At least five local private universities and colleges are looking into outsourcing back office work to a single nonprofit consortium.
Under such an arrangement, the administrative support services that each college or university already provides for itself would instead be shared between member institutions. An additional 12 colleges in Western Pennsylvania also have expressed interest in joining a shared-services model.
Robert Morris, Carlow, Chatham and Point Park universities and Washington & Jefferson College have all been involved in a study since last summer that looks at their administrative functions to determine what could be combined and shared. The chief financial officers of each school helped prioritize eight back-office functions that might be less expensive to perform under a shared model.
According to the Hill Group — the consulting firm leading the study — the five schools could collectively save more than $20 million per year under a shared model. Proponents of the arrangement say those savings could help some schools maintain the quality of their academic offerings while helping other institutions keep their doors from closing.
But joining the consortium could also mean some colleges reassign or lay off staff whose jobs could be replaced by work from the consortium.
“There's some unpleasantness involved,” said Najeeb Shafiq, an education economist at the University of Pittsburgh, speaking generally about such shared-service models. “There are disadvantages, which is that you have to lay people off. And that's never something most administrators want to do. But, under the right circumstances, the collaborations can go really well.”
The Hill Group reached out to other Pennsylvania colleges along the Interstate 79 corridor and found a dozen other local colleges potentially interested in working with a shared-service provider as well. Those schools include Waynesburg University, La Roche University, Allegheny College, Seton Hill University, Thiel College, Westminster College and six others, according to Paul Hennigan, the Hill Group consultant leading the study who also served as Point Park University’s president until 2021.
The biggest potential savings for these colleges would also be the most difficult for the institution’s presidents to implement because it will require a big adjustment, according to Hennigan.
“Cultures have a tough time changing, and people have a tough time changing,” he said. “And so the only way for this to work is for the leader to declare and force the discipline: We're going to do things differently.”
Point Park President Chris Brussalis said he is excited about the potential for shared services. For example, he says, it’s hard for Point Park to keep up with the latest IT security. A shared-service provider might give the school better technology at a lower cost.
“And if we can go through that gate and do something better — provide a better service and reduce the cost — that's a win-win because now we have more money available to us to allocate to other programs,” Brussalis said.
Brussalis is the chairman and former president and CEO of The Hill Group, the consultant that has employed Hennigan to study the consortium concept. Brussalis owns more than 35% of the company, according to Point Park University financial disclosures, but he is no longer active in the company’s management, he told WESA.
Meanwhile, representatives for Chatham, Robert Morris and Washington & Jefferson didn’t respond to requests for comment. Carlow University gave a limited response in which it said it was too early to provide answers to a list of questions.
“Like many other higher education institutions, Carlow University is always open to partnerships and consortiums such as this to gain operational efficiencies,” a spokesperson for Carlow wrote in an email. “We are in the early stages of this process and look forward to learning more about the Hill Group's strategy and plans.”
An industry in decline
Shafiq said that higher education has become a kind of “winner-takes-all” system in which prestigious institutions and flagship schools, such as Pitt, see record numbers of applications, while smaller schools struggle.
“So many small and mid-sized private colleges and universities are upside down right now with their financial models,” Hennigan said.
Total undergraduate enrollment in the United States fell from 18 million in 2010 to about 15 million last year, according to the National Student Clearinghouse Research Center. And according to some estimates, declining birth rates nationwide will mean that, by 2026, there will be even fewer students graduating high school each year, putting additional financial pressure on colleges.
That decline has been particularly acute in the Midwest and Northeast, including in Pittsburgh. Community College of Allegheny County lost half of its enrollment between 2010 and 2022. Pittsburgh Technical College saw a similar decrease in students during that time period.
In recent years, the Pittsburgh Art Institute, Pittsburgh Career Institute and ITT Technical Institute closed. And this month Chatham laid off 20 staff members and imposed salary reductions after facing a multimillion-dollar shortfall, according to a report from PublicSource.
“Chatham's not going to be the only one,” Hennigan said. “You're going to see more of that.”
Colleges are facing additional challenges right now because many of their enrollments haven’t fully rebounded from the pandemic. At the same time, Hennigan said, pandemic-related government aid has come to an end.
The challenges facing small private colleges aren’t specific to Western Pennsylvania. Earlier this year, the Boston Globe reported that “the business of small colleges no longer adds up” and that, in addition to school closures, financial agencies have downgraded the credit ratings of its colleges. New Jersey Monthly published a cover story about whether the state’s struggling small colleges would survive.
Pennsylvania’s state universities lost more than a quarter of their enrollment since 2010, and last year California, Clarion and Edinboro Universities of Pennsylvania merged to form Pennsylvania Western University. But the merger didn’t stop the combined university from losing more students in its first year. The state legislature approved additional funding for state universities in its most recent budget, but private colleges are more dependent on new enrollments.
The proposed consortium in Western Pennsylvania would still enable each individual college and university to retain their own independent identity but would allow for them to share some costs.
Earlier this year, Brussalis told the Point Park University student newspaper, The Globe, that the university needed to make changes to address a budget deficit.
“I have always had the philosophy that it is impossible to cut your way to prosperity,” Brussalis said. “But when you have finite resources, that means it’s an allocation thing… We have some deficits we have to get through because deficits are not sustainable.”
Time to look for savings
Hennigan began studying a shared-services model after he retired as president of Point Park. He said that he and other local college presidents often talked together about how such an arrangement would be helpful, but he said none of them had the time or resources to study it and get it off the ground.
Hennigan said he talked to a leader at the R.K. Mellon Foundation about how sharing services could help to turn around the finances of many small private colleges that have been facing financial challenges. The foundation provided an initial $350,000 to develop the concept, he said.
The Hill Group initially proposed studying the possibility of combining five major department areas: IT, Procurement, Finance, Administration, and Risk Management.
Hennigan said he hopes to form a not-for-profit entity by the beginning of 2024 and begin to start offering colleges help in two areas: procurement — or the department in charge of purchasing for schools — and a IT software initiative. Initially this work would be done by contractors, rather than consortium staff. About 15 of the 17 interested schools said they were keen to start with procurement and another handful said they were also interested in the shared IT software program, Hennigan said.
These will be two of the hardest areas to implement, Hennigan said, but they also would provide some of the biggest savings to colleges. Hennigan said he believed no more than 50% of the savings would come from staff redundancies and layoffs. He said colleges would often save money by deciding not to hire for open positions or by shifting staff from one job responsibility to another. Part of the savings would come from the ability to negotiate better rates as a collective for everything from pens and toilet paper to software and construction materials, he said.
“We're very careful to say this is not about eliminating positions,” he said. “So, if somebody is working at school, for example, doing procurement work and we do shared services and that person is no longer needed to do the procurement work, more than likely that person will have a skillset to be able to slide over and do other business-related functions at the school.”
Each university would have to decide for itself whether or how to adjust its staffing. “We lay out what the potential duplication is, but we don't recommend layoffs,” he said. “That's up to each school to figure out how to manage their resources.”
In addition to outsourcing, the consortium might hire its own staff in the future for core functions, Hennigan said. He is in the process of creating a more formal business plan that would clarify how the consortium could add staff in the future.
Three local foundations have been funding the study — R.K. Mellon, Eden Hall and the Pittsburgh Foundation — and, according to the grant application from Point Park to R.K. Mellon, there is an urgent need to respond to declining enrollment and revenue. Fewer students are graduating high school and fewer graduates are choosing college.
“Taken as a collective whole, these factors and market forces pose substantial risks to the viability of segments of the higher education industry,” the application says.
Innovation in higher education
Shafiq, the Pitt education economist, said the introduction of a consortium to share administrative work makes sense for colleges facing financial challenges.
“It's almost expected that any time there's sort of some belt-tightening happening, it's either collaborations in back-office functions and library services or it's partnerships on academic programs that lead to more options for students within a given institution or some combination of both.”
Emily Wadhwani, a senior director at Fitch Ratings, said cutting costs on back-office functions is a way for colleges to tighten their belts with less risk of driving away potential students.
“These are things that are less visible both to students, to alumni, to faculty, to folks that focus on the core deliverable of a university, which is, of course, to educate, to train, to innovate, to do research,” Wadhwani said.
But both Shafiq and Wadhwani warned that — for a potential shared-services model to work — it’s important for colleges to find other institutions with a similar philosophy and to work through differences.
“Do you have the same philosophies and practices and policies around, say, can students enroll in courses if they have an outstanding balance? Not every school has the same policy on that,” Wadhwani said.
Wadhwani said she expects to see more innovation in higher education in response to the financial challenges it faces.
“It's going to be a sector that looks a little bit different as it emerges from this enrollment cliff,” she said.
Editor's note: Both the Eden Hall Foundation and R.K. Mellon Foundation provide or have provided support for WESA reporting.
