The postsecondary education sector is grappling with mounting financial challenges, including declining enrollment, rising operating costs, and reduced tuition revenue.
These pressures have led to an increase in college closures, mergers, and financial distress, with far-reaching impacts on students, employees, and local economies.
Enrollment in U.S. colleges and universities has dropped 15% from 2010 to 2021, according to the National Center for Education Statistics. While enrollment saw a modest uptick in fall 2023, reversing years of decline, the sector still faces significant hurdles.
Much of the downturn has been attributed to the so-called “demographic cliff,” reflecting a shrinking pool of high school graduates in parts of the country. This trend, compounded by low graduation rates and declining rates of immediate college enrollment after high school (down from 70% to 62% in a decade), signals shifting public perceptions about the value of higher education.
Adult learners, another critical student demographic, have also declined sharply. Traditionally countercyclical, adult enrollment tends to rise during economic downturns but has dropped nearly 50% since the Great Recession. With a strong labor market offering attractive alternatives to education, colleges have struggled to attract this group.
Compounding the enrollment challenges, colleges are facing rising operating expenses. “Pandemic-era” inflation and long-term increases in benefits costs have further strained budgets.
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Meanwhile, the ability to raise tuition revenue has diminished. Tuition and fee increases have lagged behind inflation since 2018, and private nonprofit colleges are discounting tuition at record rates, with discounts exceeding 50% in 2022.
Additionally, many states have imposed limits on public colleges’ authority to raise tuition, further constraining revenue growth. This environment has left institutions with fewer financial levers to address growing deficits.
Although federal relief during the pandemic helped stave off a wave of closures, financial distress among colleges has escalated in recent years. Closures increased in 2023 and 2024 as federal funding was withdrawn and longstanding financial pressures resurfaced.
Some institutions have declared financial exigency, cutting academic programs and staff in a bid to survive. Even flagship universities like West Virginia University and Pennsylvania State University have resorted to deep budget cuts to address deficits.
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The ripple effects of closures extend beyond campuses. Colleges often serve as economic and cultural anchors in their communities. Research has shown that layoffs in other sectors lead to regional job losses, with some workers relocating or exiting the labor force entirely. Similar effects are expected when colleges close or significantly downsize, underscoring their critical role in local economies.
As financial pressures mount, the future of higher education hangs in the balance. Policymakers and stakeholders face the challenge of addressing these systemic issues to ensure colleges remain viable and continue to serve students and communities effectively. Without intervention, the economic, social, and educational consequences of institutional closures could become increasingly widespread.
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