Merging with a peer in further education is now the most sensible option for colleges wanting to cut costs, argues Martin Vincent

At the start of November an investigation by The Independent revealed at least three universities in England are in serious financial distress, relying on bridging loans to stay afloat. The news is clear evidence of a sector under pressure. Difficult economic and political conditions, combined with increased competition for students, are negatively impacting institutions that have traditionally been viewed as financially robust. For college leaders, partnerships or mergers with universities have long been a tempting tactic – but the pressure on higher education institutions means this strategy now carries greater legal and financial risk.

Further education has its own, well-documented financial challenges. Labour’s recent analysis of figures from the Institute for Fiscal Studies found spending on further education and skills has dropped by £3.3 billion in real terms since 2010. Merging with education providers has been an effective way for colleges to combat this. While there are several different routes, mergers let colleges pool resources to cut costs and unlock revenue. However, the merging of two education providers requires the sharing of liabilities as well as assets. With the fresh pressure on higher education, colleges are now more likely to strike the right balance of risk and reward by merging with similarly-shaped organisations – namely, other colleges.

Taking a step back, the most common form of collaboration between higher and further education are validation agreements, which let colleges tap into university resources, faculty and facilities to offer degree programmes to students. Manchester College, for example, offers degrees validated by Manchester Metropolitan University and the Universities of Bolton and Salford. Individual arrangements will vary, but ultimately these lucrative collaborations let colleges lean on the offering of more established institutions and generate more revenue through tuition fees.

College-to-college mergers offer a more natural operational fit

However, in the precarious financial position universities are now operating from, validation agreements could increase a college’s legal exposure. With this form of collaboration, students usually have duel registration to give them access to both institution’s facilities. If a university delivering a degree programme on behalf of a college goes under and students affected cannot complete their studies, the college could face a multitude of potentially costly breach of contract claims. So, while course validation undoubtedly gives colleges quick access to revenue, they are far from being a long-term route to financial stability.

By contrast, when a college merges with another, similarly-sized institution that operates in the same locality, both colleges can benefit from estates rationalisation. In practice, this means each institution sells off duplicate, or outdated facilities and combines the best of what’s left into a leaner operation that draws from the same pool of students, uses the same faculty and is generally more financially efficient.

This approach is possible with college-university mergers, too, and has indeed been tried in a number of instances. However, the potential operational synergies that can be achieved just aren’t as beneficial.

Colleges typically offer more vocational courses and need to maintain specialist facilities to deliver them. This is at odds with a university’s set up, which is generally geared to an academic offering and often supported by a portfolio of listed properties that are harder to sell, especially in the case of older institutions. There is also a question of governance. College governors or trustees will usually have little experience within higher education, so taking a leap into the unknown and merging with a university with the stakes higher than ever is short-sighted. The Technical and Further Education Act 2017 extended the Companies Directors Disqualification Act 1986 to further education, meaning college leadership can be found personally liable if their institution enters insolvency due to mismanagement.

Before undertaking a merger, colleges must look carefully at the finances and operations of the institution they intend to partner with. In the current climate, the risks of merging with a university are now too great. Put simply, college-to-college mergers offer a more natural operational fit and deliver synergies that unlock greater revenue for colleges under financial pressure.