Last week we discussed the tasks necessary to wind down a college’s operations before closing its doors. But those steps — largely involving planning and communications — are only the beginning.
Once the institution has made its closure announcement, it is common for students to panic. They will question their own judgment, both in having decided to attend the college and in whether to continue to remain enrolled after the announcement. Therefore, it is crucial that administrators offer them acceptable alternatives to completing their education. Transparency and expediency go a long way toward heading off a mass exodus of students after a closure announcement.
Because of the need to immediately let students know their options, administrators must move quickly to evaluate each transition alternative and determine whether the college’s financial situation, risk profile, and timeline make it a realistic choice. Some options are costlier than others but have limited risk, while others are less expensive but result in greater legal exposure.
The first option is an internal teach-out: The college continues to operate until it has educated all currently enrolled students. This is the preferred method for regulators, but it’s not viable for most colleges, because of the cost of continuing operations. On the plus side, because the institution is fulfilling the original terms with its students, there are no legal liabilities associated with this form of teach-out.
The second option is an external teach-out: Another accredited institution teaches the college’s curriculum to its students at the closed location or nearby. This arrangement requires approval from the accreditor and the state — and students are not given an opportunity to discharge their loans under this plan. While difficult to arrange, external teach-outs may be a preferable option in some circumstances.
The other two options, known as articulation and transfer, vary significantly in content and acceptability. In an articulation agreement, a partner institution evaluates each course and determines which ones can be accepted for transfer credit. A transfer agreement is essentially an articulation agreement that includes additional provisions, such as waiving the application fee, matching the cost per credit of the closing college, and accepting a higher percentage of transfer credits than the partner college would normally allow.
The closing college’s objective when negotiating articulation and transfer agreements is to obtain the best terms for its students, both to safeguard their interests and to reduce the likelihood that they reject all options, discontinue their education, and apply for loan discharge or tuition recovery.
The chosen transition options dictate the type of communications, notifications, and documentation needed to close in good standing. Unless there is an internal teach-out, the success of the closure depends entirely on the availability and perceived quality of the partner institutions. Hosting college fairs on campus is an efficient way to showcase the partner options in a familiar environment.
Regardless of the option or options chosen, state regulators and accrediting bodies require evidence that students have the opportunity to complete their education in the same program, delivered in the same manner, and at no additional expense. They will require the college to submit a detailed teach-out plan as well as a plan for student records. They also will want a final report showing the disposition of each student, so it’s important that the closing institution survey students about their intentions and keep excellent records.
Additionally, the U.S. Department of Education has a list of obligations for closures, including completion of a final Title IV audit.
Beyond its obligations to students and regulatory bodies, a closing college has a number of legal considerations common to any business. Upon transition of the students and termination of its staff, the college will need to consider options for dissolution based on the law in its state of incorporation.
Following the filing of the certificate of dissolution, administrators must send notice to all potential claimants (students, vendors, landlords, etc.) and provide them with time in which to file a claim. After providing notice and receiving claims, they may then distribute any remaining assets.
One of the biggest mistakes colleges make is to assume that their carefully thought-out plans will be well received by students, employees, and regulators. Shutting down a college is an ugly process, and those who do it will be vilified. However, they should takes solace in knowing that they made a difficult situation more tolerable by communicating a clear message and by establishing options for students to complete their education.
Another mistake is to assume that the closure will be a speedy process. Because the college won’t want to leak information about an impending closure, it is not possible to negotiate teach-out or transfer agreements in advance. It takes three to six months to negotiate student agreements.
Finally, administrators often underestimate the cost of a closure. Especially if no external teach-out is in place, students may decline any options offered to them, or withdraw before options are offered at all, resulting in another drain on dwindling resources. Outside professional advisers are an added expense, but often they can streamline the process and help avoid costly litigation.
Nobody wins when a college closes. So much is at stake — not only for students and employees but also for graduates, as well as the institution’s reputation and legacy. Investing the time to minimize the impact on students demonstrates the college’s integrity and commitment to its values.
In the end, lessening the burden on the people affected by this sad event and closing ethically and compliantly should be the paramount goals of those who are left to turn out the lights and shut the door.
