Is There a Right to Know a College Might Close?

Inside Higher Ed

By Rick Seltzer

After Mount Ida College closure, Massachusetts proposals grapple with whether colleges should disclose shutdown possibilities and when regulators should step in.

Months after Mount Ida College’s sudden collapse rocked higher education-heavy Massachusetts, several arms of the state’s government are exploring regulatory changes to try to minimize future damage from colleges that run out of money.

Proposals vary, but the state’s governor, lawmakers and Department of Higher Education are all entertaining the idea of making colleges disclose financial troubles to regulators or students at an earlier date.

Also being debated is how to make sure closing colleges shut down in an orderly fashion, drawing up “living wills” or teach-out plans that would ensure their students have a place to finish their education after a campus closes its doors. The responsibilities of regulators, accreditors and boards of trustees are all under scrutiny as well.

While momentum is strong, it’s still not clear whether any proposal — disclosure focused or otherwise — will be put in place in a state that is home to a disproportionately large number of private colleges. Private college advocates object to strict new regulatory requirements, arguing that even after closures such as Mount Ida this year and Marian Court College in 2015, unexpected college closures are too rare to merit a crackdown. Some colleges have rebounded from financial struggles or found orderly ways to wind down, such as when Andover Newton Theological Seminary finalized plans to merge into Yale Divinity School in 2017.

Despite the uncertain prospects, the prominent place Massachusetts occupies in private higher education means even talk about stricter regulations are being closely watched elsewhere. As anxieties mount across the country about small private colleges’ viability, the notable state’s decisions could very well become a template for others, if fears about a wave of college closures spread.

For that to happen, Massachusetts leaders would have to settle on answers within a frustrating circle of questions. Just how likely are future college closures in a world of shifting student demographics, swiftly climbing tuition discount rates and rising public skepticism about the value of a college degree? What measures are strong enough to protect students? And what, if any, requirements can be put in place without harming the very institutions that are already on the ropes?

“Fundamentally, your first responsibility is to the consumers,” said Richard M. Freeland, president emeritus of Northeastern University, who served as the commissioner of higher education in Massachusetts from 2008 to 2015. “The danger, of course, that folks always worry about is getting an overly zealous regulator that pushes the button too soon and does real harm.”

Cause and Effect

Mount Ida sparked an intense outcry when it announced in April that it would close at the end of the semester and sell its campus to the University of Massachusetts at Amherst. Some backlash was directed at the public UMass Amherst, which drew criticism for snapping up a campus without showing much regard for Mount Ida students or other institutions in the UMass system. Much of the anger went toward Mount Ida, however.

Shortly before it closed, Mount Ida leaders said the private college was growing — even after merger talks with nearby Lasell College fell apart. After the closure was announced, students and faculty scrambled to try to figure out what they would do in the rapidly approaching fall semester, and many students said they were left with no clear teach-out plans for their programs. Some had just put down deposits to enroll as new students at Mount Ida, turning down options to enroll elsewhere.

Mount Ida has been criticized for not following existing procedures for college closure. State law currently requires closing institutions to tell the Massachusetts Department of Higher Education as early as possible. Closing colleges are also supposed to organize transfer opportunities for students. But the department’s commissioner has said he learned about Mount Ida’s closure through the press.

Several branches of government are pursuing regulatory changes in the aftermath. Earlier this spring, Attorney General Maura Healey called for a new office of financial oversight within the state’s Department of Higher Education that would monitor colleges for signs of trouble and work with failing institutions to close in an orderly fashion. The Department of Higher Education has gone on to form a working group to look at ways to blunt the impact of sudden college closures.

Late in June, the Massachusetts Senate Committee on Post Audit and Oversight published a report on Mount Ida’s acquisition by  UMass Amherst, which was sharply critical of the series of events. The report also recommended several new regulatory requirements that would affect struggling private colleges.

Then last week, Governor Charlie Baker, a Republican, included language in a supplemental budget proposal that would require colleges and universities at risk of imminent closure to notify state regulators, prepare some contingency plans and tell applicants about risks to their short-term viability.

The language calls for the Board of Higher Education to establish regulations requiring that it be notified of “any known liabilities or risks which may result in imminent closure” and that an institution facing such risks should submit a contingency plan including “arrangements for the transfer and long-term maintenance of student records in the event that the institution ceases to exist.” It goes on to call for institutions to notify accepted applicants if they have known short-term liabilities or risks jeopardizing their ability to fulfill “obligations to current and admitted students.” The state Board of Higher Education would have to draw up specific regulations regarding the notifications.

Baker’s office said in a news release that the proposal would provide new consumer protections for college students. They would cover both public and private institutions.

The governor took a different tack than some ideas the Senate committee recommended in June.

The committee endorsed a proposal to require degree-granting institutions to tell the commonwealth’s Board of Higher Education at least 120 days before they plan to close, merge, acquire another institution or open a branch campus. The board would then review such plans to determine whether they are consistent with an institution’s five-year master plan.

That proposal would also require degree-granting institutions to alert the Board of Higher Education within 14 days of learning they may not have the financial resources needed to maintain program quality, “support institutional improvements” or graduate an entering class. The board would be responsible for establishing guidelines for notifying students, employees and prospective students.

Separately, the Senate committee said institutions should be required to submit audited financial statements to the attorney general’s office five months after the close of their fiscal years, instead of a current submission requirement of 11 months. It recommended colleges and universities voluntarily adopt a standard under which they would directly link from their websites to their audited financial statements so students, parents and faculty members could easily access the statements.

And the committee called for the New England Association of Schools and Colleges, NEASC, to have an “affirmative duty” to notify the Board of Higher Education when an accreditation assessment shows an institution to be in financial jeopardy. The department should determine the definition of financial jeopardy status and decide whether current and prospective students should be notified, the committee recommended.

“This notification would provide the Department of Higher Education with valuable time to engage with schools on potentially needed closure plans,” the committee said in a report.

Demographic challenges facing private colleges demand a state with stronger transparency and communication requirements, said the Democratic state senator who chairs the committee, Kathleen O’Connor Ives. Such requirements could allow regulators to work with institutions to prevent closure or to help them find a merger or acquisition plan that would be well thought out for students, staff and faculty, she said.

“Massachusetts, and most likely other states, need more specificity in terms of how these situations play out,” O’Connor Ives said, adding that changes would protect the public interest and a state economy that is heavily tilted toward higher education.

“We can take these basic steps,” O’Connor Ives said. “The culture across the schools should be that those financials are just available on the schools’ website, because that’s how a prospective student is going to find out. That’s how a parent is going to find out. And why wouldn’t that be part of the healthy competition?”

It is unfair for colleges to position themselves as the gateway to a successful career, take students’ money, but then provide no information to those students, O’Connor Ives said. She doesn’t think it’s acceptable to assume boards of trustees will figure out the situation after the Mount Ida case.

“The stakes are so high,” O’Connor Ives said. “It’s so arrogant to say, ‘Trust us,’ when, honestly, we did. And then you left them in the lurch anyway.”

Private Colleges Push Back

The rhetoric worries small-college advocates — and not just those in Massachusetts. They argue small-college closures are rare.

“This is a real misdiagnosis of the situation in a state where private higher education is a pretty important industry,” said Richard Ekman, president of the Council of Independent Colleges, a national association of private, nonprofit colleges that used to count Mount Ida among its members.

If the state is going to step in, it needs to do so in a helpful way, Ekman said. He suggests per-student subsidies for private colleges. Massachusetts currently subsidizes public colleges, and providing some money per student to private institutions — even at lower rates than state institutions receive — could support an important industry, keep students closer to home and save money in the end, Ekman said.

Massachusetts already spends millions of dollars annually on financial aid for students to attend private colleges, which has prompted debate in the past. The state has also drawn criticism for what some believe is a low level of funding for public colleges.

But the state could do more for private institutions, Ekman said.

“This is not the fault of Mount Ida or Lasell,” he said. “This is a missed opportunity by the state of Massachusetts to do something that would be helpful, and instead they are trying to shift the blame to the private institutions.”

Ekman offered specific criticisms of some of the Massachusetts regulatory proposals. Audits aren’t done quickly enough to file them on the timeline the State Senate committee suggested, he said. Additional reporting could also cause problems for colleges showing signs of nonfatal weakness.

Forcing data to be disclosed without enough contextual information to allow students to interpret that data would be problematic, the argument goes. Ekman said strong completion rates and graduation rates at private colleges are also important for students to know.

“You wouldn’t want the disclosure of information about some financial weakness to be exploited in some way,” Ekman said. “The remedy is not to ask a college that’s in trouble to go advertising their troubles.”

A case can certainly be made that government entities have no business mandating potentially harmful disclosures by private colleges. On the other hand, an opposing case can be argued that colleges receive significant public subsidies through federal financial aid programs and tax breaks at various levels of government. Then they sell themselves to students as a public good. Is it right for such institutions to shield their financial data from prospective students, effectively adopting a let-the-buyer-beware attitude in the process?

O’Connor Ives offered her answer to the idea that the state has no business expanding oversight over private institutions.

“Well, then, pay taxes,” she said. “If they want to go there, that’s fine.”

Who Else Fits In?

Accreditors are watching the discussion in Massachusetts. NEASC has taken some flak for the Mount Ida situation because an evaluation team that visited the campus in the fall recognized several financial issues. It wrote in a report that recent annual deficits were making it difficult for Mount Ida to support its mission. The college had negotiated waivers with bondholders to avoid defaulting on bond covenants, the report noted.

Currently, NEASC’s Commission on Institutions of Higher Education is moving to make changes geared toward additional public disclosure. The commission can issue a formal notice of concern if it finds an institution is in danger of not meeting one or more of nine standards, including a standard covering institutional resources. Currently, the notice, which generally covers a two-year period, is sent privately to a college. The commission can then follow up with another notice of concern.

In September, the commission could adopt changes that would give it the option of issuing both public and private warnings.

The commission had been examining Mount Ida’s finances for a long time, said Barbara Brittingham, president of the commission. That situation and the way it unfolded was unusual, she said. Until just before Mount Ida closed, it looked like it was going to agree to a merger with Lasell, which would have addressed its financial issues.

In some cases, the commission can ask struggling colleges for written teach-out agreements. Institutions are typically responsive to what the commission requests, Brittingham said. Some have recovered and grown strong after facing steep financial challenges.

Sudden collapses can pose a problem, though. They don’t necessarily give accreditors time to act.

While the Mount Ida situation is worth examining, it’s important not to assume it is the new normal, Brittingham said.

“Lawyers like to say bad cases make bad law,” she said. “People need to look at what happened and what’s known about it but also keep in mind how unusual it was.”

Some view additional regulatory involvement as likely to push more cooks farther into the kitchen, making it harder for any one entity — institution, accreditor or regulator — to act decisively.

Yet many wonder whether accreditors have demonstrated a track record of being able to address problems on their own.

“Accreditation is self-policing, right?” said Chris Gabrieli, board chairman at the Massachusetts Department of Higher Education. “I think we need to listen to that, but I also think we have to recognize that, using Mount Ida as a test case, it’s not clear that the process worked.”

The department’s working group is in the early stages of its efforts. Gabrieli expects it to have to negotiate deep tensions between interests in higher education.

Struggling institutions want a chance to turn things around — to adopt new plans and new programs without being branded as failing and without being locked in a casket by regulators. But regulators can’t help but wonder how they could have better served the public interest in a situation like the one at Mount Ida.

The working group may very well determine problems are widespread enough to merit becoming more involved. In the last five years, 15 institutions have closed or merged in Massachusetts.

If regulators decide more intervention is warranted, a key question is when they should intervene. It may or may not be reasonable to ask a college to look four years into the future and tell accepted freshmen that a campus is at risk of closure. But it is not reasonable to tell students a college is closing so late in the year that students will have trouble transferring to a new college, Gabrieli said. Nor is it reasonable to announce a closure so late in the year that hiring season for faculty members has already passed.

Right now, Gabrieli is thinking about the fall semester as an important time in a college’s year.

“We’re going to try and isolate that a bit more, but if by September, October, November — somewhere in there — if there is any risk the next school year won’t happen, we think that’s the line,” Gabrieli said. “It crosses over from private interest — reasonable, do your best — to public interest. These families and students need to be made aware.”

From there, an issue to address will be whether new disclosure requirements are enough.

“You have to ask yourself, is that really reasonable to say that parents and students are supposed to personally review the financials and make judgments?” Gabrieli said. “People expect there to be somebody who is both monitoring and expected to step in, in some constructive way, to prevent a tailspin.”

Regulators and accreditors aren’t the only ones under pressure. Boards should step up, too, Gabrieli said. Trustees can’t pass off responsibility for a failed college by saying a president convinced them a turnaround plan was going to work.

“It’s too easy to say management had a plan,” Gabrieli said. “Why have a board if it’s not your job to interrogate the credibility or check the credibility of that plan, and at some point favor the interest of stakeholders other than management?”

At the moment, Massachusetts seems to have the most active discussion about regulatory changes for small colleges among the states. Representatives from both the Education Commission of the States and the National Conference of State Legislatures were not aware of similar debates elsewhere.

What works in Massachusetts might not translate to other states. But the attention on the issue there is reason to dig in and get things right, Gabrieli said.

“The fact that there are students this fall whose schools may be in peril for next spring gives us a sense of urgency,” he said. “This is not something that can take two or three years.”