“Now that’s an interesting question,” you’ll say, “coming from a professional college planner.”
It most definitely is an interesting question, but it is one that parents and students should factor into their college planning campaigns.
At one point in the not-too-distant-past, a Harvard Business School Professor, Clayton Christensen, predicted that 50% of colleges and universities would go bankrupt in the next 10-15 years. In 2013, he and Michael Horn, a writer focusing on education, suggested that, “a host of struggling colleges and universities—the bottom 25 percent of every tier, we predict—will disappear or merge in the next 10 to 15 years.”
In short, an underlying premise supporting the argument – the business model of traditional colleges and universities was broken.
1. Annual revenue falls short of covering costs.
According to the National Association of College and University Business Officers, the average tuition discount rate for first-time, full-time freshmen was 49.9%. Students were paying roughly one-half of the projected annual cost of an education.
Continuity of business numbers suggest that, for schools dependent upon tuition to cover expenses, a discount rate in excess of 35% places a school in jeopardy. Multitudes of institutions exceed that percentage.
As of Mr. Horn’s 2018 article, “at least 25% of private colleges are now running deficits” and at public institutions, “even in a good economy, expenses have outpaced revenue the past three years.” (2015-2017).
2. Demographics have been changing.
The pool of potential students began its decline a few years ago. The number of college-age students reached its zenith and began trending downward not too long ago.
Awesome right? More money for fewer students! Not so…it’s a disaster in the making…
First, in the competition to attract students, colleges and universities will continue their “arms race.” For many, that means more faculty, more extravagant facilities, more administrative positions—added expense. This intensifies their current struggle for revenue (i.e., tuition, government funds, market returns on endowments, and donations).
Second, for those that lose the race and those that experience enrollment declines, their large fixed costs (tenured faculty, debt payments associated with financing their many buildings, and associated building-maintenance costs) are but dead weight pulling them under at rapidly increasing rates.
3. Disruptive innovation.
Online learning is predicted to wreak further havoc on the traditional business model.
Even before the mass hysteria occasioned by the Covid-19 pandemic, schools had begun utilizing online learning technology. With the resulting nationwide shutdown of colleges and universities, such learning has become the new norm.
How many colleges and universities will close and over what period of time will this occur? Will there be outright closures? Mergers and acquisitions? Bankruptcies? Perhaps all three?
There is an old Chinese curse (yes, quite fitting for the time) – May You Live in Interesting Times. We most certainly do.
Considering the above, it’s likely the 200 most selective schools in the nation are likely to be unaffected. Many institutions will find clever means of innovation in an effort to ensure their continued existence.
Do you have any idea how your college planning campaign may be affected? Will the schools in which you’re most interested be able to provide the financial aid for which you qualify? Will your child be in the best position for purposes of application and admissions? How will you know if you’ve addressed every facet that could affect your campaign?
We are here to help. We look forward to hearing from you.