Merger Watch: New federal policy injects delay and uncertainty into merger process

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Mergers and different company restructurings in increased training require the approval of a number of regulatory our bodies. Probably the most outstanding of those are the US. Division of Training and the regional accreditors. 

To totally grasp the extent of their energy, one want solely bear in mind the rejection of the preliminary plan to merge Connecticut’s group faculty system into one group by its accreditor, the New England Affiliation of Colleges and Faculty’s Larger Training Fee. 

Likewise, a merger between Marymount California College and Saint Leo College was rejected by a special accreditor, the Southern Affiliation of Schools and Colleges Fee on Schools, or SACSCOC. That call led to the closure of Marymount California. 

To be clear, I’m not criticizing these selections. 

Not all mergers are the proper tactic, at the very least as proposed. As a former member of the SACSCOC trustee board, I do recall how onerous and punctiliously the accrediting employees labored with institutional leaders to make sure the assessments made have been truthful, thought of the scholars, and have been the suitable resolution. 

Once we have been merging establishments in Georgia a decade in the past, few of us had any expertise with consolidating schools and universities. That included the accrediting company employees, although they tried to be useful. Nevertheless it did really feel like a case of all college students, no lecturers. 

Nonetheless, as the upper training surroundings has grow to be more and more tougher — and because the variety of mergers, acquisitions and, most ceaselessly, closures has risen — accrediting company employees have grow to be more adept in dealing with these transactions.

And the regulatory surroundings has additionally continued to evolve.

In September 2022, the Training Division’s Federal Scholar Help workplace launched new steering for establishments contemplating sure forms of transactions, together with mergers. 

Beforehand, the division allowed these transactions to happen as a single-step course of, with the establishment altering possession and concurrently changing into a further location of one other establishment. 

Approvals now require two separate steps. 

The primary includes the Training Division approving the change in possession of the establishment being acquired. Within the second step, the division approves the realignment of the acquired establishment into its new proprietor’s construction. 

In different phrases, first approval of change in possession, i.e., the company merger. Then approval of the construction, i.e., the organizational merger. 

The second step won’t be accredited till each the Training Division and acceptable institutional accrediting businesses have greenlit the primary one. 

Critically, till each steps are full and accredited, the establishment being acquired has to proceed working as an unbiased establishment — together with for Title IV federal monetary support funds, which have to be processed individually for every establishment. The establishments additionally should keep separate state and accrediting company approvals. 

In February 2023, the division notified accrediting businesses of this revision, noting that it had carried out so to “shield college students, to make sure that establishments have ample monetary power following a CIO [change in ownership] to fulfill the Division’s monetary accountability necessities and that they continue to be administratively succesful.”

Whereas it’s unclear to me how this two-step course of really “protects college students,” what is obvious is that it introduces higher complexity and vital delay into the merger course of. Moreover, it forces establishments which will already be financially fragile to proceed to function independently regardless of having “merged.” A couple of ideas come to thoughts. 

First, what advantages college students essentially the most is that their faculty or college doesn’t shut – and definitely doesn’t shut abruptly and unexpectedly. Thus, accrediting businesses ought to be doing as a lot as attainable to facilitate and foster institutional partnerships, notably mergers or acquisitions, to make sure the continuity of the educating packages. 

The Training Division’s new tips appear to be a step on the contrary. If the division felt that inadequate scrutiny of transactions was occurring with the single-step course of, then maybe higher consideration by and coaching of its employees was wanted — not elevated complexity of the method. 

Second, now we have repeatedly cautioned that increased training establishments mustn’t wait too lengthy to contemplate and establish a merger associate.