Ricardo Azziz has held numerous executive positions in higher education and led the merger that resulted in Georgia Regents University, now Augusta University. He is principal at Strategic Partnerships in Higher Education Consulting Group.
He writes the regular Merger Watch opinion series on corporate restructuring in higher education.
Mergers and other corporate restructurings in higher education require the approval of several regulatory bodies. The most prominent of these are the US. Department of Education and the regional accreditors.
To fully grasp the extent of their power, one need only remember the rejection of the initial plan to merge Connecticut’s community college system into one organization by its accreditor, the New England Association of Schools and College’s Higher Education Commission.
Likewise, a merger between Marymount California University and Saint Leo University was rejected by a different accreditor, the Southern Association of Colleges and Schools Commission on Colleges, or SACSCOC. That decision led to the closure of Marymount California.
To be clear, I am not criticizing these decisions.
Not all mergers are the correct tactic, at least as proposed. As a former member of the SACSCOC trustee board, I do recall how hard and carefully the accrediting staff worked with institutional leaders to ensure the assessments made were fair, considered the students, and were the right decision.
When we were merging institutions in Georgia a decade ago, few of us had any experience with consolidating colleges and universities. That included the accrediting agency staff, though they tried to be helpful. But it did feel like a case of all students, no teachers.
However, as the higher education environment has become increasingly more challenging — and as the number of mergers, acquisitions and, most frequently, closures has risen — accrediting agency staff have become more proficient in handling these transactions.
And the regulatory environment has also continued to evolve.
In September 2022, the Education Department’s Federal Student Aid office released new guidance for institutions considering certain types of transactions, including mergers.
Previously, the department allowed these transactions to occur as a single-step process, with the institution changing ownership and simultaneously becoming an additional location of another institution.
Approvals now require two separate steps.
The first involves the Education Department approving the change in ownership of the institution being acquired. In the second step, the department approves the realignment of the acquired institution into its new owner’s structure.
In other words, first approval of change in ownership, i.e., the corporate merger. Then approval of the structure, i.e., the organizational merger.
The second step will not be approved until both the Education Department and appropriate institutional accrediting agencies have greenlit the first one.
Critically, until both steps are complete and approved, the institution being acquired has to continue operating as an independent institution — including for Title IV federal financial aid funds, which must be processed separately for each institution. The institutions also must maintain separate state and accrediting agency approvals.
In February 2023, the department notified accrediting agencies of this revision, noting that it had done so to “protect students, to ensure that institutions have sufficient financial strength following a CIO [change in ownership] to meet the Department’s financial responsibility requirements and that they remain administratively capable.”
While it is unclear to me how this two-step process actually “protects students,” what is clear is that it introduces greater complexity and significant delay into the merger process. Additionally, it forces institutions that may already be financially fragile to continue to operate independently despite having “merged.” A few thoughts come to mind.
First, what benefits students the most is that their college or university does not close – and certainly does not close abruptly and unexpectedly. Thus, accrediting agencies should be doing as much as possible to facilitate and foster institutional partnerships, particularly mergers or acquisitions, to ensure the continuity of the teaching programs.
The Education Department’s new guidelines seem to be a step to the contrary. If the department felt that insufficient scrutiny of transactions was occurring with the single-step process, then perhaps greater attention by and training of its staff was needed — not increased complexity of the process.
Second, we have repeatedly cautioned that higher education institutions should not wait too long to consider and identify a merger partner.
The above changes now add even greater urgency to this consideration. Colleges and universities that are interested in finding a merger partner will need to start earlier and be sufficiently solvent to remain operationally independent throughout the entire two-step process. Perhaps this is the Education Department’s actual intent.
Third, accreditors could assist not only by reducing regulatory burden, but also by educating institutional leaders and staff concerning the benefits and risks of mergers. That includes when to consider mergers, how to include these discussions in regular strategic planning, how to begin these talks, and so forth. They shouldn’t simply wait for failing institutions to continue their downward trajectory.
We all, regulators included, need to understand the simple fact that our great nation has massive excess higher education capacity and many institutions will not survive as independent entities. That’s a situation that will not change any time soon.