The most fundamental challenge is demographics. The birth rate fell
after the 2007/8 financial crisis and has never recovered. As a result, the number of students entering college from high school is expected to fall 15% starting in 2025
—but this drop will be felt far more acutely by less selective schools in lower growth parts of the country. (Harvard will stay full.)
Any competitive industry with over-capacity, fixed assets (for example, campuses) and semi-fixed costs (such as staff) quickly faces hard choices and difficult finances. In an attempt to attract the shrinking pool of students, colleges are already cutting prices, spending more on enrollment strategies, investing in new facilities
and chasing "in-demand" programs
(for example, coding).
While these decisions may be rational for individual schools, they are not collectively sustainable. As nonprofits that have already seen a reduction in inflation-adjusted-per-student government funding over the last 10 years and are already grappling with technology change, some won't have the cushion to ride out the demographic storm.
Although the demographic cliff is still several years away, the number of closures and mergers has already risen—and more are expected. While many of these will be unavoidable, they can still be done well or badly. A "good" closure includes a fully-funded plan to enable students to complete their degrees elsewhere and avoids needless damage to small towns and rural communities where even a small or struggling college represents an important part of the social and economic fabric.
In the face of several "bad" closures, new laws—the Financial Stability in Higher Education Act in Massachusetts
and the Federal Stop College Closure Act
—have recently been introduced to require colleges to regularly disclose their financial condition in "plain English," proactively reach out to the relevant agencies if they are at "risk of imminent closure," maintain "teach out" plans allowing students to complete their degrees in the event of a closure and set aside the financial resou