Higher Education in Crisis: Financial Realities Require Urgent Reforms
Higher education is facing a challenging period as declining enrollments force schools to make difficult decisions.
The higher education narrative is under scrutiny. Years of declining enrollment, risings costs and state austerity, and increasing student loan debt have raised existential questions exacerbated by the pandemic. As colleges and universities navigate this new era they may need to recognize long-used operating models no longer work.
Across the U.S. there is also an imperative of alleviating the weight of student loan debt and ensuring equitable access to college education. But this is not a problem for educational institutions alone, it is a problem for state legislatures. State governments need to determine what public university systems mean to their residents and invest appropriately.
Some of the recent developments and issues affecting higher education covered here include:
College expenditures, and tuition costs, are out of control. Over two decades, for each $1 decrease in state support, the median public institution increased tuition and fee earnings by approximately $2.40.
College enrollment has been declining since 2010. Declines are partly driven by demographics. But while education still provides a transformational experience, changing preferences require innovation.
With colleges and universities relying on tuition dollars, missing enrollment targets is a compounding problem. State legislatures may need to find additional dollars or make difficult decisions.
States need to determine the value of their educational institutions and take action. Higher education aids in social mobility and can be a source of regional economic development.
It is crucial for state governments to navigate the challenges facing higher education. Failure to recognize issues early on, provide additional funding, or make changes will only lead to difficult decisions in the future. State governments have a responsibility to safeguard the long-term viability and integrity of their higher education institutions.
Higher Education Costs and State Funding Come Under Scrutiny
The Wall Street Journal recently published an article: “Colleges Spend Like There’s No Tomorrow.” Their analysis of flagship public universities found spending rose 38% between 2002 and 2022 – only one university, the University of Idaho, spent less. Here are some of their key findings:
Over the span of two decades, for each $1 decrease in state support to flagship public universities, the median institution increased tuition and fee earnings by approximately $2.40.
Between 2010 and 2022, when adjusting for inflation, expenditure on athletic coaches grew by roughly 50% at the median flagship university.
Within the last 20 years, tuition and fee revenue per student demonstrated double-digit increases across all institutions analyzed by the WSJ.
Around the same time WSJ’s report was circulating another higher education report was making news from West Virginia University (WVU). WVU recommended 32 programs for elimination (12 undergraduate and 20 graduate), affecting over 400 students and nearly 170 faculty line reductions. These recommendations came as the university faces a $45 million deficit in 2024 that may rise to $75 million by 2028. In addition to declining enrollment, WVU has also been receiving less state support.
“If West Virginia lawmakers had simply kept higher education funding at the same levels as a decade ago, West Virginia University would have an estimated additional $37.6 million in state funding for FY 2024, closing the majority of this year’s budget gap.” - West Virginia Center on Budget and Policy
Substantial increases in student loan debt, bias in admissions at elite universities, and revelations of spending growth at public universities underscore urgent need for reform. Students should not shoulder the burden of rapidly increasing costs and state legislatures need to take a proactive role in addressing affordability challenges at state institutions.
Over a Decade of Declining Higher Education Enrollment
Obtaining a college education is transformational; the investment pays off. However, rising student debt, interest in non-traditional careers, and renewed interest in apprenticeships – compounded by demographic changes - has resulted in declining college enrollment since its peak in 2010.
Post-pandemic, overall enrollment in higher education is still significantly lower. Spring 2023 compared to Spring 2020 saw a decrease of approximately 1.09 million total students, and around 1.16 million fewer undergraduate students alone.
Polls on the attitudes of Gen Z are mixed. One study found Gen Z is more likely to job-hop but remain interested in the same traditional careers as prior generations. While another study estimated 67% of Gen Z are freelancing or plan to. Regardless of the reason for enrollment declines, many higher education institutions now face precarious financial positions.
Missing Enrollment Targets is a Compounding Financial Problem
A college missing their Freshman enrollment target isn’t a one year problem, it’s a four year problem. Missing a freshman class target likely means missing that target for the next three to five years— compounding revenue loss. Small private colleges with already low levels of enrollment are most at risk of financial distress.
In the past several years there have been several colleges that have gone through restructuring, bankruptcy or liquidation (complete list):
San Francisco Art Institute (SFAI) has filed for chapter 7 bankruptcy The Art Newspaper (April 2023)
3 Stone Academy Campuses Listed for Sale After Sudden Closure NBC Connecticut (April 2023)
Stratford University files for bankruptcy WTOP News (March 2023)
Cazenovia to Close in 2023 Inside HigherEd (Dec. 2022)
Lincoln College closing its doors Axios (March 2022)
Whether private, for-profit, or not-for-profit, any trade school or college closure is significant (for-profit colleges close at higher rates than public not-for-profit schools). Currently enrolled students are often left with debt and may be unable to complete their degree. One study found that slightly over half, 53%, of students experiencing a college closure did not re-enroll.
Campus closures started increasing after 2012 and peaked in 2018. However, challenges post-pandemic may further accelerate closures as stimulus funds played a crucial role in extending colleges’ financial stability. Restructuring advisors and consultants have noted a rise in the number of schools proactively considering strategies to avoid distress. Particularly, smaller non-urban liberal arts schools are disproportionately affected by the decline in student enrollment compared to prestigious universities with substantial endowments or well-funded state institutions.
New Opportunities for State-Financed Public Colleges and Universities
Horace Mann characterized education as “the balance wheel of the social machinery” in 1848 and education is often considered “the great equalizer.” But changes in demographics and societal trends are prompting a rethink of the university system.
Public Colleges Can Fill Voids Left by Closing Private Colleges
Income inequality is soaring and the revelations of admissions decisions at ivy league universities has further raised questions. Researchers at Opportunity Insights found that children’s chances of earning more than their parents have been declining. If elite institutions are failing to adequately advance social mobility, and private colleges too often prey on the most vulnerable, public institutions should be a source of stability.
Funded by taxpayers, public colleges can offer more affordable education options, reducing the financial burden on students. By expanding access to quality education, public institutions can help bridge the gap in opportunities for students’ social mobility.
State Higher Education Systems Provide Economic Development
State colleges and universities can revitalize communities while creating jobs and opportunities. Researchers at Brookings found “a healthy cadre of regional public universities could help close enrollment and attainment gaps and bolster economic growth in communities across the [Great Lakes] region.” In 2017, the University of Connecticut opened a campus in downtown Hartford and an undergraduate dormitory building in Stamford to promote economic growth in those cities.
Globally, one study estimates that a 10% increase in the number of universities per capita in a region is associated with 0.4% higher future GDP per capita form that area. Colleges attract a diverse population of students, faculty, and staff that increase demand for housing, goods, and services.
Public College Systems Need to Change and that Will Bring Difficult Choices
With declining enrollment and funding challenges, some state university systems are undergoing significant restructuring efforts. Transformations should aim to realign institutional strategies, optimize resource allocation, and foster innovative approaches to ensure long-term sustainability.
While Governors’ priorities for higher education in 2023 reflect an eye toward increasing affordability, some states have more difficult roads ahead:
After a 10% decline in enrollment since 2015, West Virginia University announced a significant overall at its main campus.
Connecticut is moving forward with a long-proposed merger of its 12 community colleges into the singular Connecticut State Community College with each college becoming a sperate campus within the new system.
Amid enrollment declines and state funding challenges, the state of Vermont merged three struggling colleges into one hybrid institution.
College enrollment in Pennsylvania has plummeted but has one of the highest ratios of institutions to students in the country. The state is considering reforms, but it is unclear what will come of them.
There is no singular solution to address the challenges facing higher education. But a proactive approach and early attention can prevent difficult choices in the future.
Any opinions expressed herein are those of the author and the author alone.