Commissioner Santiago's Testimony on College Closures

Commissioner Carlos E. Santiago
May 13, 2019

Dear Chair Roy and Chair Gobi:

Thank you for the opportunity to provide testimony in support of S. 2138, An Act to Support Improved Financial Stability in Higher Education. This legislation is vital to achieving the goal protecting students and other stakeholders from the extraordinary disruption created by the unanticipated closures of private institutions. I appreciate your time and consideration as we collectively confront this pressing issue facing higher education in the Commonwealth.

Massachusetts is in a unique position nationally with respect to higher education. Higher education is not simply one of many sectors in the Massachusetts economic landscape. It is a primary employer, a driver of innovation, and the foundation of our knowledge-based economy. Our colleges and universities comprise one of our most important industries. The higher education system, both public and private, not only produces the workers and citizens our state needs to thrive, but also serves as an economic engine in its own right

The Commonwealth is the only state with more than half of its residents holding a post-secondary degree. However, we are also the state with the highest percentage of jobs (more than 50%) requiring a post-secondary credential. Today more than ever, we look to colleges and universities in Massachusetts to provide opportunities for residents and the skilled workforce needed by employers. It is in everyone’s interest, therefore, that we do all we can to ensure that our higher education institutions are effectively serving our students and communities.

Against this backdrop, Massachusetts is seeing a growing number of mergers, closures, consolidations, and acquisitions. It is important to understand that Mt. Ida was not the first private college to close in Massachusetts.  Over the past five years, 18 colleges and universities have closed¹, merged with other institutions,² or have otherwise expressed an intention to close.³ This is consistent with national trends: research indicates that within ten years as many as half of all colleges and universities could find themselves bankrupt or shuttered.⁴  With the large number of higher education institutions in the Commonwealth, it is reasonable to anticipate that we may see more closures and mergers here than in other states. It is therefore imperative that we work together to identify appropriate and reasonable response strategies to mitigate the risks presented by these disturbing trends. S. 2183 aims to do just that. It seeks to protect the interests of students and other stakeholders by strengthening the regulatory framework, clarifying roles and responsibilities, and providing confidentiality protections for institutions of higher education to ensure the integrity of the deliberative process.  

Oversight of colleges and universities is a shared responsibility currently conducted through the regulatory triad of agencies:  the federal government; accrediting organizations, including regional accreditors; and state regulatory agencies.  While there is some overlap of responsibilities among the three, each regulatory body has a primary function that differs from the others.  The U.S.  Department of Education (USED) oversees and certifies the accrediting organization and ensures higher education institutions are compliant with federal laws, such as those related to federal financial aid under Title IV.  Regional accrediting organizations focus by and large on the quality of an academic institution as a whole, while state regulatory bodies focus on authorizing institutions to operate within their borders (e.g., giving and revoking degree granting authority, enforcing state laws), approving academic programs and disbursing state financial aid.

The Massachusetts Department of Higher Education’s (DHE) current regulatory authority is laid out in statute and regulation, codified in 610 CMR 2.00.  Any private higher education institution organized after 1943 that seeks to operate in Massachusetts and offers degrees or courses leading to a degree must be authorized by the Board of Higher Education (BHE).  This represents 77 of the 98 independent higher education institutions in the Commonwealth.  Additionally, the DHE distributes approximately $120 million in state financial aid each year through the Office of Student Financial Assistance (OSFA).  Sixty-five independent higher education institutions participate in in the state financial aid program, including 20 of the 21 pre-1943 colleges and universities. 

While the BHE has certain regulatory and investigatory authority over independent higher education institutions with respect to their financial stability, it is currently reactive in its response to potential closures.  A BHE investigation into an institution may be triggered by notification by the institution that it may close or plans to merge with another institution, or by being alerted to facts concerning potential regulatory violations that may result in significant detrimental impacts on students.  These facts might include abrupt changes in governance structure, financial stability, changes in accreditation status, or sudden degradations in academic quality.  The BHE then investigates the facts reactively to determine if the institution is complying with BHE regulations.  If compliance issues are confirmed, the BHE reviews allegations of non-compliance with the institution and requests a corrective action plan.  If the plan is satisfactory, the institution implements it under BHE scrutiny.  If it is unsatisfactory, the BHE may pursue revocation or suspension of degree granting authority and/or refer the matter to the Office of the Attorney General. 

The legislation proposed by Governor Baker attempts to address shortcomings in the current regulatory structure by enhancing the BHE’s statutory authority in several specific ways.  First, the bill requires that all independent higher education institutions with the power to grant degrees notify the BHE about any financial liabilities or risks that may result in that institution’s imminent closure and develop contingency closure plans which must include a process for notifying students and faculty.  Additionally, the legislation gives the BHE authority to request information that would help it accurately determine the institution’s financial condition and give the BHE authority to impose sanctions for failure to comply in a timely manner.  Finally, S. 2183 creates a statutory exemption to guarantee confidentiality of higher education institutions’ financial information. 

As outlined earlier, the reactive rather than proactive nature of the BHE’s authority when it comes to oversight of independent higher education institutions meant that students, faculty, and the Commonwealth were blindsided when Mt. Ida’s board and administration announced the College’s closure in April 2018.  The first I was aware of the closure was when a reporter approached me at an event in the State House – the DHE had been given no indication that such a step was in the offing.  On short notice, my staff was confronted with the daunting task of facilitating the transition work require for an institutional closure.  For students, the situation was far worse.  With only weeks remaining in the semester, they were informed that their institution would not reopen in the fall, and the institution had no teach out or transition plan. Students were left in the dark and left alone to figure out how to complete their degrees at other institutions. 

While the legislation is pending and the legislature contemplates enhancing the BHE’s statutory authority, the BHE has engaged in a regulatory review process to try, to the best of its ability under the current statutory structure, to close regulatory loopholes and strengthen its existing processes. Following Mt. Ida’s closure announcement last April, the BHE formed a working group to examine the issue of private institution closures.  Over the summer and fall of 2018, the group met, conducted research and analysis, and developed recommendations to conduct annual fiscal screenings of institutions under the BHE’s purview to identify institutions that may be at risk of being unable to meet its obligations to enrolled admitted students, and if necessary to require public notification and contingency planning. This past January, the BHE received those recommendations and charged the Commissioner with developing and implementing regulations to implement the intent. Since January, DHE staff has been working to develop draft regulations and polices and has been conducting informal stakeholder vetting of these proposed enhancements. These discussions will continue through June 18, when it is anticipated that draft regulations will be presented to the BHE to be put out for formal public comment during the summer. 

This process has been deliberate and informed by a set of guiding principles. First, an approach that balances consumer protection and institutional integrity.  Second, it shifts the BHE approach from being reactive to proactive. Next, it recognizes that one size does not fit all – we recognize the need to incorporate multiple measures, indicators, and trends when it comes to determining whether institutions may require specific interventions. Our process has been and will continue to be inclusive. Finally, it recognized that both confidentiality protections for institutions and requiring timely notification to students would be key. The Governor’s legislation aligns with these principles and will help advance the work already underway by clarifying the roles and responsibilities of institutions, and safeguarding the information exchanged between institutions and the Department as part of the deliberative review and evaluation process.

I understand the hesitancy on the part of some independent institutions to embrace the statutory and regulatory reforms currently under review. I know that the vast majority of private colleges and universities operating in Massachusetts are financially healthy and that even for the small number that may face the prospect of closure or merger, most will do the right thing by their students and campus community by providing proper communication and contingency planning.  But we are entering a new era in higher education. As the landscape changes, we must be ready to ensure protections for all who would be harmed by an abrupt closure.  If Massachusetts wants to continue to be the leader in the field of higher education, it should lead by example and keep its standards high and its regulatory structure nimble and responsive.

S. 2183 takes a measured approach. It provides for a sensible level of oversight while implementing confidentiality safeguards that will allow colleges and universities to share financial information without fear of that sharing jeopardizing their institution’s viability. 

Thank you again for your time and consideration of this issue.  I strongly urge you to favorably report this legislation quickly to allow the BHE time to implement regulations by the start of the next academic year. Our students and families - and our institutions - will benefit from the protections offered in this bill.

If you have any questions or would like additional information, please do not hesitate to contact Matt Noyes, DHE’s Director of Trustee and Governmental Relations, at mnoyes@dhe.mass.edu or 617-994-6934.

Sincerely,

Carlos E. Santiago, PhD
Commissioner

¹Sanford Brown College; Marian Court College; Le Cordon Bleu; ITT Technical Institutes; New England Institute of Art; University of Phoenix; Atlantic Union College; and Mount Ida College.
²School of the Museum of Fine Arts; New England College of Acupuncture; Boston Conservatory; Episcopal Divinity School; Andover Newton Theological Seminary; National Graduate School of Quality Management; and Wheelock College.
³Newbury College; Northern Vermont University; and Salter College.
⁴Clayton Christensen, Harvard Business School.