Is Consolidation Coming?

Michael Bond ratings for colleges aren't scoured like the U.S. news rankings are. But almost every day in my email inbox I get updates on the financial outlook for colleges that are rated by the major bond reading agencies like Moody's. And let me tell you, the news lately hasn't been great for some colleges. It seems the federal stimulus dollars that might have papered over financial issues at some institutions are really coming to an end.

And that's why, Jeff, there are so many discussions right now about what's next for a portion of the sector that is staring at the demographic cliff in the middle of this decade and wondering if a better path forward is not one that they continue to take alone. On this episode of Future youe will be revisiting an issue that we explored last fall mergers, acquisitions, and strategic partnerships.

This episode of Future youe is brought to you by the Bill and Melinda Gates foundation and by salesforce.org subscribe to future you wherever you get your podcasts and follow us on Twitter at the Handle Future youe podcast. And if you enjoyed the podcast, please leave us a five star rating so others can discover the conversations we're having about higher education.

I'm Jeff Salingo.

And I'm Michael Horn.

Earlier this season, we covered the topic of mergers and acquisitions with Jeff Sinise, the president of St. Leo University in Florida, and we'll add that episode to the show. Notes Saint Leo, as you might recall, is a Roman Catholic institution which had announced last summer that it would merge with Marymount California University, another Roman Catholic liberal arts institution near Los Angeles. But since that episode of future you aired, St. Leo's accreditor, the Southern association of Colleges and Schools Commission on Colleges, or SACS, rejected the merger plan. St. Leo plans to resubmit its application. But it does highlight the incredible number of moving pieces spinning during the higher ed M and A process.

That's right, Jeff. And higher ed obviously is a regulated industry at the federal and state level, and there's also the quasi regulators of the accreditors. So. So it's not as easy to merge or acquire as it might be in parts of the corporate world. And then add on top of that, these are organizations with different missions, lots of varied constituencies, from faculty to alumni, and it's a recipe for a very naughty problem. So to help us understand that complexity and perhaps how to work through it, we have two guests with us today who have worked with colleges and universities on partnerships as well as mergers and acquisitions. Joining us is John McIntosh, who is a partner at SeaChange Capital Partners. It provides nonprofits, including higher ed institutions, with financial assistance and access to resources as they change how they do business. We also have Kasia Lundy, who is a principal in the education practice at EY Parthenon. In previous roles, she also served as chief of staff to three Harvard University presidents. Kasia and John, welcome to the show.

Great to be here.

Thanks for having us.

So I'm curious from where each of you sit, what's your experience been recently in this space, whether it's partnerships, M and A helping institutions figure out what's next for them. Can you talk a little bit about what you each have been doing? And John, let's start with you.

I think, as you know, early last year, my nonprofit SeaChange, together with the ECMC Foundation, Ascendium Education Group, Kresge and Michael and Susan Dell, launched the Transformational Partnerships Fund, which is it's a philanthropic initiative designed to help institutions that are exploring mergers, joint ventures, other forms of partnership, get that done and to try to support them both by providing a safe space for discussions, a confidential space, a space without judgment or expectation, and also grants to defer the costs. So we've been out there for a year really trying to help institutions that have decided to explore a partnership or are thinking about it, get that done. That's how we come at this work.

Akasha at EY Parthenon, in the education practice that I'm a part of, when we get involved, it could be on either side, if you will. So presidents of institutions that are smaller, for example, that are looking for larger homes or for partners with whom to merge, or presidents of larger institutions that are looking for either expansion geographically, otherwise may reach out and say to us, can you assist? What we typically would do in those kinds of situations, especially if it's the institution, smaller institution, looking for a larger home, is start with the question of sort of why? Where are you in the journey? Why do you think a partnership may be the right thing for you? Again, crucial point for us, because we try to elicit from those institutions why they're even considering this journey. And then a lot of the support that we provide is actually facilitating conversations either among boards or leadership or between the two, sometimes involving faculty, as well as to what is critically important to those institutions to preserve as they go through the process. And then from there, it is the support of the process itself. So whether that is outreach to partners or communications, another critical element that we should not underestimate.

So, John, from an outsider's perspective, when we look at 4,000 plus institutions in the US and 40% of that market is under a thousand students. And the demographic cliff is coming. It seems like higher ed is really ripe for some sort of consolidation. But in the case of Saint Leo, for example, that we mentioned at the top of the show, there was this issue with accreditation, for example. So how much of the barrier to partner, to acquire a college or to merge is the inertia of institutions and how much is it the regulators, whether that's the government or the accreditors?

We've been, as you know, involved in higher ed partnerships for about a year as a grant maker, but it continues work we've done for 14 years. And I would say to your point, higher education is very complicated just because there are so many constituents. You have the current students, you have the alums, you have the trustees, you have faculty, you have the local community, you have various levels of regulation, not just the accreditor. I wouldn't point the finger at one in particular, but more just say there are multiple constituents involved, people feel very emotional about their schools and quite reasonably different groups are going to see particular partnerships in different ways. I think that's what makes it complicated. Rather than being able to call out it's all about trustees who are sleeping or it's all about alumni who don't see reality. I think it's just more that there's a lot of different voices in the mix.

I noticed that you use the word partnership there, John, rather than like mergers and acquisitions. It seems like a partnership is something less than a consolidation though in this industry, isn't it?

Look, I think what happens in these discussions is people pick a word like partnership or collaboration and then all they do is talk about mergers and all they think about is takeovers. And I think we need to reflate the concept because to my mind it's more that there are a number of institutions who recognize that over the next decade they're going to have to find a new path forward. That the forces that they are facing, demographic, technological, market, political, mean that going it alone is probably not the right answer. But there's lots of different things they can do. And so to me it can be everything from a merger of equals, whatever that is, to a well planned head held high teach out to sharing your back office as they are doing in New Mexico. I don't think it's helpful to collapse this. It's more do we recognize that going it alone is the wrong answer for our mission, our students, and if so, we what is it that we need and it could be a range of things depending on the situation that the school faces.

Kasia, I'm curious to bring you in here and get your framing on the same point. Are you as positive about partnerships or do you see the real opportunity here being in M and A specifically?

I think M and A is important to put there on the spectrum. But I would agree with John. It's important to start the conversation more broadly because I think you can bring more people into the conversation that way. Inevitably, I think when you get down to it and start evaluating the different forms of partnership, if that's a shared services thing, or if that's an academic, joint collaboration kind of thing, or if it's a full on M and A, I think there is so much work involved with all of those that in the end, sort of the juice has to be worth the squeeze. And it's very interesting, as these conversations evolve, you may start in one place and end up on the other end of the spectrum in the mergers and acquisitions place. But I do think politically and to bring stakeholders on board, it is important to start broadly.

So, Kasha, I just want to dig into that a little bit more. Do you see this sort of a progression in the conversations? Like are partnerships and sharing back office operations sort of a first step in the M and A conversation? Or does an M and A conversation need to cut right to the chase from the very beginning in order to sort of think about the multiple hurdles to a full scale merger or acquisition? Like, how do these conversations progress and what are their contours?

Look, you're getting the bias of one consultant, but I would say the M and A has to be on the table at the very beginning and it should be part of the dialogue and it should be part of sort of the ongoing dialogue between boards and leadership and other stakeholders. I do think that then creates a situation where people will sort of go, oh my gosh, you know, how can we go to merger right away? Let's explore some of these other options. But Michael, I would say it's important to have it there, like in the open.

So a question for both of you. We've been hearing about mergers and acquisitions, of course, for quite some time in higher ed, but yet we really haven't seen a lot of this consolidation or even closures on any scale. It really hasn't been happening. But of course now we've had this huge disruption over the past two years called the pandemic. And I'm just kind of curious, will Covid finally be the fuel that drives more Mergers and acquisitions or partnerships, whatever words we might want to use here. Kasia, let me start with you on that question.

I think you probably know, but we've been tracking these numbers over time. And so when I look at the number of mergers and closures that have occurred in the last 20 years, it actually comes close to, I think somewhere roughly around 500. So going back to what you were mentioning, there's over 4,000 institutions here that already is starting to sound like a fairly meaningful percentage when you hit that 10% threshold. But we have seen an uptick in the years heading into Covid. Interestingly, what used to be in the single to low double digits was in the 20s to I think, 30s during the years heading into Covid. So I do think you will see more of this. But actually the question I would love to put out there is are you going to see more mergers or are you going to see more closures? One reflection I have after working in this M and A space in higher education for the last five years is that institutions often wait too long. And so in fact, a lot of those closures you could probably see as failed attempts to consider mergers or partnerships earlier.

It's a good question, I think. John. Right. Like these institutions, maybe Covid was kind of the death kneel for some of these institutions and they probably should have done something beforehand. But where do you feel like Covid is going to appear in terms of mergers, acquisitions, partnerships? Is it going to accelerate it or not?

I don't spend a lot of time thinking about these questions, to be honest, because to me, where we sit, the question is more are there institutions who, if they proactively make wise choices, if they can do that, that will be materially better for students, and particularly students of color or students from a low income background who have been told work hard, go to college, it's the best ticket to a good life economically and in a fuller sense of that word. And so to me it's undoubtedly the case that over the next decade there are going to be dozens or maybe hundreds, but it doesn't matter of institutions where there's something to play for that if they make wise, proactive choices that will be materially better for their students than if they don't. And we set the fund up to try to help at least a handful of those institutions make those wiser choices. And whether we look back, whether it was a wave or not, whether it was mostly closures or mergers or teach outs, to me that's not an interesting question from where I sit to Be completely honest.

No. And I think that's helpful, John. Right. To have that perspective in the conversation, because it also, though, suggests that staying on your own might not be the right answer for students either. This isn't just an institutional, I guess, viability question. It's also a what's the best outcome for students question.

If I can just comment on that. And I think the Massachusetts attorney general has made this clear. You know, people forget that at least in the nonprofit context, in addition to their duty of care and loyalty, they have a duty of obedience to the mission, that at least in theory, the trustee's obligation is with respect to the mission of the institution, not the continuation of the institution in any particular form or at all. The key is, to me, because this is so difficult, is just try to put mission and students first in your mind and not temporalize and delay acknowledging forces that I think inevitably will overwhelm the status quo if you're not careful. The other thing I'd say, just to Kash's point, is I think there's also a danger of saying there's nothing worth doing except a merger. We should wait to do anything until everybody agrees we have to do something because it's too late. And I think that there are things we're seeing where they stand on their own, but they may also be a courtship period or a stepping stone to something more fundamental if, as and when that becomes the right answer. And so I think that if the reason you won't talk about merger is because it's the M word and you know you have to do it, but you're scared, that's a bad reason. But I think it's perfectly fine to say, look, Jeff College and Michael College might well be good merger partners in the future. And there may be a set of facts where we should do that. But let's build trust by combining our such and such programs or sharing our back office, because that'll stand on its own, but it may be a stepping stone to something else.

I want to zoom out just a little bit, Kasha. And just against that backdrop that John just named, there are all these pressures on institutions right now, and they're not just Covid. Right. And so just help level set us of the specific drivers that you're seeing push us. That may result in more M and A activity and the context you're seeing it in. You know, you mentioned the 500 institutions that have closed or merged over the last decade or so. It's interesting because a lot of people will push back and say well, this is cyclical, right? We see this all the time in higher ed, of birth and rebirth and death and so forth. And how do you think about the present moment in which we're living and the drivers that are acting, maybe driving institutions toward M and A?

And those drivers have been around even pre. Covid. Right, Covid probably just sort of accelerated some of the very drivers that we saw before. But enrollment pressures were there before. Too many institutions, potentially for too few students. That is certainly much more sort of visible among the 18 to 24 year olds, which is why everyone these days is trying to turn to the working adults as a silver bullet and thinking maybe that's where we can get our enrollment, maybe that's where we reconfigure our programming. Revenue pressures of all sorts. So I wouldn't say that the public has turned, maybe that's too strong of a term on higher education, but certainly the public is more skeptical of the value that higher education provides. So there's incredible pressure on pricing as well. The discounting continues and the lucky few, the top 20, 25, who don't need to worry about. There's always going to be the elite institutions and they're going to do just fine. But for the remaining institutions, enrollment pressures, pricing pressures, public perception pressures, I think all of that is contributing and frankly, cost infrastructures. When you think about how the costs were compiled and compiled over time, it is all hugely incremental. It's almost like looking at the cost of inflation, adding that building on top of that structure. If you were to build an institution today or a higher education system, you would probably build it very differently with a different cost structure. So just all of that comes to a head, I think.

John, can we talk a little bit about what's left behind after partnerships or consolidations? Many colleges and universities are now the factories of the 21st century. They're the largest employers in their town. They're central to the cultural and economic viability of their towns. Many of the colleges struggling right now, of course, are also serving the neediest students or students who historically have been underrepresented in higher ed. So if the institutions partner, become shells of themselves in a merger, what is really left for these communities and for these potential students? It seems in this case that M and A and higher ed is a bit different than in the corporate world, where companies have to deliver shareholder investor value. But here it's really institutions having to deliver value to their customers, their students, but also their communities.

I think that's absolutely right. And again, I think it's hard to generalize. Look at Martin Methodist. And I'm not joking when I say I think it's far more important that Martin Methodist survived than Harv. If Harvard disappeared tomorrow, as a thought exercise, I'm quite sure the students will find another place, and the kids who would have gone to Harvard will go to Yale. If you look at where Martin Methodist is, not simply the kids there right now, but future students, if they weren't at Martin Methodist, many of them wouldn't be anywhere. And so I think there you can say at some level there's a loss of independence. At another level, as I think they're calling it Tennessee Southern, the fact that the institution continues to be there, to your point, is extremely important, not only as a local economic and cultural actor, but for the students. I think in others, like in Vermont, yes. If the institution's no longer physically there, it's devastating. I think there's a term in chess where you have to move. No move's good, but you're not allowed to pass. There are institutions where there's no great answer, but at least if you get on it, you can give the local community more time. You can give the students, if you're teaching them out, more resource, that it's not good, but it doesn't get any better if you wait. I think it's different than the corporate setting. And I totally agree that the people who are a little glib and say, look, half the schools are under 1000. They only enroll 5% of the students, the 18th century or 19th century want their colleges back. What's the big deal? That's not a human perspective. And we need to try to be more sympathetic in helping these institutions make choices which are going to be, in many cases, still very difficult. I agree with you completely. A corporate analogy is not the right one. But we can't prop schools up forever because I think history, technology, demographics, all the things that Kasia mentioned are against some of these schools. And hope is not a strategy.

If I can go to another thing that you mentioned, sort of the comparison to corporate, because I do think there's something important there in the corporate world, to your point, there is shareholder value and there's a bottom line. And you sort of know how to assess whether a combination makes sense in this setting. In the higher education setting, we've seen these conversations fall apart because everybody wants to do good. We all have sort of our distinct missions. We do care about student outcomes, as John was pointing out. But I think the definition of what that good looks like is so different across the institutions that sometimes it literally falls apart on those student outcomes, on pedagogy, things like that. So it requires a certain level of finesse, I feel like from leadership to be able to navigate through those complicated mission oriented environments.

Kasha I think that's actually a great segue into the last question as we wrap up that I want to ask both of you, which is we mentioned at the top that we had Jeff Sinise on in the fall and he talked about the presidents of other institutions that he's been talking with about becoming part of a network of institutions and whether it's a network or an outright acquisition. I'm just curious your advice, both of you to presidents on either side of the deal when you start these conversations, because I think the notion of a network gets into all these sticky questions that you just both have brought up. And so Kasia, why don't you go first and then John, follow my advice

to presidents of these institutions would be going back to some of the things we were talking about. Keep it as a lever that you may have to eventually look at or pull. But that means have honest conversations about it with your board. For it to succeed, I think it has to have a strategic rationale. So it can't just be a numbers game. So if there are other sort of transactions or other mergers that have been successful, and we could certainly point to a few where they were led precisely by those outcomes and strategy as opposed to just by the numbers, definitely reach out to those folks and learn more. But to me, the transaction or the partnership, let's not call it a transaction because it truly isn't. But the partnership has to be motivated by more than just numbers. So it's kind of on you, the president, the leader, to look outside your organization and see who could be a good fit with you either from a program perspective, culture, values, whatever that is.

I'd say two things. I think that look at TCS and this is not an advertisement for Michael being open to different structures. Look at Goodwin, University of Bridgeport, not as a legal matter an acquisition, but Larry at Netshe, there's a pilot program there that allows for different type of governance. So I think that there are lots of reasons to think creatively about different structures, network structures that can get the organizations what they need while perhaps preserving what they don't want to give up. And that to your original question, Jeff, I hope that there aren't problems around successor liability or stable patrimony or accreditors or whatever that get in the way of those things. If the right thing is to create a I'm just making this up. A Franciscan tcs. The reason not to do that is not oh my God, a Franciscan tcs. That's weird. So I think that those of us who care about higher education should try to do what we can to let the institutions explore creatively different ways they might work together and not force them into It's a teach out. It's a merger or you can't do it.

Kasha John, both insightful comments and appreciate you being on Future youe. And we'll be right back after this short break.

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welcome back to Future. You off a nuanced conversation with John and Kasha. And look, M and A and college is closing. That's a topic we've covered a lot on this show, Jeff, so I don't want to retread all of our thoughts on it. But I suspect, Jeff, that you must have loved John's comments that when institutions enter into strategic conversations with one another, they shouldn't just jump to an M and A conclusion, but that there could be a range of partnership possibilities that are in the best interests of institutions and students. I feel like you've been singing that tune for a while and frankly pushing me on it. So I'm curious if you have thoughts on what both said around this.

Yes, Michael, I think there's a set of approaches from partnership on one side, through deeper partnerships and mergers, and finally acquisitions on the other side. Because I think there's really a difference, of course, between a merger of essentially equals and then a takeover and an acquisition. So I think even though we talk about M and A and higher education, those are two very different things. I think part of the problem, as Kash and John alluded to, is that many of these conversations start way too late. Unlike in the corporate world, where M and A is seen as unlocking value for investors or building scale in higher ed, it's seen either as a sign of aggression by the acquiring entity or weakness by the institution that needs help. So at its core, Michael, I think this all goes back to your work. It's about what problem is an institution trying to solve. And over the past few decades we've seen Back office sharing by institution. And we've labeled that partnerships in higher ed and called it a day. And then in the last decade plus we've seen an increase in P3s or public private partnerships on everything from student housing to online education. But I think the daunting set of external challenges facing higher ed right now call for something to the right of that continuum I was talking about earlier. So it's not just a simple partnership like a back office operation or even a P3. I think this is much deeper in terms of partnerships, or a better word is probably alliances or networks of institutions that to me would be just to the left of M and A. That's really kind of that step short of true M and A as John described it. Now I wouldn't call it a partnership, however, because that harkens me back to the back office operations or P3s, which I don't think are going to solve the problems facing most institutions. A few years back I was an investigator on a paper with a nonprofit higher ed consultancy, Ithaca snr, that was funded by Lumina and we're going to put that paper in the show notes and we define this idea of what we called higher education focused networks. So again, deeper than partnerships. And we defined these as collaborative groups that one, tackle a prominent social problem or challenge in the field by working together, two, adapting the group's strategies and structures over time in response to what was happening in the environment, and three, generating a sustained flow of activities. So I think those three things show you that these are not associations or agreements between institutions to share back office operations because they are constantly moving. What might be examples of some of these higher education focused networks? We have some current examples, for example, achieving the Dream, which is a network of community colleges with a mission of driving student success. We have the American Talent Initiative, which is a coalition of public and private four year institutions that have pledged to expand opportunities for access and success. Of course, we have the University Innovation alliance, which we talk about often, which is this alliance of 11 public research universities, again focused on student success. And we even have local examples of this. Think about Upskill Houston, which is a regional partnership among business, industry, education to really increase awareness of high growth career paths. Now you might hear those examples and say, great, but how do they keep the lights on when an institution is struggling? And again, I think that's why many of these conversations start too late. My take is that if you figure out, for example, how to increase retention or improve career services or upskill learners, like any of these networks I just mentioned have done. Your institution is not only going to survive, it's probably going to thrive. But you can't enter into these networks if you don't have something of value to offer. And Michael, that's why I did think that John's points about recognizing clearly the fiduciary duty is to the mission of the university and not the sustainability of the institution per se. That was a really important one that I suspect many trustees don't fully grapple with.

It's why I appreciated John's point so much to anchor on what's best for students in this conversation, not simply things. And, and he didn't say this, but I will, you know, don't just focus on things like my prediction with Clay Christensen. Right. That a lot of schools will be consolidating. But I'll also note on that end a couple things that I thought were important as well. First, Kasha clearly made the point that you wouldn't build a new college today the way colleges have sort of accumulated over the years. Right. Especially this set of fixed costs that, as she said, really have compounded over time. And it's not just that you have lots of buildings, for example, or duplicative programs, but all those things have ongoing costs to them. Buildings have maintenance, for example. We know what happens if you defer that maintenance, as many schools do. The bill still comes due at some point. And then you look at a place like Minerva University where, yeah, I serve on the board, and they've really avoided that fixed cost business model by relying on third party physical assets from around the world to create their global campus. And I'm certainly not saying that Minerva is the answer as a new institution. Jeff, it certainly has a lot of questions still to answer, but I'm just noting that there is this reality that both John and Kasha observed that at some point institutions have to grapple with their sustainability. And many college closures might indeed be better stated as that they were failed mergers. Right. That these conversations should have happened much earlier, before it got to that warning point. I think that point is an important one because we see that this consolidation number of 500 institutions over two decades that actually had tripled in the years prior to the pandemic. So that's before. Right. The cost of COVID and the real demographic cliff that basically says 12% of institutions closing in two decades before this, all set in our prediction that at least 25% will close over two decades dating to 2013. It just doesn't feel that off to me still, and I'm personally not sure why the media sort of doesn't pick up on the fact that I don't think this is going to be a cataclysmic failure of hundreds of institutions at once or something, for it still to be a reality that these institutions are grappling with this unsustainability. And we just are seeing this consolidation occur and I think increase.

Jeff and I think we are going to see some closures, mergers and acquisitions, there's no doubt about it. I don't want to guess at a number here. I think you pointing out Kasia's point around kind of the idea you wouldn't build a college like this today says to me that there's all these colleges built this way that shouldn't be, and you have to unwind that. And I think that you either unwind that by merging or acquiring other colleges, stronger players acquiring weaker players, or you're going to have to unwind it in a way that I think people don't want to go to. And that's really starting with governance, because we have constructed the colleges the way we have largely because of shared governance. And I don't want to dive too deeply into shared governance because we could do an entire episode on it. But we can't really tackle the issues that we need to tackle in higher ed right now and at institutions without trying to figure out who makes these decisions and how you make them.

Jeff, I think it's a good point, and it actually touches on two other points I'll just note and flag for audience. You may have just outed ourselves in what a Future Higher Ed 101 episode ought to be, but you asked the question that we've both made. You know the point on this podcast that certain institutions just mean a lot to their local communities. You use the analogy that they are the factory of that town, right? In sort of modern parlance, keeping it afloat. And that can't be overlooked. And John clearly groked that point. But I also think it suggests that maybe the colleges aren't that different from the factories and that the central question I think at some point has to be who pays to keep it afloat? And if it's indeed delivering a valuable service. Right? Like just employing lots and lots of people with few students and no notable research isn't an answer, I think. But if it's doing something valuable, training a small but important number of people for certain roles in the community, say, on. On top of being a cultural and employment center and the like, who pays for that? Jeff And I don't think it's fair to ask the students to float all of those costs for, for things that are outside their education. So, you know, will it be the town, the city, the regional community, the county, the state alums? Like, who will pay for that, Jeff, to make sure that we maintain that?

So Michael, I think there are multiple legs to that stool, of course, in terms of who pays. Until the 1980s, there was this unspoken agreement, a partnership between government institutions and families about who paid for higher education. And now, of course, much of the burden for paying for college has fallen to students, which is why we have the student debt we have today. States have pulled out and as Rick Levin said on a recent episode of Future youe, mostly because of health care costs. Institutions themselves have tried to discount tuition, but they can't keep up with their own rising costs and the stagnant incomes of families coming to college. So they just have to keep putting out more discounting in order to attract students. So I feel like we really need a new compact about who pays. And I think it starts with the question who benefits? There's a contingent of authors and policymakers and politicians out there who think the public at large is the one who benefits from higher ed, and thus higher ed should be free. Now, I tend to be a realist when it comes to policy and free college is a non starter for me on that front. Now clearly institutions in their town benefit that town. And as you say, we shouldn't be asking students to prop up essentially the institution on their own backs. That's like asking the workers to continue to take pay cuts just to keep a factory open in town. So I don't think it should be the students that prop up an institution just because we need that institution not to go out of business, because it's the only thing going in that town. If we think an institution is critical to a region, then states really should start to think of it as economic development and give incentives to it just like they would to a company to locate a factory in a town. Also, who benefits from a regional college, whether it's a public or private institution, it's the local employers as well. So if they want skilled workers, they need to pay up as well as the state itself. In many cities we have these things called special business districts that pay for extra services. So what if we took that idea around higher education and had special university districts or special university regions where employers pay a special assessment to support their local institutions? Now it's a two way street as long as those Institutions are helping to fulfill the workforce needs as well.

Yeah, it's a really important point, Jeff. And it also points to the fact that like states and employers, they can do the calculation, right? Like, what's the transition costs of letting this school in a particular community go under? What happens to all of the would be graduates, the employees and so forth. Like that has costs to it too, in many ways, probably more strategic for them to make those investments directly. And one more thing, I guess around this that you've raised to me in conversation off the podcast, Jeff, you've made the point that another reason this consolidation and merger and acquisition conversation is so different in colleges is that really nowhere else do we have alumni of a product or service petitioning to keep institutions afloat. When they hit the point of insolvency, like we do in higher ed, these alumni, they feel like keeping the institution alive at all costs is what really matters. Perhaps in opposition to John's point about, you know, where the fiduciary duty does in fact lie. And sort of my retort to you has been sort of the conventional one, I think, right? Well, Jeff, of course alumni have a vested interest in having a good brand on their resume, having their community intact. We like to belong to tribes, after all, as human beings, and we want to preserve the college tribe. It's emotional. And, you know, in some number of cases, alumni are still actually customers, perhaps because they give money, even if higher ed is perhaps not as particularly transparent as they could be about that relationship or maybe dependency in certain cases. But I think that struck you as an unsatisfactory answer about why do we have this dynamic where alumni are so emotional about keeping their college afloat? And so I'm curious your thoughts.

Well, first of all, Michael, I think more alumni complain about how their alma mater has changed than actually probably give money to it. If you look at the average alumni giving rate reported to U.S. news and World Report, it's only 11%. At the same time, I don't think we want to get into a situation that only those that give have a say in what their alma maters do. So I think the time has come for another new compact in higher education, and this is around alumni that allows institutions more flexibility in pursuing partnerships and maybe even mergers and acquisitions if it comes to that. Think about it, Michael. In the decades before social media, colleges played a critical role in keeping students in touch with old friends or forgotten peers. You know, satisfied graduates might describe the value of their connections with friends or professors or mentors, and they credit their college for helping them to keep those networks alive through alumni events or campus meetups. But now we know alumni no longer need to rely on universities to help them maintain their networks, which can be done almost automatically through Facebook and LinkedIn. But that doesn't mean there isn't a role for colleges to play in in developing their alumni. Instead, I think institutions have a new responsibility to create networking opportunities among students, faculty members and administrators throughout their lives. And that might involve bringing faculty members and alumni together to cooperate on new projects or fostering intergenerational connections where older alumni play an active role in supporting current students or new graduates. There's really new ways of thinking about how can we network alumni together that can't be easily done through LinkedIn, for example. I think if institutions are seen by their alumni as building their future rather than only preserving these past memories of life on campus, I think alumni would be more willing to support the idea of sustaining the institution, even if that means it might need to merge to survive. Now, I could be wrong, but I think that too much of alumni in development in higher education is built on nostalgia in order to generate dollars rather than the possibilities for the future as alumni when they think about the various stages of their own life. So really, it's built on this past rather than this future. And I think if we start to focus on that, I think we're going to start to see alumni maybe get more behind the idea of these deeper partnerships or maybe even perhaps mergers and acquisitions. And so with that, we've come to the end of another episode of Future youe. Really a lot of thanks to John McIntosh from SeaChange Capital Partners and Kasha Lundy from EY Parthenon for joining us. And once again, thanks to all of you for listening. We'll see you next time on futureview

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