Benefits of a large-scale private college alliance (2nd in a series)

Benefits of a large-scale private college alliance (2nd in a series)

(1st in the Series:  Framework for a multi-college alliance, merger, joint venture, or operating agreement)

2nd in the Series: Benefits of a Multi-College Alliance

In our first article, we proposed a 7-point framework to bring 10 or more private colleges into an alliance.  This alliance could take the form of an operating agreement, joint venture, merger, or other mechanism.  Ten or more private colleges and universities would initially consolidate support operations to be followed by academics.

The work to bring 10 or more private colleges into some form of alliance will be stunningly difficult.  The reaction from stakeholders will be mostly negative and the protests will be loud and the reaction rapid.  However, our work shows the economies of scale cannot be successfully achieved with consolidation of a smaller number of organizations.  

With all of the projected trials and tribulations, a large-scale alliance is still the right thing to do for small to medium-sized private colleges. Maintaining a parochial model substantially increases the risk of closure and/or forced liquidation of assets.  Our College Viability App reports provide higher education leaders with customized finance, enrollment, and outcome data for the last six years with data from the National Center for Education Statistics.

Here are some benefits of our proposed model.

Expenses can be scaled to provide better cost management than stand-alone entities.  This one has been shared often, but its economic truth remains.  The duplication of leadership and administrative functions are not economically viable for small to medium-sized private colleges.  Consolidation of these positions and functions will allow for increased resource for academic quality and delivery.

Academic sections can be combined with online and other technologies.  As a rapid reaction to the pandemic's impact on academic enrollment, colleges should start this right away.  Colleges can work with potential alliance partners to share low-enrollment online or remote sections of courses.  Instead of having one section with low enrollment, combine online sections across multiple campuses.   The net revenue will go up and the labor costs will not.  An operating agreement based on a colleges percentage of enrollment in a section can be used to determine net revenue sharing.  Labor costs would be allocated in the same manner.

'Piece of the Pie' revenue model.   In the current recruiting model, colleges engage in an 'all or nothing' battle for a each student's full tuition revenue.  A college either gets all of a student's tuition revenue or none of it.  In an alliance model, if a student chooses any of the participating colleges, some portion of that tuition revenue would be applied to the operations infrastructure of all. So, if 10 colleges participated in an alliance, some part of each and every student's tuition and fees would go to support all of those colleges.

The costs of marketing and recruiting student would be reduced considerably.  Consider the case of college fairs at high schools.  Currently, each college sends one representative to each high school.  In an alliance model, the 10 colleges in our example would be able to provide support for 10 times the marketing and recruiting as the parochial, stand-alone model.

1. An alliance recruiter would present each college in the alliance as a potential match for a high school student.
2. A student's interests could be matched to more than one college in the alliance to give more flexibility to their college decision.
3. The reps would also share the cost, cultural, and academic benefits of a student choosing an alliance member.

Pressure on tuition discounts would ease.  Tuition pricing across the alliance/merger/joint venture would be standardized to allow for student choices to be based on academic and career opportunities -not just cost.  Financial aid packaging would be centralized in order to present true academic and career options for students. 

It is probably too late for many small to medium-sized private colleges to take advantages of this consolidation model.  Their demise will be quick or delayed by the charity of alumni.  For those private college leaders willing to move beyond a parochial focus, this model is one that has worked across many other industries. It is one that will work in higher education also.

Next in the series:  Downsides of an Alliance of 10 or More Private Colleges
 

Merger (Alliance) Model for 10 or More Private Colleges

Merger (Alliance) Model for 10 or More Private Colleges (April 2020)

First in the series.

We are using 10 private colleges from Illinois and Missouri to create our business and financial model. These 10 colleges will be the foundation for a series of posts about a merger model that would bring 10 or more private colleges together. Included in this set of 10 colleges will be ones who are even now considering when they will announce their closure.

These 10 colleges lost more than 2,000 students in combined enrollment from 2013-2018.

• 8 of 10 lost FTE enrollment
• Only 3 of the 10 had lowered their expenses since 2013
• 8 of 10 had lower core revenues in 2017-18 than they did in 2012-2013.
• Endowment assets decrease in 4 of the 10. 3 others had their endowment increase only 7 figures in 6 years.

Here is the basic framework.

1. No college loses its identity. The college name remains. The mascot remains.
2. Endowments stay with the individual colleges.
3. Leave athletics alone. In each of these colleges, a substantive part of the enrollment is from those who compete in one or more sports. The opportunity for them to continue with their college athletic careers is an absolute requirement of the model. Athletic leadership could be consolidated - even across multiple levels of NCAA participation.
4. Target at least 50% of all courses offered by the merged organization to stay online. Merge those common courses to enroll a minimum of 15-20 students per course. This will provide higher margins mostly with lower labor costs. For example, one of the potential by-products of the pandemic reaction is a realization that online course sections with low enrollment could be consolidated into larger sections across different colleges. Teaching an upper level accounting or biology course with 20 students from 5 different colleges is more financially feasible than 5 different college sections with 4 students each.
5. Revenue and costs to each college would be allocated based on financial, enrollment, and outcome ratios.

The FTE enrollment number was positively supported by only one of the ten - which netted a reported increase of almost 3,000 students in the 6 year period. Over the same period, only 2 of the 10 colleges generated a tuition revenue to expense ratio that was greater than 1.00. Core expenses for the 10 went up over $60M with two-thirds of that from just two of the colleges. The total core revenues for the group was a negative $25M - with one of the colleges in the red over $27M and another in the black at almost $33M.

Next in the series. Upside. Downside. Consequences.

Go to www.collegeviability.com for more articles, information, and reports.