The Coming College Collapse

Some pretty alarming predictions are being made about American institutions of higher education these days.  Clayton Christensen, a professor at the Harvard Business School, predicts that half of all colleges and universities will close or go bankrupt in the next decade.  That’s upping the ante on a prediction Christensen and Michael Horn made in the New York Times in 2013:  that the bottom 25 percent of every tier of colleges and universities will close or merge out of existence in the next 10 to 15 years.

Abandoned HospitalWhy the dire forecasts?  Because colleges have been struggling for a while now, their business models aren’t sustainable, and demographics and economics indicate that things are going to get worse very soon.

Here’s an interesting point made in the first article linked above:  “Many colleges and universities are increasingly unable to bring in enough revenue to cover their costs. Indeed, the average tuition discount rate was a whopping 49.9% for first-time, full-time freshmen in 2017–18, according to the National Association of College and University Business Officers. That means that students are paying roughly only half of what colleges and universities say they charge. A tuition discount rate above 35% puts a college in a danger zone, particularly when it is heavily dependent on tuition. Many institutions have discount rates far above that now.”

The fact that the average tuition discount rate is nearly 50 percent indicates that it’s high times if you’re somebody whose child is getting ready to go to college.  College tuitions may be like hospital prices lists for different procedures — that is, they are quoted amounts that almost no one really pays — but an average discount of 50 percent is staggering.  Clearly it’s a buyer’s market out there, and buyer’s markets are bad news for sellers, who get caught in price wars that do nothing except cut into their bottom line.  And, in the case of colleges and universities, the fight for students not only involves cutting tuition, but also building new, high-end dormitories, workout facilities, student centers, and other facilities that might appeal to high school kids who are trying to decide where to spend the next four years.

Statistics also show that about 25 percent of private colleges are operating at deficits, and that expenses have exceeded revenues at public colleges over the past three years.  And demographics aren’t helping, either:  the number of American 18-year-olds who are going to college is declining, and the decline is supposed to get worse within a few years.  Combine fewer applicants with tuition price wars and high fixed costs to pay expenses like tenured faculty salaries and building maintenance costs and you start to see the obvious challenges.  Throw in the possibility that some kids who have grown up sitting in front of their computers might decide to opt instead for the on-line learning options that are making increasing inroads, and the picture becomes even bleaker.

Often, predictions turn out to be wrong, of course, but there is no doubt that these are tough times for American institutions of higher education.  Don’t be surprised if, in a few years, you hear that your alma mater is closing its doors.

 

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2 thoughts on “The Coming College Collapse

  1. I wonder if the “discount rate” they are referring to is student loans. Most of my friends at school including myself paid what we could up front but the rest will take us the next 10 years at least to repay. There’s also the issue of the salaries at the top of the pyramid. There are a lot of high ranking university staff that students might never even see that make a lot of money and get hefty bonuses, meanwhile some of the student dorms are falling apart. Finally, more students are getting accepted to university to try to bring in more revenue without the resources to support those students. It’s a whole mess. Glad someone’s talking about it!

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