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Broke Colleges Resort to Mergers for Survival

You know why colleges are going broke? Well first off, about 10% of American students get into "elite" universities. There's intense competition for those schools and kids go nuts jumping through the various high school hoops to get in. The supposed reward is you get a "gold star" at graduation to get you into the most high paying/best jobs. Ergo, employers view the elite schools as a proxy for finding kids with both intellectual ability and tenacity to navigate the long journey upstream to reach graduation from one of these Hogwarts.

For the rest, who wants to spend $50,000/year for tuition, room, board and forgo 4 years of potential job earnings to get a mediocre job? 40% of recent US graduates now are in jobs that DON'T require a college education.

Ergo, college is a broken, archaic product that need reinventing. Great Freakonomics podcast on the subject.

Broke Colleges Resort to Mergers for Survival

Takeovers increase as a shakeup in higher education leaves schools in trouble. Northeastern does a deal for struggling Mills.

By Douglas Belkin, WSJ

July 19, 2022 10:04 am ET

When Covid-19 first tore through the nation, hundreds of college presidents sent students home, looked across their empty campuses and wondered how they were going to pay their bills.

Northeastern University President Joseph Aoun saw an opportunity. On May 15, 2020, he called six senior managers to his office. “Colleges and universities will be challenged,” he told his cabinet, he recalls. “This may be the time to start looking at mergers and partnerships.”

Over the next few weeks, Northeastern created a specialized M&A team to assess the value and vet the balance sheets of dozens of flailing colleges in the U.S. and abroad. His directive came to fruition on June 30 when Boston-based Northeastern absorbed Mills College, a 170-year-old women’s school on a 135-acre campus not far from Silicon Valley.

In exchange for the land, worth perhaps $1 billion, the school’s roughly $191 million endowment and an art collection that includes works by Diego Rivera and Winslow Homer, Northeastern is absorbing $21 million in Mills’s liabilities, putting $30 million toward an institute designed to continue the school’s feminist scholarship—and keeping open a college that planned to close.

Dr. Aoun called the deal a once-in-a-generation opportunity to expand Northeastern’s footprint, prepare students for careers in Silicon Valley and amplify Mills’s tradition of women’s leadership and social justice. Some Mills alumni are calling their school leaders dupes, given the deal’s lopsided nature. Higher-education experts see the event as emblematic of a sectorwide shakeout.

Northeastern President Joseph Aoun led an effort in which the Boston-based university absorbed Mills College, on a 135-acre campus near Silicon Valley.


Students continue to pack into flagship universities and brand-name colleges. Less-prestigious schools are struggling. The number of colleges closing down in the past 10 years, around 200, has quadrupled compared with the previous decade.

And in the past four years, there have been 95 college mergers, compared with 78 over the prior 18 years, according to data compiled by the consulting group EY Parthenon. In the past two months, St. Joseph’s University in Philadelphia absorbed the crosstown University of the Sciences, and Boston College announced it will absorb Pine Manor College, also in the Boston area.

Schools merge to broaden their enrollment base, diversify programs, expand facilities and create efficiencies of scale. About 40% of mergers involve private, nonprofit schools, and the majority involve schools within the same state and with fewer than 5,000 students. Public university systems with excess capacity have made or are considering mergers in Pennsylvania, Georgia and Wisconsin.

The stress they face is driven by rising costs for college and uneven return on investment, which has diminished public confidence in higher education, opened the door to competitors and led to falling enrollment.

In 2019, 51% of American adults considered a college degree to be “very important,” down from 70% in 2013, according to a Gallup poll. Positive perceptions of college among adults 18 to 29 fell the fastest of any group, to 41% from 74%.

Meanwhile, companies including Alphabet Inc.’s Google and Coursera Inc., as well as coding bootcamps, have eroded colleges’ and universities’ near monopoly on post-secondary education, offering inexpensive online courses a la carte that are closely aligned with the labor market.

Enrollment declines accompanied these shifts. From 19.6 million students enrolled in spring 2011, the number fell to 17.5 million in spring 2019. The pandemic sped the decline, and the number was down to 16.2 million by this spring, according to the National Student Clearinghouse.

The steepest declines are at for-profit schools, community colleges and less-prestigious private colleges. Lower demand has pushed some to hand out more scholarships and grants. In the 2021-22 academic year, students paid just 45.5% of the sticker price on average, the lowest ever, according to the National Association of College and University Business Officers.

Some schools have dealt with falling revenue by offering fewer classes and services—leading to still more enrollment challenges. The term applied to schools engaged in such a death spiral? Zombie colleges.

“These are schools that are under-preparing and under-serving their students,” said Ricardo Azziz, who coined the term. They “have excess capacity and are resistant to considering consolidation.” Dr. Azziz was president of Georgia Health Sciences University in 2012 when he oversaw a merger with Augusta State University.

The U.S. government gave $76 billion in aid to colleges and universities to shore up their balance sheets as Covid-19 swept the country. That money delayed some hard decisions, says Robert Zemsky, a professor of higher education at the University of Pennsylvania. He predicts that 500 four-year colleges and universities will close in the near term.

“This is an industry that is almost totally unprepared for this,” Dr. Zemsky said. “There’s a lot of pain ahead for a lot of small colleges.”

Northeastern University was built a century ago on a work-study model. Today, its students intern at one of 3,100 companies during their education. That forces professors to adjust their curricula repeatedly to meet the needs of industry.

This exposure solves a problem that has long plagued higher education, says Northeastern’s provost, David Madigan. Schools are organized around academic disciplines, a system he calls “inward looking and tantamount to medieval guilds,” and they struggle to stay relevant at times of rapid change in the economy.

Northeastern’s model has helped make the onetime blue-collar commuter college one of the nation’s more selective universities. In 2021, 91,986 students applied for 2,620 spots.

About a decade ago, Northeastern began looking beyond Boston. It examined regional labor markets to identify gaps between the supply of workers for an area’s industries and the local academic programs to produce them. Over the past decade, Northeastern has opened campuses in Charlotte, N.C., London, Portland, Maine, San Francisco, Seattle, San Jose, Calif., Toronto and Vancouver. A campus in Miami is in the works.

Northeastern’s Dr. Aoun earned degrees in Lebanon and Paris before getting a Ph.D. in linguistics and philosophy at Massachusetts Institute of Technology. He said studying on three continents gave him an appreciation for the American university system, which encourages innovation more than others. “If you look around the world, you see everything is determined in a centralized way by the government and minister of education,” he said.

Despite the opportunity to innovate, he sees plenty of groupthink in higher education. Universities in the U.S. are “diverse but not differentiated,” he said. “Everyone follows the same approach.”

Northeastern’s work-study model tends to force innovation. Dr. Aoun, who is 69, switched his sneakers last year because students told him a new brand was better. “If the world is changing around you and you’re not changing, that is risky,” he said.

Instead of other universities, he looks to global companies for insights on expansion. A notion he has gleaned is that each campus should serve the needs of the area where it’s located.

As the technology sector grew, so did Northeastern’s interest in having a toehold in Silicon Valley. In 2015, it opened a small campus inside the offices of a tech company in San Jose. It offers programs in computer science, data science and information systems.

Mills College, in nearby Oakland, began in 1852 as a women’s seminary. It grew into a liberal arts college with a focus on women’s rights and gender equity, with graduates who include well-known artists and activists such as Rep. Barbara Lee (D., Calif.) and singer-songwriter Laurie Anderson.

As demand for single-sex education waned, so did enrollment. In 1990, Mills said it was no longer financially viable as an women-only college and would become coeducational. Sixteen days of student protests followed, and the board of trustees reversed course.

The school recovered as the wave of millennials enrolled in college and with the help of a fundraising campaign, but it stumbled again a few years later. It launched a series of initiatives to attract more students, such as a program combining undergraduate and graduate degrees. None revived the school.

“We didn’t really innovate into a sustainable model,” said Mills’s president, Elizabeth Hillman.

In 2014, a year when Mills pioneered the admission of gender nonconforming students, it also faced a setback as Moody’s Investors Service downgraded its debt to Baa3, just above a junk rating.

In 2017, Mills declared a financial emergency and made plans to cut programs and lay off tenured faculty and staff. In 2020, it sold a rare Shakespeare folio, a gift of an alumna, for $10 million.

“Year after year, we fell short on enrollment,” said James Fowler, a longtime board member. “There was a liquidity crisis we saw no way of overcoming.”

In March 2021, as Mills was spending down $5.8 million of federal pandemic relief money, Dr. Hillman announced the school was going to close. The staff started reaching out to other colleges to arrange landing spots for its students.

An admissions officer at Northeastern received one of those calls and forwarded the message to Dr. Aoun and his M&A team.

Mills checked a number of boxes on a list the team had drawn up, including land, location, assets and endowment. Three weeks later, Dr. Aoun was on a plane to California.

When he arrived, he asked Dr. Hillman what she would need to make a merger work.

“We want to find a way to sustain our mission, which is a commitment to women’s leadership and equity and access, and we want to bring our people with us,” she says she told him.

“Northeastern immediately agreed,” Dr. Hillman said.

Her main objectives were achieved, she said; 75 faculty members and 327 staff members will keep their jobs. Most Mills students will remain on campus. And with the Mills Institute, the school’s mission of advancing “gender and racial justice through programs and partnerships that support transformative teaching and learning” will continue.

A faction of the faculty, alumni and trustees pushed back, first against the announcement the school would close and then against the merger plan.

The faculty passed a vote of no confidence in the administration. Four trustees filed a suit accusing the president of keeping trustees in the dark and exaggerating the school’s problems.

An independent analysis by Matthew Hendricks, an economist at University of Tulsa, blamed the school’s leadership for destroying the college. In an interview, he called the deal “a straight-up gift” to Northeastern.

Dr. Hendricks, who reviewed the case as part of his research, traced Mills’s vulnerability to a decision several years ago to add two essays to the application for admission. That resulted in fewer applicants, leading to sharply lower enrollment and revenue.

“They had three or four years to address the problem and instead they spent more money on contractors and administrators,” Dr. Hendricks said. “It’s almost like a professional athlete going broke—they are super-wealthy but they have all these expensive habits and just can’t rein in their spending.”

Dr. Hillman called the criticism ill-informed. “Since 2010, the things we did to address enrollment, there’s at least 14 significant different things we did,” she said. “But enrollment growth is not reliable when structural changes across higher ed are affecting students who are interested and students’ options.”

Some alumni asked the California attorney general’s office, which oversees charitable organizations, to stop the merger. On June 9, the AG’s office told the Mills board that because Northeastern intended to take into account Mills’s legacy of focusing on students from historically excluded or marginalized groups, and because it pledged to use the current campus names for at least 50 years, the office had no objection to the deal.

Mills will no longer be a single-sex school at the undergraduate level. Several of its signature majors, including women’s studies, ethnic studies, art history and dance, have disappeared. This fall, in addition to about 325 Mills undergraduates, 533 Northeastern students are scheduled to spend a semester at Mills.

Diplomas will be issued by Northeastern from now on, and students will have access to all of Northeastern’s classes, campuses and the co-op program.

The campus will be called Mills College at Northeastern University, and Dr. Hillman will remain president.

The deal has elevated Northeastern’s profile as a potential savior for distressed colleges. More than two-dozen schools have asked if Northeastern would be interested in a merger, said school spokesman Mike Armini.

Most of the bids haven’t gone anywhere because the schools are too rural or are out of step with Northeastern’s agenda, Mr. Armini said, but talks are in progress with one private liberal arts college on the East Coast.

Dr. Aoun said inquiries have come from two kinds of school, those with something to offer and those that waited too long.

“The second type are institutions that are closing or on the verge of closing, and those institutions, paradoxically, become way less attractive,” he said. “Because essentially it’s mostly a ghost town.”

Write to Douglas Belkin at

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