The College Enrollment Crisis

When the students at Birmingham-Southern College chose their school, they were probably thinking about its small class sizes, picturesque campus, and competitive baseball team. What they probably weren’t thinking about was whether it would still exist by the time they graduated. After all, this Alabama liberal arts college was founded in 1856, five years before the Civil War. Over its 168-year lifetime, it survived the Great Depression, two world wars, and even a few pandemics. And yet, one Friday last May it closed its doors forever, leaving its College World Series team stranded mid-tournament, playing for a now-nonexistent school. Across the nation, prospective students spend hours comparing each school’s location, faculty, campus, and courses. (Occasionally, they even consider its cost. ) Rarely, however, do they glance at its balance sheet. We take for granted that someone will always be around to store our transcripts and that the name on our diplomas will hold, if not gain, in value. But this is not nearly as safe an assumption as you might imagine. Between 1996 and 2023, nearly a third of all for-profit community colleges closed forever, according to the Federal Reserve. That’s over 1,200 schools — about 45 a year. Even 7% of 4-year non-profits closed over that same period. Hundreds of thousands of students have been affected — their plans abruptly delayed or derailed. On average, fewer than half ever re-enroll at another school. Just 32% have their debt forgiven. And things are about to get a whole lot worse. Sponsored by Brilliant. Learn math, science, and computer science the intuitive way with the link in the description. This is the basic problem. For decades, enrollment at 4-year universities has been steadily increasing. But starting next school year, it’s expected to fall dramatically — by about 10% over the first five years alone, according to Dr. Nathan Grawe of Carleton College. This is not about 18-year-olds dropping out to become plumbers or electricians. True, Americans are unhappy with the state of college. In a 2015 Gallup survey, 57% of respondents said they had “quite a lot” or “a great deal” of confidence in higher education. By 2023, that number was down to just 36%. But take a look at the enrollment rate. As you can see, a smaller share of young people are choosing to attend — but only just barely — about 39% today versus 42% fifteen years ago. Young people, it seems, are frustrated yet feel they have nowhere else to go. In other words, the crisis facing schools today is not about the enrollment rate — although perhaps they wish it were. You can convince skeptical 18-year-olds about the value of a college degree. But you can’t convince an 18-year-old that doesn’t exist. And that’s the issue they now confront. For nearly twenty years after 1990, the average size of an American family hovered right around two children. Then, during the Great Recession, it began to fall. And it’s been falling ever since. Today, the U. S. birth rate is about half a child smaller than it was in 2007. Well, it’s now been 17 years since the Great Recession. And it takes about 18 years to produce a college freshman. Which means we’re one school year away from this smaller cohort of babies born in 2008 enrolling in college. This year, about 4 million students will graduate high school. By 2037, just 3. 5 will, according to the Western Interstate Commission for Higher Education. College hasn’t gone out of fashion. But having children has. And that spells trouble for the institutions that depend on them. Now, in the grand scheme of things, this may not sound catastrophic. Surely Penn State can manage with fewer than eighty-nine thousand students, for example. But here’s the problem: birth rates weren’t the only thing that fell and never recovered after the Great Recession.

During economic downturns, state and local governments are squeezed in two directions: there’s more need than ever for things like unemployment, food stamps, and Medicaid — so expenditures go up. Meanwhile, sales, property, income, and corporate tax revenues go down. So, to weather the storm, states cut back on nearly everything deemed “non-essential. ” Bus routes are cut, DMV lines (somehow) get longer, and good luck getting that pothole fixed! Also on the chopping block are colleges. Between 2008 and 13, state appropriations for higher education fell by over $13 billion. Sixteen states cut their funding by over 20% and six states by over 30%. Arizona went even further: cutting its appropriations in half. So, to stay alive, schools had a choice: they could either reduce expenses or raise tuition. And you can probably guess which path they took. The thing to remember about universities is that they’re notoriously inflexible. Every fiber of their being is predisposed to resist change — sometimes for the better, often for the worse. Partly this is cultural. But it’s also economic… A school’s largest expenses are personnel, many of which are tenured, and thus, contractually impossible to lay off on a whim, and giant, fixed assets like libraries and dorms, which also aren’t easy to get rid of. Reducing expenses, in other words, is hard. Doing it quickly is even harder. Needless to say, college presidents don’t become popular by making these painful cuts. Thus, whenever the pressures of the “market” penetrate their insular walls, the burden of restoring equilibrium usually falls on the one, “easy” lever they can pull: admissions, and tuition, in particular. Much easier to update a number on the website than cancel a $20 million renovation or sell the 100-year-old library. So, that’s exactly what they did. This is the share of revenue schools earn from tuition and this is the Great Recession. As you can see, when public appropriations fell, tuition rose. Now, these budget cuts are invariably sold at the time as a temporary re-shuffling of priorities — a delay, not cancellation. But watch what happens when we zoom out… After the 1990 recession, appropriations fell, so tuition rose. Sure, starting here, around 1998, states finally began restoring funding. But by the time the Dot Com bubble burst in 2001, this funding had still not fully recovered from the last downturn. Meanwhile, this new recession caused tuition to rise again. Then it rose again after 2008. Since then, appropriations have started to return, but again, not nearly as fast as they fell. A full decade after the 2008 recession, state spending was still down by a quarter in Texas, a third in Mississippi, and a whopping 54% in Arizona. The money just never came back. Over the long term, the trend is clear: the burden of paying for college has moved in only one direction. Each recession permanently shifts more of the cost from the public at large to individual families. Take the University of Washington, for instance. In 1989, the school received 20,674 inflation-adjusted dollars per student. Thirty years later, in 2021, it still received about $20,000. But the state of Washington went from covering 80% of that cost to just 38%, with students paying the difference. So dramatic was this shift that a few “public” schools are basically public in name only. The University of Wisconsin–Madison, for instance, receives just 14% of its funding from the state of Wisconsin, while UT Austin is down to 11%. What this means is that even schools expressly created to educate, enrich, and serve their own residents have effectively transformed into hyper-capitalist, quasi-corporate enterprises.

After all, the money’s gotta come from somewhere. And “somewhere” means the pockets of local families. When that fails, it means out-of-state students, who typically pay two or three times as much for the same education. And when even those run out, it means international students, who are often treated like cash cows. Now, for the last 17 years, this model has served colleges well. Sure, parents complained about the rising cost of tuition but they still dutifully mortgaged their homes to afford it. And yes, a few eyebrows were raised at the absurd lengths schools went to attract full-price-paying students: from luxury dorms to lazy rivers to climbing walls and golf simulators. But hey, the lights stayed on, and professors got paid. As far as their balance sheets were concerned, things were going just fine. The problem, of course, was that schools had become incredibly fragile. Since students were now footing most of the bill, even the loss of a few of them could cause serious trouble. Schools didn’t just become extremely dependent on tuition revenue. They did so at the exact moment birth rates fell — 2008 — laying the foundations for a demographic time bomb 18 years later. And today, it’s finally about to explode. In other words, schools now find themselves back where they were in 2008. This time the problem is twofold: lower state funding and declining enrollment. But the effect is the same: a budget shortfall. Of course they could take this opportunity to reduce expenses. They could finally stop and do some painful but necessary soul searching, asking difficult questions like how best to fulfill their missions and deliver a quality education at a price the average family can actually afford. They could trim their bloated administrative budgets and forgo their extravagant amenities. But that’s not what they did after 2008. Or 2001. Or 1990. So, if history is any indication, they’ll do what they’ve always done — you guessed it — raise tuition. That’s right: college may get even less affordable. Now, some schools will be just fine. These — your Columbias and your Johns Hopkins — are what author Jeffrey Selingo calls “sellers. ” Their prestigious names draw students from around the country. They receive far more qualified applications than they have seats in each class. And this allows them to name practically any price. Ironically, these same schools that can charge nearly six figures a year are also those that least need to. Their massive endowments make them far less dependent on tuition revenue. The problem is, by definition, there aren’t that many of them — that’s what makes them so desirable. Sellers represent a tiny, tiny fraction of the market for higher education. Just 10% of schools accept less than half of all applicants. And only a few of those are highly selective, with acceptance rates of 20% or less. The vast majority of schools — 67% — accept virtually everyone who applies. They have to. These are your “buyers. ” Since buyers don’t have nationally recognized brand names, they recruit almost exclusively from their surrounding region, state, or even town. 60% of all freshmen, after all, attend college within 50 miles of their hometowns. This means they have a very limited pool of potential applicants. They rely on their local communities and their communities rely on them — for tax revenue, for employment, for migration, and economic activity. Meanwhile, these same schools are overwhelmingly small. And thus, overwhelmingly fragile. 75% of all colleges have fewer than 5,000 students. And a third have fewer than one thousand. In other words, nearly a thousand universities across the country enroll fewer than 250 new students a year. Therefore, if just twenty-five fewer students enroll next year, that class will generate at least 10% less revenue. A few dozen students here or there can make or break an entire university.

And, needless to say, many schools will lose a lot more than a few dozen. University of Pennsylvania Professor of Education Robert Zemsky estimates that about “20%” of all schools face “substantial financial risk. ” Likewise, one consulting company estimates that 560 public and non-profit 4-year universities are “at serious risk” of potential closure. Colleges are about to experience a painful reckoning. …Which means students should start asking the uncomfortable question those at Birmingham-Southern College surely wish they had: will this school still be around by the time I graduate? 17-year-olds need not become experts at reading balance sheets. But if you’re applying to a small school, for example, you might consider checking whether enrollment has been on a long-term decline. You might also consider diversifying your education. Today’s sponsor, Brilliant, can help you do just that — stand out from the crowd, learn new, marketable skills, and develop life-long learning habits. Brilliant has courses on everything from logic games, to puzzles, statistics, and programming. They believe, like I do, that how you learn matters just as much as what you learn. The reason we can’t all program in Python is not that the knowledge is hard to find but that too many teachers rely on rote memorization, dry textbooks, and hour-long lectures. Brilliant, on the other hand, teaches you what you want to learn through fun, interactive puzzles, games, and challenges. You don’t feel like you’re learning Python, you feel like you’re solving a problem — like how to make a music recommendation algorithm for Spotify — and using Python as a tool to do so. There’s no better time than the new year to start learning something new — whether it’s programming, math, science, or engineering. When you’re ready to try Brilliant completely free for 30 days, click the link on screen now or in the description below — that’s Brilliant. org/PolyMatter. Doing so will also get you 20% off an annual premium subscription. Go, pick what interests you most, and start learning today!