Two small colleges in Newton, Massachusetts, are in trouble.

After merger talks between Mount Ida College and Lasell College collapsed, Mount Ida threw itself at the mercy of the University of Massachusetts.

Under a deal announced last week, Mount Ida will shut down and UMass will acquire its 74-acre campus. That leaves Lasell to figure out its own path.

The unsettled situation reflects how hard it is for small colleges to stay afloat in a competitive higher education marketplace.

In a high-end real estate neighborhood of Newton, Lasell College President Michael Alexander left his office in the library and walked past white Victorian houses on campus, throwbacks to the days when Lasell was a women's college.

Lasell has transformed itself since then, from a two-year finishing school serving white debutantes to a four-year liberal arts and professional prep college. Today, 43 percent of its 1,700 students are the first in their family to go to college. A third are low-income.

Like a lot of small colleges in the Boston area, Lasell is trying to stay viable, so, on average, the college charges students about half of its $50,000 sticker price. That's a 50 percent discount rate.

Alexander maintained that rate is sustainable.

“There are plenty of schools that are operating successfully at 60-65 percent,” Alexander said. “Some are getting to 70 percent, where it's not. I'm not sure where the line is."

Massachusetts is this country's capital of private colleges, known for brand names like Harvard and MIT. Still, many small, lesser-known schools face serious financial and demographic challenges: rising costs, steep tuition discounts, meager endowments and declining numbers of high school graduates.

As a result, Lasell is grappling with its third consecutive year of down enrollment.

That's why six weeks ago, Lasell and Mount Ida announced they could join forces as early as this fall. The schools said they hoped to work together to maintain quality and lower their operating costs.

Some faculty and staff quietly began looking for new jobs. Marie Franklin, a journalism professor, said students considered other options, too.

"I know there were some students, especially in the first and second-year classes who said maybe I should think of transferring," Franklin recalled.

To secure its future, Franklin said Lasell needs to be more efficient.

"We need to look at how we spend every penny of our budget at this college, and maybe there will be a little bit of constriction in certain areas. Maybe there's overlap in certain departments," she suggested.

In a quick reversal, four weeks after announcing the merger talks, Alexander called it off, claiming Lasell is as strong as it's ever been.

“The cost of attending college no matter how well you're operating, even if you're hitting on all cylinders like Lasell College,” Alexander said. “The external environment affects you."

Over the past 20 years, while median household income has declined, tuition at private colleges has more than doubled. Lasell is losing some price-conscious applicants to state colleges that cost less.

“It's an extremely competitive environment," said Brian Mitchell, former president of Bucknell University and the author of How to Run a College.

"[Small private colleges] operate on an unsustainable financial model, and they have to begin to think about ways in which they can grow revenue as well as looking at under-utilized assets to come up with a new financial model," Mitchell said.

Mitchell said he doesn’t foresee any great "end of the dinosaurs moment." Most colleges, he predicted, will be agile enough to survive.

"But it won't necessarily be the ones with the biggest endowments,” he said. “They can kick the can down the road perhaps for a few more years than the others, but it will be those institutions that understand their mission – that differentiate their product."

Alexander is banking on even steeper discounts to boost enrollment at Lasell. For the first time, next fall students who agree to work and live off campus while taking classes online as sophomores will see their tuition drop each year.

"In the second year, it will be $4,000 less. Third year $8,000 less. The fourth year $10,000 less, for a $22,000 reduction," Alexander explained.

Alexander said he hopes at least ten percent of Lasell's incoming class accepts the new discount.