The higher education landscape in the United States is facing an existential crisis. A perfect storm of demographic shifts, changing perceptions about the value of a college degree, and financial instability is threatening the survival of many colleges and universities. The so-called “enrollment cliff” — a sharp decline in the number of traditional college-aged students — is no longer a distant threat. It is here, and its ripple effects are already being felt across the sector.
The Demographic Reality
The numbers are stark. According to the Western Interstate Commission for Higher Education (WICHE), the number of 18-year-olds graduating from high school each year — the primary pool of college applicants — will decline by 13%, or nearly half a million students, by 2041. This follows a 15% drop in college enrollment between 2010 and 2021, as reported by The Hechinger Report. Some states will feel the pinch more acutely: Illinois is projected to see a 32% decline in high school graduates, California 29%, and New York 27%.
This demographic downturn is compounded by a cultural shift. Fewer than one in four Americans now believe a bachelor’s degree is extremely or very important to securing a good job, according to recent surveys. The proportion of high school graduates enrolling directly in college has also fallen, from a peak of 70% in 2016 to 62% in 2022.
Financial Fallout
Fewer students mean fewer tuition dollars, and for many institutions, this is a financial death knell. Colleges and universities are already grappling with declining revenue streams. Graduate programs, once a reliable source of income, are also suffering. Enrollment in graduate schools has dropped by 2.7 million students since the start of the last decade, according to The Hechinger Report.
The financial instability is reflected in bond ratings. Fitch, the bond-rating agency, recently categorized the outlook for the higher education sector as “deteriorating.” In 2023 alone, 17 higher education institutions defaulted on municipal bonds, up from 21 the previous year. Each college closure translates to an average loss of 265 jobs and $67 million in annual economic impact, according to the economic analysis firm IMPLAN.
The Labor Market Paradox
While colleges struggle, the broader economy faces a labor shortage. The labor market analytics firm Lightcast estimates a shortfall of six million workers by 2032. Yet, the disconnect between higher education and the job market persists. Employers are increasingly prioritizing skills over degrees, with micro-credentials and non-degree programs gaining traction. This shift has left many questioning the value of a traditional four-year degree, particularly as 15% of graduate degree holders earn less than those with only a bachelor’s degree.
The Full-Pay Problem
Another financial challenge for colleges is the decline in “full-pay” students — those who can afford to pay tuition without financial aid. According to Jeff Selingo’s research, the proportion of full-pay students has dropped from 26% to 22% since 2012. These students are increasingly concentrated at elite institutions, with 89% attending the top 50 colleges. For mid-tier schools, the loss of full-pay students exacerbates budget shortfalls, forcing them to rely on high discount rates to attract students.
Innovative Solutions
To survive, colleges are exploring creative solutions. Some are lowering tuition to attract more applicants. Hartwick College, for example, reduced its tuition by 32% in 2016, a move that has since been replicated by 72 other institutions. Others are merging resources, as seen in Vermont and Pennsylvania, where public colleges have consolidated to cut costs and maintain viability.
International students remain a key revenue source, but their numbers have declined. During Donald Trump’s presidency, the U.S. saw a 12% drop in international enrollment compared to competitor countries. Today, 58% of European students say they are less interested in studying in the U.S., citing political and social factors.
Colleges are also creating niche programs to attract students. From marine biology to esports management, institutions are tailoring offerings to meet evolving interests. Direct admissions programs, which proactively offer admission to qualified students, are another emerging strategy to boost enrollment.
The Role of Adult Learners
Adult learners represent an untapped market. However, their enrollment has fallen by half since the Great Recession, according to the Philadelphia Fed. Graduate programs targeting older students are also struggling, with the proportion of Americans aged 25 to 44 enrolled in graduate school declining, per Encoura, a higher education research firm.
The Path Forward
The challenges are daunting, but not insurmountable. Colleges must adapt to a new reality by rethinking their value proposition. This includes offering flexible, shorter-term programs, forging stronger ties with employers, and leveraging technology to reach non-traditional students.
As the enrollment cliff looms, the stakes could not be higher. The survival of many institutions — and the economic vitality of the communities they serve — depends on their ability to innovate and evolve. For higher education, the time to act is now.