Colleges Link Up to Cut Costs

As expenses of running colleges and universities continue to rise, schools are banding together to increase their purchasing power

by Alison Damast

This is the fourth part of a multipart series on the business of college.

Financial officers from colleges and universities faced with spiraling expenses have discovered the truth in the maxim "There's strength in numbers." And they're using that strength to wrest some savings in their school budgets.

Take the case of a group of 20 Wisconsin private colleges that several years ago sought to broker a better deal on the diverse array of student health insurance plans each offered on their respective campuses. "We went out to the major carriers and said, 'Can you give us a better price if we bring in our 58,000 students, as opposed to a college of 2,500?'" said Rolf Wegenke, president of the Wisconsin Association of Independent Colleges & Universities (WAICU), an organization representing private colleges in the state.

They were able to negotiate a less expensive health plan, with new added perks like immunizations, wellness programs, and mental health-care services—at two-thirds of the listed price. "In the end, we ended up with our ideal," Wegenke said. "Everything we wanted was built into it for less cost."

Reducing Pressure for Tuition Increases

Collaborations like these among colleges and universities are quickly changing the way business is being conducted in the higher education sector. One of the most popular means is through regional and statewide consortia like the Wisconsin group, where schools leverage their purchasing power for services and goods, administrative services, and information technology. In a few instances, schools are joining together beyond state lines. One such organization, the nonprofit Coalition for College Cost Savings (CCCS), has managed to get more than a dozen state groups to come together on contracts for items such as maintenance supplies and computer hardware. In addition, for-profit companies have stepped in, brokering deals for large state universities and communities across the country, saving perhaps 10% to 15% on everything from office furniture to janitorial services.

The driving force is the desire for schools to look for new says to reduce the pressure for tuition increases, said Tony Pals, a spokesman for the National Association of Independent Colleges & Universities (NAICU). Schools, like many other businesses, are also struggling with soaring costs in areas such as utilities, health-care premiums, and information technology, he said. "The bottom line is that for institutions to survive financially in the coming years, they are going to have to adopt more business-like operating practices," Pals said.

Indeed, a growing number of consortia are operating like large-scale group purchasing businesses. Wegenke, of the Wisconsin group, said his organization's joint purchasing agreements have become an "overnight phenomenon." He now manages nearly 30 different collaborations for his 20 member schools, ranging from back-office administrative functions to joint administration of health plans. From 2004 to 2007, the group has saved its members, through cost-saving collaboration, approximately $16 million, Wegenke said.

"What we have done is concentrated every year on the more complex projects our members find it hard to do on their own because, frankly, that's where the bigger savings are," he said.

The savings are being passed on, for the most part, to the students at the schools, either through tuition or financial aid, Wegenke said. For example, from 2006-07 to 2007-08, the average increase in tuition and fees for the 20 schools in the WAICU group was 5.3%, slightly below the 5.9% national average increase in tuition and fees published by the College Board last fall. He said he attributes the lower tuition cost for his group's schools partly to the cost-cutting efforts.