Surviving the Higher Ed Apocalypse

Five Models for Growth in a Declining Market

The next few years promise to be rough ones for higher education. Colleges and universities find themselves at the epicenter of the culture wars. The federal government apparatus, which had been generally allied with a host of progressive university initiatives, now appears intent on dismantling such projects. For some institutions, this may feel like a multi-front assault. A litany of urgent issues face administrators: the insistence that DEI programs be eliminated, aggressive enforcement of the Civil Rights Act, including investigations into campus protests and the examination of racial preference in admissions, the rollback of rules extending Title IX protections to transgender students and the rewriting (again) of sexual harassment disciplinary policies, and an across-the-board reduction in Federal grant overhead rates. University presidents must choose between resisting these measures, likely resulting in court battles, or acquiescing and facing censure from various internal stakeholders. Fun times.

However, as dramatic and stressful as these efforts are likely to be for institutional leaders, they pale compared to the intensifying fiscal pressures on higher education. Enrollment has been weak since the pandemic, only returning to pre-pandemic levels in the fall of 2024, and many schools have failed to adjust to the reality of the new demand dynamic. As overall enrollment growth has slowed, it has been unevenly distributed, and many institutions are experiencing declines that, by 2028, will be sector-wide. Even institutions experiencing growth are seeing a decline in the affluence of their applicants, such that net tuition revenue is facing even greater pressure. This demographic pressure is compounded by a growing lack of confidence among young people regarding the value of obtaining a four-year degree. The combination has been catastrophic for tuition-dependent institutions.

While most university administrators and trustees have been aware of the impending demographic challenge for years, few have taken definitive action to protect themselves. For a sector that has known nothing but volume and price growth for generations, it has no instincts or muscles to manage contraction and consolidation. And for an industry that sees itself as more mission-driven than market-driven, accepting lessons from the business world feels blasphemous. Downsizing and consolidating are challenging for even the most efficient organizations. But they are nearly impossible in a sector whose economics are built on an elaborate web of cross-subsidization and whose decision-making is primarily a function of stakeholder politics.

These politics play out on a grander stage for state schools. For public institutions not operating sustainably based on tuition and fees, battles for funding include state-wide arguments about subsidizing historically underserved populations and providing economic support for communities in which campuses are located. This does not mean that market-based solutions may not also be necessary, but in most cases, taxpayer largesse provides a safety net that private institutions cannot access.

Managing in Decline

For private institutions in a contracting market, the choices are starker and involve more difficult tactical and strategic choices. Managing in decline (i.e., keeping costs sufficiently below declining revenues) requires far stronger cost accounting than most institutions typically employ. In the convoluted web of academic and non-academic programming that defines a modern post-secondary institution, understanding which revenue streams cover their corresponding costs can be extremely challenging. At an average university, first and second-year lectures subsidize third- and fourth-year seminars; undergraduates subsidize graduate students; non-stem majors subsidize stem majors; professional schools subsidize humanities doctoral programs, research grants subsidize academic counseling; online programs subsidize in-person programs, and in certain conferences, football and its role in marketing subsidizes everyone.

Understanding where and when to reduce costs is an enormous challenge in such an environment. Most schools forced to close could have bought themselves more time to solve revenue challenges by reducing losses. But few administrators have the data, much less the political will to make these tough decisions. And yet, while cost-cutting may be necessary, it is not sufficient. No school can cut its way to sustainability in a contracting market. Ultimately, survival requires addressing revenue challenges. In this context, the options include entering new markets, taking share in an existing market, or allying with a stronger player.

To be clear, even maintaining enrollment in a declining market implies taking share. This perspective can be challenging for schools to understand because they are generally unaccustomed to viewing what they do in the context of a dynamic and competitive market. Take, for example, a situation in which a school is experiencing program growth. Generally, such a program would be considered successful and deserving of increased resources. However, suppose the program is growing more slowly than the category across the broader market. In that case, it can appear successful internally but still be losing share and masking a more significant problem. The need to view performance in a larger context can seem obvious to a private sector operator, yet this exercise in competitive benchmarking is anathema for many traditional institutions.

Five Ways to Grow

While consolidation in a contracting market is inevitable, and many institutions will ultimately combine or close, there are five distinct approaches to survival through growth. These include (1) attracting more full-pay students by becoming elite across a range of academic programs (the Harvard model), (2) focusing on a single area of excellence and becoming elite in a narrow discipline (the Julliard model,) (3) focusing on a specific desirable quality or outcome (such as employment readiness) and becoming elite on that basis (the Northeastern model), (4) entering an entirely new market (the Southern New Hampshire model), or (5) becoming the low-cost producer and supplying the market with a suitable product at the lowest possible price (the Western Governors model). There can be nuance among these approaches and almost infinite bespoke combinations. Still, at base, if an institution is growing, it is successfully pursuing one of these five fundamental strategies.

The Harvard Model

This is the default for most schools. It places academic prestige at the institution's center and can be flattering to all its stakeholders. It has been very effective in the growth environment of the last 30 years, where more and more people have been applying to a finite number of four-year schools. Raising prices to invest in faculty and programs and quality-of-life amenities to attract affluent families while discounting as needed to improve incoming GPA and test-score profiles to climb in the U.S. News & World Report college rankings was a virtuous cycle for many schools. However, this strategy becomes riskier in a declining market, and schools with fewer applications, declining yields, or higher levels of borrowing or discounting must reconsider this approach.

The Julliard Model

For schools that find the Harvard Model is no longer viable, focusing on a particular area of strength is the next most obvious strategy to pursue, though making the transition can be extremely painful. Identifying the 20 percent of programs that drive 80 percent of the applications, prestige, and successful outcomes can be straightforward. However, understanding whether the demand for these programs can drive growth in a redefined competitive landscape and navigating the institutional changes (aka downsizing) required to redirect resources and brand messaging around a narrower focus can look easy on paper and yet be extremely difficult to execute.

The Northeastern Model

Forty years ago, Northeastern University was a not-prestigious commuter college. However, it has subsequently become an elite institution by focusing on its 100+ year-old cooperative education program, through which students gain valuable work experience as part of their program of study. While it is fair to note that the market has moved towards its model as much as it has moved to the market, it satisfies a clear demand for a degree that leads directly to gainful employment. Northeastern’s brand is centered around this capability, representing its chief appeal and source of differentiation. While it’s fair to consider that other schools could improve their competitive position through greater attention to graduate employability, what is notable about the strategy is its focus on a desirable experience or outcome that creates differentiation. Its strength is in appealing to a distinct subgroup within the larger student market that is prepared to choose a school based on its focus on employability. Another school might compete on its access to outdoor sports or vibrant social life, for example, and be equally competitive for applicants if not eventual life outcomes.

The Southern New Hampshire Model

Thirty years ago, Southern New Hampshire University (SNHU) was a small, tuition-dependent, four-year business college struggling in what was otherwise a healthy, growing higher education market. Today, by virtue of its online programs, it is one of the largest universities in the World, growing well ahead of the sector and with revenues comfortably ahead of costs despite charging modest tuition. It accomplished this by using online instruction to appeal to working adult students and becoming one of the first non-profit institutions to appeal to an audience that had previously been served almost exclusively by for-profit colleges. This pursuit of new online revenue streams has also fueled the recent growth of online graduate programs among many other traditional institutions. What is instructive in the SNHU example is not necessarily the development of online programs or even the decision to serve an adult student, as growth in these markets has also slowed in recent years. But instead, the decision to pursue a completely new and different market. While the U.S. online market may not be as lucrative in the future as it has been, serving international audiences online or providing non-degree instruction to consumers or businesses are examples of other non-traditional revenue streams that could offer growth opportunities to some schools in need of new sources of revenue.

The Western Governors Model

The final growth strategy example may be unfair, as its genesis and instructional approach are unique and challenging to replicate. Western Governors University (WGU) provides education at a distance, employing a competency-based model that is still relatively unique among higher education institutions. Students are awarded degrees through demonstrating competency in their field of study as distinct from time on task. Because of its unique pedagogical approach, its costs are lower, and its prices are lower as well. The combination of a distinctive model well suited to a specific type of (mainly adult) learner and its corresponding affordable price point differentiates it in the market and attracts a large and distinct audience. WGU benefits from having been designed with this unique instructional model from its inception and having the imprimatur of 19 state governors as its founders, though it is a private institution. Yet the approach and its benefits are available to others willing to navigate the transition, including the inevitable regulatory headaches and restructuring required to implement the differentiated, low-cost model.

When All Else Fails

The strategies outlined above have been presented in increasing order of execution difficulty. Most schools currently employ some version of the Harvard Model, which may be increasingly unlikely to work for them as the market continues to contract. If and as the other models seem either too risky, too complicated, or, more likely, both, the only other viable alternative is to partner with another institution.

The foundations of a successful combination can be varied. Institutions that compete directly can dominate a geography or program area by combining market share. In other cases, different program strengths can complement one another and make the combined institution more attractive. At a minimum, combining administrative and marketing costs can produce needed financial leverage to yield other competitive advantages.

While combining two institutions is a relatively straightforward process and may be less complex to execute than many of the other strategies outlined above, the cultural challenges of coming to such a decision are often more difficult than simply allowing the institution to fail. The school closures of the last several years are nearly always exemplified by trustees waiting too long before seriously considering a merger and only getting serious about seeking a partner after accumulated liabilities and financial distress have reached such a level that they become untouchable to another party.

Such an outcome serves no stakeholder’s interest. However, facing actual market conditions, assessing a school’s strengths and weaknesses, and acting decisively require singular leadership. It may be that, in comparison, battling with the Trump administration over cultural disagreements seems like the less daunting option.

Note: An earlier version of this post incorrectly suggested that higher education enrollment remained below pre-pandemic levels. According to revised data from the National Student Clearinghouse, this is not the case. I apologize for the error.