Michael TownslePurpose of the Paper: Describe a model of a university which incorporates formerly independent colleges so that the new unitary institution has the financial resources to provide long-term financial stability while offering a credible degree at a reasonable price.
Risks to the Survival of Private Colleges
- Demographic Cliff – the student pool is projected to shrink between 16% and 29% across the country for the next fifteen years. Many tuition-dependent private colleges will not be able to survive this calamitous decline in the student pool.
- Unfunded Institucional Aid – in 2023[1], 51% of the 163 private colleges with less than 2,000 FTE, which discounted tuition by more than 50%, were in deep financial distress.[2] As unfunded tuition discount increase, the amount of cash that flows from tuition revenue declines proportionately.
- The Federal government is proposing massive reductions in Pell grants and may make it nearly impossible for part-time students to remain eligible for Pell grants.
- These three conditions may well drive tuition dependent colleges with enrollments greater than 50% into financial distress over the next fifteen years.
Why a University Made-Up of Private Colleges Could Survive
- By producing an economy of scale that is not available to the individual college;
- By eliminating duplicate expenses concentrating expenses in the university;
- By having larger budgets for marketing;
- By having available larger financial reserves to create a buffer against unplanned continencies and delays in the opening of the university.
- By having the funds to invest in the best technology for instruction and administration.
Standards and Compliance
The university should set-up a standards and compliance office to assure that institution provides a college degrees at a reasonable price by minimizing operational costs while complying with legal and accrediting standards and while operating within institutional policies and procedures. The office would be responsible for these matters;
- Internal financial audits that oversee compliance with financial: policies, procedures and provide the board, president, and chief financial officer with regular compliance reports citing problems and offering solutions;
- Cost performance that analyzes the cost of operation for all aspects of the university include plant and grounds and files regular reports with recommendations on how to improve cost efficiency.
- Operational standards that will oversee compliance with the policies and procedures of the university and file reports on compliance issues with recommendations to improve performance.
- Academic oversight that reviews academic operations, such as class schedules, instructional performance, student outcomes, and all other matters that delineate if students meet graduation standards. These reviews will be regular filed the president, board of trustees, and chief academic officer.
- Plant, equipment, and gowns analyses to determine that buildings, equipment, and grounds meet safety standards and operational reliability. Regular reports will go to the president, board, and chief of plant and equipment.
- Technology performance that identifies these issues: reliability, capacity to serve the administrations and academic programs, and recommend when technology should be updated. These reports should go to the president, board, and chief of technology.
- Preparation of an annual report on standards and compliance that recommends revisions to standards and compliance requirements.
- Provide the president and chief administrative officers with budgets and forecast to assure that the institution complies with legal, accrediting, and institutional policies and procedures.
Organizing the University
- The institutions will need to sign a joint covenant that sets out:
- The purpose of the university – is it an administrative center, an instructional delivery center;
- The purpose of the individual colleges after the university becomes operational;
- Conduct audits of each college prior to the formation of the university;
- Full disclosure of each college regarding legal, accreditation, and governmental regulatory issues;
- Governance of the university, avoid shared governance;
- Common and clear statement of the relationship between the individual colleges and the university in terms of authority, responsibility, communications, regular financial, academic, and operational audits, and methods of resolving disputes;
- Hire a top-rated higher education attorney;
- Hire a president with the operational, academic, business skills, and governance skills to manage the organization and running of a new university.
- The university must clearly state the funds to be contributed by each college for working capital and other aspects of capital and financial operations management of the university.
- Here are several benchmarks to estimate the financial reserves needed to establish the university and provide financial stability over the first several years of operation
- Use the ratio of total unrestricted reserves (this is an estimate to test the ratio) divided by forecasted expenses that is greater than seven years to estimate the financial reserves needed for operations;
- Use the Cyert Equilibrium to identify what conditions would produce disequilibrium over seven years;
- Set as a financial goal to have seven years of financial reserve capacity to assure that the college has sufficient time to organize and conduct operations.
- Incorporate the university
- Determine the location of the university;
- The individual college corporations will be terminated, and these colleges will be subsumed under the corporate structure of the university;
- Draft the incorporation documents of the university to include: mission statement, bylaws;
- At or prior to incorporation formally notify the state department of education and relevant federal agencies;
- Name the board to oversee the corporation.
- Basic Actions Needed to Establish a Joint University:
- All legal documents for the operation of the university should be reviewed with legal counsel;
- Prepare operational policies and procedures;
- First employee to be hired should be the new president with an administrative assistant;
- The next hires should be chief administrators. The chief administrators should be prepared to do the detailed work to get their area prepared for operation;
- Find the best chief administrators and pay them well;
- Chief administrators must know how to do every job in their departments because they will be organizing and managing those departments while the university is building its financial reserves;
- Prepare administrator, faculty and staff contract templates;
- Prepare university, student, and employee handbooks;
- Select a financial operations system;
- Develop budget templates for capital and operational expenses;
- Develop grant and compliance oversight procedures;
- If the college intends to use debt for capital or working capital – identify the source of debt funding and initiate negotiations to identify interest rates and covenants;
- Design the first year, ongoing operational and academic schedules;
- Develop a marketing plan for the college that clearly states target markets and plans to reach the target markets.
Alternative Structure with Critique
- Alternative – Consortia
- Consortia have been traditionally organized to support colleges in providing services for students and operations. They are typically loosely organized and depend on the willingness of member colleges to maintain the consortia. The primary difference with the university is that this plan subsumes the operation of several colleges into a single corporate entity with governance of academic and all other operations at the university level.
- Examples of Consortia:
- Goddard limped along for decades because they were never able to put together a coherent model. The college’s model had two campuses on opposite ends of the country. Goddard opened in 1938 as a single campus and closed in 2024.
- Claremont Colleges are a consortium of seven independent colleges. The consortium was founded in 1925. The Claremont Graduate College is its weakest link with 10 years of deficits. Claremont shares costs, but the individual institution remain as separate entities. My proposal is different – the individual colleges divest their corporate structure and folded within the university
- Community Solution Education System appears to be a collaborative network, where the colleges maintain their own corporate structure; note the following from their site:
“Each community that makes up The Community Solution Education System is stronger and more resilient because of our integrated model. While each institution’s Board of Trustees exercises operational oversight for strategic growth, our model employs a collaborative process where Board members and leadership within our colleges, universities, and the System can gain insights and learnings from each other to ultimately enhance the academic experience, student success, and sustainable growth of each institution.”
- Critique of Consortia and Value of a University Corporation:
- Consortia are a loosely structured arrangement that typically are focused on administrative support such as: IT, supplies, marketing, and other aspects that will help reduce the costs of operation. However, consortia typically have little, if any, control over the operations of the colleges that make-up the consortia.
- Value of independent private colleges joining together as a university include: strong financial base for long-term financial stability, improve the likelihood of survival during an unprecedent fifteen year demographic crisis; pool resources to maximize marketing campaigns, fund that meet academic standards while operating within cost standards; and provide a greater opportunity for the board of trustees and president to make difficult and long-term decisions that reduce risk, sustain academic quality, and maintain a strong and independent governance structure in the face of conflict and opposition to change.
Summary
Setting up a university that takes over the operations of individual colleges will result in conflict, heartbreak, and setbacks. The leaders of the university and the individual college must have the will and the ability to withstand the attacks made by interested parties and other entities who will passionately oppose the new university. In addition, the board of the university must be prepared for law suits and injunctions to stop or delay the establishment of the university.
The leaders cannot falter in their decision to move forward because the best long-term solution for survival of the colleges is by becoming part of the university. They must press-on or be prepared for the greater pain of watching the individual colleges fail and fall by wayside.
An example of a group of private colleges forming a private university could be a set of small religious college in or near a major city incorporating as a university.