May 1, 2022 | 5 minute read

Tags: college enrollment, college mergers, fundraising, higher education, strategic partnerships, transformational partnerships fund

The Pivot Point: When Is It Time to Close?

By Judith R. Sizer

“This is an extremely sad day for Marymount and for the legacy and traditions lost, both for our campus community and the local Palos Verdes area we have called home for more than 50 years.  This decision was not made lightly.  But we felt the most compassionate thing to do was to give everyone time to make plans. Our focus now will be to help our students, faculty and staff.”

            From a statement made by Brian Marcotte, President of Marymount California University, April 22, 2022


Before the pandemic took hold in the United States in early 2020, many private institutions were already grappling with enrollment challenges, structural budget deficits and compliance burdens.  During the next two chaotic years, funding from the federal government in the form of HEERF grants, PPP loans and other resources was instrumental in keeping these colleges afloat and masking their difficulties.

However, as higher education begins to emerge from the pandemic, these institutions are becoming painfully reacquainted with their prior challenges.  For many of them, the enrollment trends have been in a steady decline for years, which the pandemic only accelerated.  Without the supplemental federal funding, their budget deficits have widened significantly.  Some experts believe that a significant number of institutions will be in violation of their debt covenants as of June 30, 2022, which would create further financial distress.

At what moment should a board of trustees put aside its familiar routines, evaluate the institution’s situation with clear eyes, ask some direct questions, and realize that it may simply be too late for the institution to right the ship?  That, in fact, the institution must now turn its energies to planning an orderly and respectful closure?

In short, that moment should come when the institution is within sight of exhausting its available resources, including the possibility of additional debt, and does not have significant assets to offer a merger or acquisition partner.  In Massachusetts, the “regulatory runway” is set at approximately eighteen months.

After the sudden and disruptive closure of Mount Ida College in the spring of 2018, a new statutory and regulatory regime was put into place in Massachusetts.  Under these rules, all private institutions must provide financial and enrollment information to the state Department of Higher Education (MA DHE) every year for analysis and possible follow-up.  In addition, institutions must affirmatively notify the MA DHE if “any known financial liabilities or risks … are reasonably likely to result in the imminent closure of the institution or otherwise negatively affect the institution’s ability to fulfill its obligations to current and admitted students.”

In this context, “imminent” does not have the usual meaning of “just about to happen.”  Rather, this time measurement is generally called the “eighteen-month rule.”  Under the statute and regulations, “imminent” means that the institution “is at risk of being unable to continue operations or substantially fulfill its obligations to enrolled and admitted students for the balance of the current and subsequent academic year, using December 1 as the annual threshold measurement date.”

Thus, if the institution becomes aware that it may not remain financially solvent beyond the graduation date of the current junior class, it must report this determination to the state regulators.  The MA DHE will then require the institution “to show that it has an achievable plan for financial stability…. The risk mitigation plan should avoid speculative proposals and unreasonable projections.”  In addition, the MA DHE will require an institution to demonstrate that it will retain enough funding to close in an orderly fashion, requiring “a comprehensive budget which shows the existence and commitment of sufficient resources to sustain the institution’s educational offerings through closure;…”

This eighteen-month timeline applies to all institutions, although it is clearly based on the traditional residential four-year undergraduate experience.  It also serves as a rough estimate of the time that the MA DHE believes is necessary for an orderly closure, including the negotiation and execution of transfer and articulation agreements with other institutions.

In addition, the Massachusetts Attorney General’s Office (AGO) has publicly stated that “trustees and officers should recognize that they owe fiduciary duties to the charitable mission of higher education more than to the continuation, at all costs, of the particular institution they serve.”  In the MA AGO’s view, the board’s highest priority is not the continued independent existence of the institution, but the fulfillment of its educational mission in general.  This “mission over continuation” position is not unique to Massachusetts – AGOs in other states, including New York, have expressed similar views.

As President Marcotte acknowledges in his statement, it is very difficult for people who are responsible for a beloved institution to pivot away from the effort of trying every possible avenue to “get over the hump,” including merger discussions, increased fundraising and new marketing efforts.  However, these kinds of initiatives usually take several years to bear fruit even in the best of times, and are frequently unsuccessful given competitive and demographic pressures.  Moreover, if the indicators are not promising, one-time infusions of cash from sale of assets, significant gifts or approved withdrawals from endowment funds would only delay the inevitable.

It’s also important to recognize and honor the timelines of individual members of the college community.  It takes time to negotiate agreements with other institutions to allow students to make appropriate choices and transition smoothly into new degree programs.  It takes time for faculty to embark on job searches, since the academic market is cyclical and seasonal.  It takes time for staff members to locate new employment or plan for retirement.  It takes time for alumni to inform themselves and adjust to the news.  And it takes time for the surrounding communities to make plans to compensate for the loss of the institution as a local employer, customer and cultural resource.  A sudden collapse is in no one’s best interest.

Closure is a decision that no board of trustees wants to make.  However, a board that takes off the blinders, puts aside the magical thinking, and acknowledges the internal and external realities of the situation can pivot to take on the hard work of transitioning its cherished community in a reasonable and respectful way.  The legacy of the institution deserves nothing less.


Judith R. Sizer, a higher education attorney in Cambridge, Massachusetts, has advised numerous institutions on mergers and acquisitions, including Andover Newton Theological School and Wheelock College.

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