The pandemic, along with a decline in college enrollment, has accelerated financial issues for higher education. How will American colleges face the looming crisis?

Higher Education in Crisis

Amid the Pandemic, Colleges Face an Uncertain Future


  • The COVID-19 pandemic has accelerated the financial problems facing higher education.
  • College enrollment in the United States has been dropping for a decade.
  • As tuition and student debt continue to rise, consumer confidence wanes.
  • New alternatives to higher education offer cheaper and quicker routes to employment.

The coronavirus pandemic has thrust higher education into the national spotlight — and not for good reasons. Virtual learning has largely supplanted in-person instruction, keeping students home or, in some cases, returning them there abruptly following their arrival on campus this fall.

Colleges are losing room and board revenue and associated fees, and even facing lawsuits from angry families demanding tuition refunds. The core product — teaching and learning — has come under attack for dubious quality. Higher education is indeed in crisis.

But the industry has, in fact, been mired in a downward spiral long before COVID-19 invaded campuses. The pandemic situation has exacerbated existing problems and exposed higher education's soft and vulnerable underbelly.

“What this whole crisis has done to higher education is just exposed the cracks that have been there for over a decade of financial mismanagement.”

Fernanda Borges Nogueira, Senior Network Program Manager at the Roosevelt Institute

To determine universities' ability to respond to this fiscal challenge, The Hechinger Report devised a "fitness tracker" that puts colleges through a "financial stress test" using metrics such as enrollment, tuition revenue, public funding, and endowment health. The test revealed more than 500 colleges with warning signs in two or more metrics.

Similarly, a model created by Boston-based company Edmit determined that one-third of the more than 900 private four-year colleges it analyzed are at "high risk" financially.

"What this whole crisis has done to higher education is just exposed the cracks that have been there for over a decade of financial mismanagement," said Fernanda Borges Nogueira of the Roosevelt Institute.

Hundreds of colleges began 2020 already suffering from financial stress, and the pandemic repercussions have only intensified the crisis. Now, many face an uncertain future.

Factors Contributing to the Crisis in Higher Education

College Enrollment Continues to Decline

Following decades of steady enrollment growth, college attendance is now on the decline. New estimates from the National Student Clearinghouse suggest that fall 2020 enrollments are down 2.5% over last year. Since 2011, higher education has lost more than 2.5 million students, or about 13%. During that period, around 600 institutions saw their enrollments drop more than a quarter.

A number of factors conspired to create this downturn. Demographics aren't kind; lower birth rates are triggering a decline in the number of high school graduates, particularly in the Northeast and the Midwest. While administrative costs rise, states are investing less in higher education, causing tuition to increase and families to reconsider the wisdom of assuming student loan debt.

While administrative costs rise, states are investing less in higher education, causing tuition to increase and families to reconsider the wisdom of assuming student loan debt.

Cheaper and faster alternatives to higher education, such as corporate credentialing programs, have siphoned off some would-be college students. And as employment preparation has become far and away the primary goal of college-goers, the public has begun to question the value of degree programs seemingly disengaged from the demands of the real world.

For a growing number of colleges, this perfect storm has resulted in mergers and closures. Since 2014, more than 30 schools have closed their doors. In New England alone, 18 schools have merged or closed since 2016, including Newbury College, Green Mountain College, and Atlantic Union College, which all closed completely; Mount Ida College and Wheelock College, which were absorbed by the University of Massachusetts Amherst and Boston University, respectively; and Pine Manor College, which merged with Boston College.

"The amazing thing is that there haven't been more [mergers or closures]," said Thomas Parker, a senior associate at the Institute for Higher Education Policy.

Administrative Bloat and Climbing Walls

Few people outside higher education — and even few within it — understand just how expensive it is to operate a university.

Higher ed institutions are like small cities, with an array of facilities and services and a vast infrastructure. When costs rise — e.g., insurance rates, oil prices, food, labor — budgets must stretch accordingly. To cite one example, in a recent year, the University of Pennsylvania's annual operating budget was $10.5 billion.

Critics of higher education point to two factors contributing to the drastic rise in college expenses.

One is administrative bloat. Over the past 40 years, the number of administrative staff at colleges nationwide has grown five times faster than that of professors. In 1990, U.S. public research universities contained twice as many full-time faculty as they did administrators. By 2012, the two groups were roughly equal in number.

Over the past 40 years, the number of administrative staff at colleges nationwide has grown five times faster than that of professors.

This growth can partly be attributed to increasing regulatory compliance. Universities must staff offices to manage issues related to the Clery Act and other campus safety measures, NCAA regulations, assessment and accreditation, disability services, Title IX, FERPA, and HIPAA, to name a few.

Across the academy, the increase in administrative staff — for fundraising, alumni relations, marketing and communications, athletics, admissions and financial aid, student advising, legal services, diversity, student affairs, security, food service, bursar and registrar, international programs, and religious and spiritual life — has been staggering.

The second criticism is aimed at the supposed "arms race" within higher education — the notion that colleges spend millions of dollars on impressive facilities to keep pace with the competition.

They build recreational centers complete with lazy rivers and climbing walls, elaborate residence halls, student centers, and dining facilities to attract students who compare one campus to the next during college tours. Yet in reality, the arms race constitutes only a small fraction of the rising costs.

College Tuition Hikes and Student Loan Debt

Rising costs, not surprisingly, have led to corresponding increases in tuition. College costs have grown by more than 25% over the last decade. Tuition rates rise twice as fast as the general inflation rate, or an average of 8% per year. In other words, tuition doubles every nine years.

While private schools garner most of the attention with their eye-watering tuition figures, public colleges have gradually been raising costs as well. From 2008 to 2018, tuition at four-year public institutions increased by an average of 37%. One study determined that state funding cuts were responsible for 79% of tuition hikes.

As the dream of a college education continues to march steadily beyond the reach of many American families, institutions have increased discount rates to maintain some modicum of affordability. Many families pay a reduced rate — not the sticker price — for a year of college, as institutions offer financial aid packages to help reduce the cost.

Tuition rates rise twice as fast as the general inflation rate, or an average of 8% per year. In other words, tuition doubles every nine years.

According to a study by the National Association of College and University Business Officers, tuition discount rates reached an all-time high in 2018-19. The average rate at private institutions that year was 51.2%, meaning colleges were "returning" more money than they were taking in.

Despite such discounting, college remains expensive, and families are forced to take out loans to shoulder the financial burden. All told, Americans owe more than $1.64 trillion in student loans, which is about $587 billion more than the national credit card debt. Only mortgage debt ranks higher in the consumer debt category.

The average borrower graduates with $30,000 in loans — for some, that number is substantially higher — and 1 in 4 is delinquent or has defaulted on their student loan. Many recent graduates struggle to make ends meet given this enormous financial weight.

Industry Disruptors and Alternatives to College

Faced with the prospect of massive debt and an uncertain return on that investment, some may consider alternatives to traditional higher education. Students want a clear path to a first job and a career, and a number of industry disruptors have embraced this "employment imperative."

For many years, Microsoft has offered a quick and cheap route to the high-tech field through its Microsoft Certified Systems Engineer programs. Now, Google is following suit with its Google Career Certificates, which "teach foundational skills that can help job-seekers immediately find employment." Courses can be completed in six months, cost a small fraction of a college education, and lead to high-demand jobs across a wide range of tech industries.

One veteran of the high-tech world, PayPal co-founder Peter Thiel, created his own alternative to traditional higher education. His Thiel Fellowship offers $100,000 over two years to talented students who wish to "build new things instead of sitting in a classroom." Today's universities, he contends, are "overpriced relics" stunting true innovation and contributing to a "technology deficit" that will have dire economic consequences.

According to PayPal co-founder Peter Thiel, today’s universities are “overpriced relics” stunting true innovation and contributing to a “technology deficit” that will have dire economic consequences.

Even universities themselves are creating alternative paths to education. Massive Open Online Courses, or MOOCs, offer students free access to college courses and fee-based (but cheap) certificate programs.

Harvard and MIT joined forces to create edX, which now features classes from top universities around the world. Coursera offers a similar array of courses and programs. MOOCs range in length from one to 16 weeks and can enroll thousands of students at a time. Completion rates hover around 10%, perhaps owing to a lack of faculty-student interaction.

MOOCs are but one example of "the great unbundling of higher education." If all students want is a direct path to employment and the requisite skills to land a first job, then the traditional trappings of higher education — residence halls, student services, co-curricular activities — are superfluous and needlessly expensive, and the four-year (or more) time commitment becomes an archaic construct.

The Perceived Value of a College Degree

Given these concerns, it's no surprise the public is losing faith in higher education. Opinion surveys from Pew Research Center and Gallup confirm Americans' views that college is too expensive and doesn't adequately equip students for today's marketplace.

More than 40% of Americans agreed that "for most high school students today, pursuing a college degree is not a worthwhile investment because it will lead to student debt with little chance of finding a good-paying job."

Another study from the Federal Reserve Bank of New York bears this out. Research revealed that 40% of recent college graduates were underemployed, meaning they held jobs that don't require their degree.

More than 40% of Americans agreed that “for most high school students today, pursuing a college degree is not a worthwhile investment because it will lead to student debt with little chance of finding a good-paying job.”

Still, research suggests the return on higher education remains strong over time. The median income of families led by a bachelor's degree-holder is more than 100% greater than that of families not led by a degree recipient. Currently, college's return on investment is estimated at 14%, exceeding investment benchmarks for stocks and bonds. And the College Board reports that college graduates earn about 73% more than high school graduates over their working lives.

Even though 90% of students say the economic return on their college investment is their primary motivation for enrolling, what's not so easily measurable might be even more valuable. Education not only imparts knowledge and skills but also opens minds and establishes habits of inquiry and discovery that can pay dividends not reflected in terms of salary.

The liberal arts, in particular, teach students to think creatively, to explore new cultures and viewpoints, to reason and analyze rigorously, and to express themselves thoughtfully and clearly. These abilities prepare graduates for their fifth job, not just their first.

Predicting the Future of Higher Education

The brave new world introduced by the coronavirus pandemic promises to accelerate the pace of change in higher education. What that means for individual campuses remains to be seen, of course, but pundits offer predictions, including the closing of more colleges, especially underendowed private institutions; additional mergers and consolidation; the continued migration toward online learning; more unbundling of the traditional model; and the further erosion of the liberal arts in favor of vocational training.

This is indeed a watershed moment for higher education. Some institutions will fall prey to social Darwinism, while others will adapt and thrive. What's evident is the simple reality that how we've defined the college experience for centuries is changing rapidly and will be markedly different — perhaps even unrecognizable — by the end of the decade.


Feature Image: Andersen Ross Photography Inc / DigitalVision / Getty Images