Good morning! Thanks for reading Next. 

🚨 📢 First, some exciting news: This spring, I’m planning to launch a spinoff of Next.

This yet-to-be-named newsletter (you’ll have a chance to weigh in on that below) will focus on the college journey for teenagers and young adults, with an emphasis on four key milestones: getting in, paying for college, engagement while in college, and preparing for life right after college.

My hope is that it will be read by parents, counselors, as well as others inside and outside of high schools and colleges who advise young adults.

Don’t worry, Next is not going anywhere. It will remain free and still cover some of these issues related to the consumer side of college, like admissions. But when I launched Next right before the pandemic, I always intended its focus to be broader about the future of higher ed and for people who work on campus and those elswhere who have an interest in the sector. In recent years, as I published a book about admissions, the newsletter started to skew mostly toward the admissions world.

The new newsletter will be delivered twice a month through the increasingly popular Beehiiv platform to your email in-box. It will include a free version and a premium, paid version and we’ll tell you more about both when we launch later this spring.

But for now, I’d love your help on naming the newsletter. Here are the leading candidates:

1. Ready
2. Next Step
3. Apply
4. Directions
5. Optionality

🗳️ Click here to cast your vote to name our new baby and provide feedback. Thank you!

When Silicon Valley Bank collapsed last month, it happened in a span of hours as $42 billion (one-quarter of SVB’s deposits) was sucked out of the institution, mostly through digital means. While SVB’s risky practices were on the Federal Reserve’s radar for more than a year, everyone else—including the bank’s depositors—were seemingly unaware that anything was wrong (or could go wrong).

If a relatively well-known and well-capitalized bank could crash that quickly, I wondered if the same could happen to a brand-name college?

Then last Saturday morning as I was about to board a flight, I got this text from a friend: Williams and Amherst. Why? Both should have been strong enough financially to serve on their own.

Whaaat!

I pulled up Google, searched for Williams and Amherst, and saw the headline that the two prestigious liberal-arts colleges, with a combined endowment of $8 billion, were merging. If was, of course, a clever April Fools’ Day joke. I reminded my friend it was April 1. He responded: They totally got me.

They probably got a lot of other people, too.

Mergers and acquisitions in higher ed are generating plenty of conversation these days as announcements of campus closures—the latest one at Iowa Wesleyan University last week—continue to trickle out. While closures might generate the most buzz, they remain relatively rare. Still, we shouldn’t use the scarcity of closures to measure higher ed’s financial health or the reason why there is so little M&A activity in higher ed.

Almost every day in my email in-box, I get a report from one of the major bond-rating agencies with a financial checkup on a college that uses terms like “escalating student demand challenges,” “weak operating results,” “significant operating deficit,” “steadily rising discount rate.” No wonder Bain & Company, in a soon-to-released report, expects the financial stability of higher ed institutions to deteriorate and decline to pre-COVID levels and why the Federal Reserve Bank of Philadelphia predicts colleges and universities may lose some $100 billion in revenue over the next five years.

With those financial trends, in almost any other industry—from airlines to banks to health care—there would be a push to consolidate. So why is there so little M&A activity in higher ed?

That was the question Michael Horn and I asked on a recent episode of the Future U. podcast to Mary Ludden, who heads up M&A activities for Northeastern University (which acquired Mills College in California), and Sally Amoruso of the higher ed consultancy, EAB.

Both Ludden and Amoruso have experience in the health care industry—the sector of the economy that higher ed is probably most often compared to because they both have high costs, heavy regulations, government subsidies, and a highly educated workforce.

While health care and higher ed are similar, there is one key difference when it comes to M&A: health care has a “a highly consolidated payer market” that forces health systems to have scale (i.e. mergers) so they could adequately trim costs and manage contracts, Amoruso told us. While the government plays a huge role in both higher ed and health care, colleges don’t face an insurance industry like health care does that also tries to push down costs.

There are also no “owners” or “shareholders” in higher ed who benefit from consolidation. Ludden told us that the “owner” in higher ed is “the mission” of the institution, “and the board of trustees are empowered and charged with ensuring that the mission continues and is resilient and has a future.” In other words, most boards in higher ed try to keep the institution going at all costs.

What’s more, mergers and acquisitions often happen when two players find a complementary fit. But in higher ed, there isn’t enough differentiation to find those fits. “Consolidating lots of small institutions that have a fundamentally underperforming business model doesn’t actually fix that business model,” Amoruso said. “You then have a large aggregation of institutions that are sort of missing the mark.”

As a result, the lack of M&A activity is likely to continue on, even in the face of strong financial headwinds in the coming years. It’s why Williams and Amherst could make a joke about it—because such mergers still remain rare. It’s why we’re likely to see many institutions try to hang on for dear life in the name of “mission,” while others simply go out of business. And it’s why deeper academic parnterships and alliances between institutions are really the only route to survival for most of higher ed this decade.   

🎧 Give a listen to this Future U. episode on mergers and acquisitions.

Making the B.A. More Valuable

The bachelor’s degree is facing an identity crisis. Employers are dropping degree requirements. And every national survey sees confidence in higher ed sinking.

• A Wall Street Journal-NORC (University of Chicago) poll released last week (subscription required) found that only 42% retain faith in the credential.
• “Skepticism is strongest among people ages 18-34, and people with college degrees are among those whose opinions have soured the most,” the WSJ’s Douglas Belkin wrote.
• Compare this year’s results to 2013 and 2017 when around closer to half of Americans had faith in the degree.

But for all the talk that the bachelor’s degree has seen better days, the fact is that it remains a valuable a commodity in the job market.

• That’s the key finding of a new paper that I co-authored with Matt Sigelman, the president of the Burning Glass Institute. The paper was underwritten by Workday and just released.
• Over the last year, I worked with the Burning Glass Institute to determine the value of the bachelor’s degree and how colleges can make it a more valuable commodity to reverse the perception among employers and the public that it’s not worth it.

The big picture: We found that that B.A.—a term we use to encompass every type of four-year degree—delivers an immediate 25% wage premium within a year of graduation, and a dividend that held steady over the 12-year period we studied.

• But more than that, a B.A. also gives people options to move. Having a B.A. increases the odds overall of landing a better job and B.A.’s working in degree-optional jobs earn a 15% premium and are more than twice as likely as those without a degree to move to a position with higher degree requirements.

Yes, but: Colleges and universities would be mistaken if they think they can continue to coast on the historical value of the four-year degree.

• For one, not all B.A.’s are created equal. Not surprisingly, we found that money-wise, graduates from selective institutions start out ahead of those who earned their degree from less-selective institutions. (Although those with B.A.’s from less selective institutions still benefit from a wage premium over someone with no degree.)
• Second, majors also matter. Again, not surprisingly, STEM (science, technology, engineering, and math) majors are most rewarded, on average, by the wage premium.

—Indeed, the major might matter more than the selectivity of the institution when it comes to the wage premium. We found technology and engineering degrees, even from less-selective institutions, can out-earn business, social science, and health and life-science majors from top-ranked institutions.

But what might matter most to the value of the B.A.? For all the talk about where one goes to college (especially now as another admissions season comes to a close) and what they major in, there is a third big determinant in how B.A.’s perform in the job market: the skills one has in addition to the degree.

• The B.A.’s with the biggest wage premium have a mix of Foundational skills (i.e., skills that are more broadly applicable across fields, such as leadership and negotiation) and Specialized skills (which are usually concentrated in a few fields).
• In every major, there are specific skills that increase graduate earnings significantly. That’s as true of liberal arts degrees as it is of STEM programs.
• One skill can sometimes deliver big value. For instance, a public administration major with a skill in “investments” can see their wage premium rise by nearly one-third.
• The wage premium for a specific skill can also differ across majors. For example, knowing SQL, a programming language, delivers a 11% wage premium to a Natural Resources and Conservation major (where SQL is a relatively scarce skill), but only a 4% return to a Math and Statistics major (where SQL is a relatively common skill).

Bottom line: By understanding how their B.A.’s perform in the job market, colleges can adopt the approaches to make them more valuable, such as:

1. Incorporate discussions about skills and career planning throughout the undergraduate curriculum.
2. Break the B.A. into smaller, usable credentials that can eventually lead to a degree.
3. Certify the skills with the greatest wage premium into B.A.’s, especially in non-STEM degrees.
4. Revise the general curriculum regularly to keep pace with the changing demand for skills.

Doing these things and others will ensure demand for academic programs and the B.A. even with a looming demographic cliff for higher ed in the middle of this decade.

⚡️ One other key finding important to mention: The B.A. is more valuable than the two-year associate’s degree. Wages for those with no degree are nearly the same as those with an A.A. making it critical that community college students transfer to a bachelor’s degree program.

👉 Download the paper, Making the Bachelor’s Degree More Valuable here (underwritten by Workday; free registration required).

🖥️  Watch an on-demand recording of the Next Office Office here discussing the paper.

SUPPLEMENTS

⏳ FAFSA Delay. The Education Department said the redesign of the Free Application for Federal Student Aid will be delayed until December, “missing the annual Oct. 1 release of the form that millions of students rely on to determine their eligibility for grants and federal loans to pay for college.” (The Washington Post)

🎓 The Affimative Action Conversation Colleges Should Be Having. While much of the conversation about the two Supreme Court cases about the use of race in admissions has focused so far on the impact of the decisions on selective colleges, there is potentially so much more at stake for higher ed in general that’s not being talked about.

• On last week’s episode of Future U., Michael Horn and I connected with Jonathan Alger, president of James Madison University. Twenty years ago, Alger was assistant general counsel at the University of Michigan when the high court ruled on two other affirmative action cases. Alger told us the 2023 decisions could strike at the heart of institutional autonomy and ability of colleges to make “educational judgments” about everything from tenure to grading policies. (Future U.)

🛫 Going to ASU+GSV? Milken Global Institute? If you’ll be in San Diego this month for GSV or Beverly Hills in May for Milken, let me know and we can try to meet up or check out my sessions at both conferences. Hit reply to start the conversation.