating the functions of the member colleges. The supporting organization would be overseen by a board comprised of representatives of the partnering institutions, perhaps augmented over time by independent trustees. The supporting organization would have limited reserve powers with respect to the member colleges, such as approval of major corporate transactions, the purchase or disposition of major assets, agreements between members and changes in member college bylaws. Once the supporting organization is established, each member college becomes part of the group through a simple change in its bylaws to make the supporting organization its sole member and to document the reserve powers of the supporting organization. The process is quicker, simpler and requires fewer external approvals than a merger or acquisition structure.

The supporting organization would operate a systems office that would provide shared services to all member colleges in many administrative areas—such as information technology, finance, human resources, career services, institutional research and legal services. Each individual institution would pay its fair share of the cost of these services, which would be substantially less than what those services cost them now.

Additionally, each college would, over time, be able to focus on its strongest academic offerings—from both an academic and a financial point of view. Most small colleges have responded to the competitive enrollment environment by adding programs at both undergraduate and graduate levels. They typically offer dozens of discrete programs, most of which have a limited number of enrolled students and lose money because small classes do not cover the cost of faculty and other academic expenses. As part of a group of cooperating colleges, each college could transition to offering only its five or 10 most successful programs—based on academic reputation, enrollment and contribution to overhead costs. It is very difficult for colleges to make this transition on their own. They would need to teach-out students in the programs they sunset, lay off or reassign faculty, and suffer the temporary loss of revenue from the closed programs until the concentration on the stronger programs replaces those students. As part of a group, they could agree which institutions would continue to offer which programs; they could teach smaller classes across the several colleges, increasing the class sizes to a profitable level.

In the health-care industry, the practice of uniting several hospitals (or other health-care organizations) under a similar structure has long been a successful strategy and has allowed some hospitals to thrive that might otherwise have struggled to survive or maintain a high quality of service. In higher education, the one clear example is the Community Solution Education System (formerly known as TCS), a group of six institutions operating under a supporting organization that provides integrated, centralized services and opportunities for collaborations across the institutions. More recently, Otterbein University and Antioch University have joined forces under a version of the supporting organization model and are currently in the process of implementing the partnership.

As evidenced by the success of this strategy in health care, by the stability of the Community Solutions Education System and even by the 99-year history of the Claremont Colleges, other groups of colleges could adopt this strategy and enhance their long-term sustainability—without the specter of closing or seeing their assets subsumed by a larger institution.

The strength and vitality of America’s higher education landscape is threatened by the potential loss of too many of our smaller institutions that teach the students who would most benefit from their personalized approach to education. The rapidly changing higher education environment puts many, if not most, of these institutions at risk. By joining forces in modest clusters of institutions, smaller tuition-dependent colleges may continue to offer their time-tested approach to students who thrive in that kind of caring educational environment.