US: Risks and opportunities for multi-state campuses

Creating campuses in multiple US states carries both risks and opportunities for private colleges, according to a report by Moody's Investors Service.

One college, Northeastern University in Boston, has opened regional campuses across America. The move reflects a new trend that may well spread to other private not-for-profit universities as enrolment continues to decline and revenues dwindle in a weak economy, says the study, published in late November.

"It is an idea that is likely to be repeated by others over the next decade as private universities face new risks, including declining numbers of high school graduates in their original locations, especially in the Northeast," says the author of the report, Moody's Vice President-Senior Analyst Kimberly Tuby, in a statement.

While a number of institutions, like New York University (NYU) and Yale, have expanded their campuses to outside the United States, few have looked to do so within the country's borders. Tuby says the longer the recession drags on, the more private universities will be forced to implement new, and often riskier, strategies to survive.

"The longer the macro economy and stock market remain weak or volatile, the more likely it is that the traditional business models will evolve to become more aggressive, and open to new risks like expansion."

In October Northeastern University, a private research institution centred on experiential learning, opened its first regional campus in Charlotte, North Carolina. Plans are under way to launch a second campus early next year in Seattle, Washington.

The campuses will offer only graduate degree programmes, and will integrate online and classroom learning.

According to Northeastern University's President Joseph E Aoun, the existing college campuses are based on a model imported from England in the 17th century.

"This model cannot meet the full demands of contemporary society. We need to develop truly modern campuses - regional platforms for graduate education and collaborations between higher education and industry," he says in a statement.

If successful, expansion to other states can boost an institution's revenue, increase enrolment and enhance its reputation, says the study.

The north-east faces a higher projected decline in graduates than any other region in the US, according to Moody's latest figures, which predict a 1% decrease over the next decade. Expanding to other regions will widen the new student recruitment base and therefore increase revenues, says the study.

"Broader geographical student draw helps reduce vulnerability to regional economic volatility and unfavourable demographics," writes Tuby in the report.

But a domestic expansion strategy carries risks.

Most private not-for-profit universities have limited experience managing multiple sites across states. Challenges include hefty start-up costs, the complexity of managing a multi-campus system as opposed to a single-site campus, and reputational risks, which the study cites as one of the most significant risks to a university embarking on the multi-site path.

"The strategy of multiple-campus expansion could result in market confusion and brand damage if the quality of instruction at new sites is not on par with the programmes offered at the main campus," writes Tuby.

To implement a successful regional campus and mitigate risks, universities need to perform in-depth market assessments and develop a solid pricing and growth strategy, says the study.

* The report "US Expansion Strategy Offers Opportunity and Risk for Northeastern University" is available at moodys.com.