“We’ll explore merger options when we absolutely have to.”
These words, echoing through board rooms and presidential offices across American higher education, may well become epitaphs for institutions that waited too long to begin a merger strategy. In today’s higher education environment, by the time a college “absolutely has to” merge, its options have already become severely limited—if they exist at all.
Higher education is on the precipice of one of its most significant enrollment crises in decades. The challenges, spurred by demographic shifts and the upcoming demographic cliff, economic factors including the FASFA debacle, and changes in student behavior, have caused many institutions to scramble for solutions. Some colleges and universities, particularly those that have traditionally relied on steady enrollment, find themselves in a precarious financial position. For institutions teetering on the edge, or even if they can see the edge in the distance, the question often isn’t whether to merge with another institution—it is if or when. Yet, many hesitate, hoping that a solution other than merging will surface.
Unfortunately, delaying can hurt – it reduces an institution’s leverage and options when a merger is necessary to survive. After all, who wants to acquire a failing university with its debt, deferred maintenance, and declining enrollment?
This article delves into why struggling institutions must act swiftly to explore mergers, focusing on key factors like declining enrollment, market competitiveness, and financial sustainability.
The Enrollment Decline: A Wake-Up Call
The enrollment crisis is not new, but its recent acceleration is alarming. According to various reports, there has been a noticeable dip in first-year enrollments across higher education institutions, which has significantly impacted financial projections and stability. The pandemic exacerbated these issues, but underlying trends such as the declining birth rate, increased competition from non-traditional learning platforms, and growing skepticism about the value of a college degree are here to stay.
For many colleges and universities, first-year enrollment serves as the foundation for future financial health. When these numbers fall (as they have in the Fall 2024 enrollment by 5%), the ripple effects are felt across every aspect of campus life, from dorm occupancy to class sizes to alumni donations. As fewer students enroll, revenue streams shrink, forcing institutions to make tough decisions about staff, programs, and even campus facilities. The long-term consequences of dwindling enrollment can even lead to financial insolvency.
Many institutions respond by tightening budgets, reducing services, or cutting academic programs. However, these strategies often lead to a vicious cycle, where diminished resources further deter prospective students from enrolling. It’s a delicate balance, and when not managed carefully, it can push an institution toward the point of no return.
This decline is a glaring indicator that institutions facing sharp enrollment drops must be proactive. The longer colleges wait to address these challenges through strategic mergers, the fewer choices they may have.
Merger Hesitation and The Window of Opportunity
Most institutions are hesitant to engage in discussions about mergers for multiple reasons, including an over-optimistic outlook for enrollment, blowback from stakeholders, including alumni, and having to make the tough decisions needed to survive. Frequently, talks often cite hope of a rebound in enrollment, improved financial aid offerings, or increased philanthropic support. However, waiting for these outcomes can be risky. Time is rarely an ally for a college or university approaching or on the brink.
Besides the fact that acquiring institutions generally do not want to take on a lot of debt unless there is good reason to do so (i.e., new geographic areas, outstanding or new programs, rockstar faculty, real estate that could be sold, etc.), institutions who wait have a weakened bargaining position in the eyes of the acquirer – a college with declining enrollment and financial challenges will not look as attractive to potential merger partners. When revenue streams dry up and operational costs continue to mount, desperation sets in, which generally leads to the institution shuttering its doors.
In contrast, institutions that enter the merger conversation early can negotiate from a position of greater strength. They can be more selective about their merger partner, ensuring alignment on mission, values, and academic programs. Additionally, they can influence key aspects of the merger, such as maintaining their campus identity, preserving faculty positions, and ensuring continuity for current students in the post-merger integration process.
Financially struggling institutions that wait too long often have to accept less favorable terms or risk closure altogether. As the financial crisis deepens, fewer merger opportunities will present themselves, leaving little room for maneuvering. In some cases, waiting too long may mean missing out on viable merger partners who have already aligned with other institutions or, worst-case, institution closure.
Financial Exigency: The Terminal Cost of Delayed Action
Institutions delaying consolidation inevitably exhaust their financial reserves, forcing a formal declaration of financial exigency. By AAUP definition, financial exigency is an imminent financial crisis threatening the survival of the institution as a whole, permitting the termination of tenured faculty contracts. Waiting until exigency is imminent destroys institutional valuation, transitioning the entity from a strategic partner into a distressed asset.
Ultimately, declaring financial exigency eliminates a university’s sell-side leverage, forcing capitulation rather than a strategic merger. Prospective partners view an exigency declaration as an extreme liability, typically resulting in withdrawn acquisition offers or severe, unilateral terms to absorb the failing institution’s mandatory teach-out obligations and strict AAUP guideline compliance.
Enrollment as a Key Metric for Stability
Enrollment is not just about headcounts—it’s a key indicator of an institution’s overall health. Declining student numbers directly translate into lower tuition revenue, reduced housing fees, and decreased demand for campus services. Even with cuts and restructuring, there is a limit to how much an institution can reduce its operating costs. Enrollment numbers are often the final tipping point for financial sustainability.
As the saying goes, you cannot cut your way to growth. And hope is not a viable growth strategy.
In recent years, enrollment trends have indicated that fewer traditional-age students are entering college, a trend likely to continue in the coming decade due to the demographic cliff. As the pool of college-aged students shrinks, competition for those students becomes more fierce. Institutions that have relied heavily on local or regional student populations now face unprecedented competition, not just from neighboring institutions but from online education platforms, trade schools, and workforce training alternatives as well.
For institutions that have yet to diversify their student recruitment strategies or adapt to changing student needs, this enrollment crisis is particularly damaging. When student numbers dwindle, so too does an institution’s ability to sustain itself without external intervention, i.e., a merger.
How is Being Acquired a Strategic Opportunity?
A merger, when approached strategically, can be an opportunity rather than a defeat. Proactively seeking a merger can allow a struggling institution to join forces with a financially stable partner, offering long-term sustainability and growth. The merged entity can pool resources, consolidate administrative functions, and offer a broader range of academic programs, which can attract more students. Furthermore, merging with an institution that has a different geographical or academic footprint can help expand the merged institution’s reach and diversify its student body.
Institutions that wait too long to merge often find themselves in situations where they have fewer options, as potential partners may have already aligned with stronger institutions. By acting early, colleges can also avoid the negative publicity and stigma that comes with last-minute merger negotiations or, worse, closure announcements.
Additionally, early merger discussions provide more time to communicate transparently with stakeholders—students, faculty, staff, alumni, and donors. This transparency can help alleviate fears, maintain trust, and even rally support for the new institution. Waiting until a crisis is in full swing often leads to hasty decisions, misinformation, and the erosion of trust among key stakeholders.
The Power of Being Proactive Strategists
Many higher education boards of trustees believe that exploring mergers is a sign of weakness or failure. In reality, the proactive pursuit of mergers is a sign of leadership and forward-thinking. A merger should not be viewed as a last resort but as a potential strategy for long-term sustainability. The faster an institution recognizes its challenges, the more time it has to craft a solution that benefits all parties involved.
Proactivity also gives an institution the power to shape its future by allowing it to partner with another institution that shares its values and educational philosophies, ensuring that its legacy continues in some form. Being proactive also gives institutions more time to work through the complexities of a merger, such as aligning academic programs, managing faculty transitions, and addressing student concerns.
By taking the first step toward a merger, an institution is not only securing its future; it’s ensuring that its mission, values, and impact on students and the community can continue. The alternative—waiting until the situation becomes untenable – usually leads to institutional closures, layoffs, and student displacement, all of which can be avoided with proactive leadership.
Final Thoughts On a Proactive Merger Strategy For Struggling Institutions
The enrollment crisis plaguing higher education today is not a temporary issue; it indicates a profound shift in higher education that will require innovative and bold strategies to navigate. For institutions struggling with more seats than students, time is of the essence. The earlier they come to grips with reality, acknowledge their challenges, and seek potential mergers, alliances, and partnerships, the more leverage they have to secure favorable terms and preserve their mission.
The stakes couldn’t be more clear. Every month spent hoping for a miraculous recovery is a month of lost opportunity—opportunity to shape your institution’s future rather than have it shaped by circumstance. Tomorrow’s successful mergers won’t be born from desperation but from strength and strategic foresight.
For college leaders willing to face this reality today, the question isn’t whether their legacy will be one of bold action or costly hesitation—it’s which they’ll choose.
