For years, American colleges and universities were warned.
The number of traditional college-age Americans was going to decline. Birth rates had fallen. Regional population patterns were changing. Students were becoming increasingly sensitive to the cost of higher education. Families were questioning whether a four-year degree was worth six figures of debt.
The warning signs weren’t subtle.
They were simply ignored.
Now, the consequences are beginning to arrive.
The latest example is Saint Michael’s College in Vermont, where a judge has approved the financially troubled institution’s request to access restricted endowment funds as it attempts to stabilize its finances.
On the surface, that is a legal and financial story about one small college.
It is actually something much bigger.
It is a warning about the business model of American higher education.
Saint Michael’s is not the first institution to find itself in this position, and it certainly won’t be the last. The college has faced declining enrollment and financial challenges significant enough that its accreditor warned this summer that those problems could put its accreditation at risk.
The uncomfortable question is how institutions that employ highly educated administrators, economists, financial officers and strategic planners managed to be surprised by a demographic trend that has been discussed for nearly two decades.
The Demographic Cliff Wasn’t a Secret
The demographic decline facing American colleges has been anticipated for years.
The nation’s population of traditional college-age students has reached a turning point after years of declining birth rates. The Western Interstate Commission for Higher Education projects that the number of college-age students will continue falling, with enrollment pressure extending well into the next decade. Recent estimates put the potential decline in college enrollment at approximately 13% by 2041.
The key word is potential.
Not every college will lose 13%.
Some elite universities will continue to grow. Some large public universities will attract students from outside their traditional markets. Some institutions will successfully transition toward online education, specialized programs or international recruitment.
But smaller private colleges, regional institutions and schools dependent almost entirely on tuition revenue are facing a much different reality.
There are fewer students.
And there are more colleges competing for them.
That is a problem.
But Demographics Are Only Half the Story
It would be convenient for university administrators to blame everything on the birth rate.
They shouldn’t.
Demographics didn’t force colleges to dramatically expand administrative structures.
Demographics didn’t require universities to construct increasingly expensive residence halls and athletic facilities.
Demographics didn’t create tuition prices that can approach or exceed $100,000 per year at some institutions.
Demographics didn’t create layers of administration, sprawling campuses, duplicated academic programs and enormous operating expenses.
And demographics certainly didn’t prevent college leaders from planning for the future.
The demographic cliff has been discussed for years. The Association of Governing Boards noted that higher education leaders had been anticipating the coming enrollment decline for roughly two decades.
Yet many institutions continued behaving as though the pool of prospective students would remain limitless.
That strategy worked—until it didn’t.
Growth Became the Drug
For much of the American higher education industry, growth became the answer to every financial question.
Need more revenue?
Enroll more students.
Need more students?
Build more facilities.
Need to attract students?
Add programs.
Need additional administrators to manage those programs?
Hire them.
Need to justify the new facilities and personnel?
Increase tuition.
Then offer larger institutional discounts to get students through the door.
Eventually, the published tuition price becomes almost meaningless because the institution is effectively conducting an annual auction for students through scholarships and financial aid.
That model can work when the number of prospective students is increasing.
It becomes extraordinarily dangerous when the population begins shrinking.
Now colleges aren’t simply competing for students.
They are competing against one another for survival.
Recent reporting on institutions such as Syracuse University demonstrates just how complicated the problem has become. Colleges are simultaneously dealing with demographic decline, changing student preferences, reduced international enrollment, enormous capital costs and increasingly aggressive financial aid competition.
The Endowment Isn’t a Magic ATM
That brings us back to Saint Michael’s.
Endowments exist for a reason. Much of the money is restricted for specific purposes, often by donor instructions.
When an institution begins asking a court for permission to access restricted funds to address operating problems, the question isn’t simply whether the money exists.
The question is why the institution needs it in the first place.
An endowment can buy time.
It cannot manufacture students.
It cannot permanently solve an operating deficit.
And it cannot make an expensive college suddenly competitive in a marketplace where families increasingly demand value for their money.
Eventually, the underlying business model has to work.
If it doesn’t, an endowment simply delays the inevitable.
Higher Education Has a Choice
There are really only a handful of options available to institutions facing this environment.
They can become smaller.
They can become more efficient.
They can consolidate.
They can eliminate programs that don’t generate enough enrollment or revenue to justify their cost.
They can merge with another institution.
They can develop new markets.
They can dramatically reduce tuition and expenses.
Or they can continue spending as they have for the past 20 years and hope the next class of students somehow rescues them.
That last option is becoming increasingly difficult to defend.
The number of college-age Americans isn’t going to suddenly rebound because a university needs more tuition revenue.
You can’t budget your way around demographics.
And This Is Where the Sports World Should Pay Attention
The implications extend well beyond classrooms.
College athletics—particularly sports that operate outside the revenue-generating football and basketball model—are deeply dependent on the financial health of their institutions.
Hockey is an obvious example.
A university doesn’t need to eliminate its hockey program because hockey suddenly became unpopular.
It may eliminate hockey because the institution can no longer afford the total cost of operating the program.
Scholarships.
Coaches.
Travel.
Facilities.
Equipment.
Staff.
Recruiting.
Athletic department overhead.
When a college is operating with fewer students and larger deficits, every program eventually gets placed under a microscope.
And the schools most vulnerable aren’t necessarily the ones with the worst hockey programs.
They may simply be the institutions with the weakest balance sheets.
That distinction matters.
A hockey program can be successful on the ice and still be financially vulnerable because the institution supporting it is struggling.
The Coming Consolidation
The most important story may not be the next college that closes.
It may be the number of colleges that don’t close—but become dramatically smaller.
The Chronicle of Higher Education recently described the demographic cliff as a force likely to produce institutional belt-tightening and an increase in closures as competition intensifies for a shrinking pool of students.
That could mean fewer campuses.
Fewer programs.
Fewer athletic teams.
More mergers.
More aggressive recruiting.
More scholarship discounting.
And increasingly desperate attempts to convince families that a particular degree is worth the price.
The irony is that the institutions that planned early may emerge stronger.
The institutions that waited may be forced to make their decisions under crisis conditions.
The Bill Has Arrived
Saint Michael’s shouldn’t be viewed simply as a college experiencing a bad financial year.
It should be viewed as part of a much larger reckoning.
For years, higher education was built around an assumption that there would always be another class of students, another tuition increase and another generation of families willing to pay the price.
That assumption is no longer safe.
The demographic warning was there.
The enrollment projections were there.
The financial models were there.
The administrators had the information.
Now the students are becoming scarcer, the competition is becoming more aggressive and the enormous infrastructure that colleges built during the growth years has to be paid for.
The industry has spent years preparing for growth.
It now has to learn how to survive contraction.
And for some institutions, the difference between those two outcomes will be nothing more than whether they chose to confront reality early—or waited until the judge had to decide whether they could spend their own money.
The demographic cliff didn’t sneak up on American higher education.
Higher education simply spent years walking toward it.
