A decade ago pundits began predicting the demise of traditional higher education at the hands of online education, and more recently than that, by MOOCs (Massive Open Online Courses). While that has not come to pass, something else has and it does not bode well for higher education, at least in the U.S.

Over the last few years, for the first time in modern history, large numbers of Americans have begun to question the underlying value proposition of higher education. Within some sectors of society, a majority of people have decided that colleges and universities are “not good for the country.” This is astonishing.

My personal experience in higher education as a student and a professional educator spans 35 years. I came into the system in the early 1980s at the tail end of its “glory days,” as an exclusive, well-funded, highly respected institution of American society and enterprise. While significant structural change has been in play for a good 25 years, higher education is entering the most turbulent time in its history.

So, what has happened?

Higher Education as an “industry” has hit three simultaneous tipping points that collectively will almost certainly change the very foundation of post-secondary education:

• Student debt (in excess of 1.2 TRILLION dollars)
• An unsustainable financial model for traditional colleges and universities
• A disconnect between what colleges and universities do and what employers and the economy need

Over the next couple of decades, these three tipping points will combine to:

• materially reduce the overall number of colleges and universities (and locations)
• continue the decline in the number of “traditional” students who spend four years on a residential campus
• virtually eliminate career, full time, tenure track professorships
• bifurcate higher education into a smaller market of institutions that have the student demand and financial means to operate in more traditional ways and a larger set of institutions based on quickly changing, market-driven professional programs, many of which will not lead to traditional credentials such as bachelor’s degrees.

The lines between for-profit and not-for-profit will blur as all institutions will have to operate more as “retail” entities (think aggressive marketing, fierce competition for students, intense focus on financial metrics) than what we think of as traditional colleges and universities. And unfortunately for institutions of higher education, supply is currently in excess of demand.

Tipping Point 1: Student Debt

Student debt is not new. What is new is the enormous shift from collectivefunding of higher education by states (taxpayers) to individual funding (by students and their families). This represents a massive paradigm shift in both funding and political advocacy that has resulted in extraordinary, and unsustainable, levels of private debt. Whereas students used to take on debt that was relatively small and could be paid off within several years of graduation, the average student debt today is tens of thousands of dollars and hundreds of thousands in some fields of study. Despite the conventional wisdom, fueled by media reports, the highest levels of student debt are not held by students of for-profit institutions (although that debt is problematic as well). The highest per capita debt is held by students attending “middle of the road” not-for-profit private liberal arts colleges that do not have the means to provide large scholarships and grants (but still charge high tuition). As a result, students have been borrowing heavily from both the government and private lenders in order to afford what is typically very high cost education. In just the last few years, however, a tipping point has been reached in which borrowing by students and families declined 20% between 2010 and 2015. In basic terms, students and their families have determined that the return on investment of a lifetime of student debt is simply not favorable, and in fact, in many cases will leave them worse off than if they had never attended college at all!

In short, students and families, in large numbers, are now refusing to incur such unsustainable debt, which is translating into financial crises across much of the private, not-for-profit liberal arts sector of higher education, resulting in unsustainable deficit spending and increasing school closures. Roughly one third of such colleges now operate at a deficit. Approximately 15 not-for-profit private colleges are closing per year and that number will likely increase going forward. In the for profit sector there has been a veritable blood bath with nearly a thousand locations closing in the last five years and it has not hit the bottom yet.

Tipping Point 2: An Unsustainable Financial Model

Tipping point two is related to tipping point one. In most private institutions, that have always been more tuition dependent than their public brethren, the reticence of students to continue borrowing has hit revenues hard. In the short term, the situation is exacerbated by the fact that we are in a demographic trough of high school graduates, so enrollments are also depressed by the simple fact of fewer available students. The simple reality is that the overhead of a typical private liberal arts college or university is far in excess of what a given student population could possibly pay in tuition. As an example, even a small liberal arts college is likely to have an annual budget for physical plant, personnel, and operations of thirty to fifty million dollars. If we split the difference and use $40,000,000, that means that with a student population of 800 students (common for a small liberal arts college), each student would have to pay $50,000 each per year (without including room and board) for the college to break even. In a typical institution of this type, the average student’s tuition is, at most, half of the $50,000 figure. Why? Most liberal arts colleges today are heavily discounting tuition in an attempt to hit their enrollment goals because the market simply will not support the “retail” tuition rates. The vast majority of small to medium size private colleges do not have adequate alternative means of revenue (endowments, legislative appropriations, research grants, etc.) to fund the half of expense budgets not paid for by students. Many of them are technically insolvent already and are surviving on deficit spending. There is simply no viable business model for most of the institutions of this type operating today. Many will merge, change, or close over the next couple of decades. And, as it relates to tipping point one, even with heavily discounted rates and scholarships, the average student still must borrow tens of thousands of dollars a year to cover what is unfunded by the institutional contribution for tuition, books, and room and board.

In public institutions, which are far more tuition dependent than they were 25 or 30 years ago, there is an uneven story of haves and have nots, but broadly speaking, the “second tier” (non flagship) colleges and universities are struggling with both declining enrollment and declining funding—a similar situation is affecting community colleges, but they have the advantage of attracting students based on lower cost.

Through the early 1980s, roughly 75% of public college budgets were funded by state taxpayers. Today, that number averages less than 25% and in many cases, is less than 10%. In fact, many of these institutions are actually insolvent, but are still open, because interestingly, there are not formal mechanisms to close them. As a result we are seeing program closures, layoffs, critical maintenance deferrals, failing technology, defaults on loans and bond payments, and other serious matters. Accrediting bodies are loathe to sanction public institutions, even when they are clearly failing to meet articulated standards. If that were not the case we would see large numbers of institutions on probation for “financial exigency” and other failures to meet standards. The accreditors have some cover on the financial exigency issue due to arcane formulas which often allow institutions to count the “full faith and credit” of their states even when the institution itself is broke and not actually benefiting in any way from the non allocated resources in state budgets.

Tipping Point 3: The Disconnect between What Colleges Do and What Society Needs

This may be the most interesting of the three tipping points because it offers options to the most entrepreneurial institutions. From the employer perspective, traditional colleges and universities continue to graduate large numbers of students who are nowhere near “job ready” on graduation day. Moreover, the bulk of job growth today and for the foreseeable future is connected to technical fields that require post-secondary education, but that do not require bachelor’s degrees. Examples are as varied as allied health and HVAC (heating, air conditioning, and ventilation). The sector of higher education that is currently best aligned with employer needs is the career college sector, which is predominantly comprised of for-profit institutions. Community colleges also tend to be better aligned with employer needs, but graduation rates in those institutions are so low that comparatively few students actually benefit from programs in those institutions.

Broadly speaking, the very core of higher education for over a century—the college degree—is at risk of obsolescence. And the model (dedicating four to six years of study) that leads to bachelor’s degrees is also increasingly out of step with the reality of most students. The financial return on investment is becoming more and more dubious in many academic majors as is the curricular model itself. Concepts such as “competency based learning,” certificates, and badges are experiencing growing currency in the labor market, and in many cases, carry greater value (and certainly greater ROI) than higher level academic degrees for large numbers of students.

The reality is that higher education (particularly for private institutions) has become as susceptible to market forces as just about any other sector of the economy. Students are customers, price matters, and competition is fierce. As noted, supply is in excess of demand as well, which will contribute to school closures, consolidations, and re-organizations. The recent acquisition of Kaplan University, by Purdue University, a stunning reversal of the typical acquisition process, is a powerful indication of how even a public flagship institution like Purdue recognizes that it’s future is largely dependent on the ability to expand the student market, and importantly, to reach students via delivery models (Kaplan has a very robust online infrastructure) that are sensitive to market realities.

To be clear, there is a future, a bright future, for post-secondary education, but it will look very different than the higher education system of the last century. High demand elite private institutions with robust, non-tuition revenue streams will survive and even thrive into the foreseeable future because they operate on a small, highly exclusive minority of the student population to begin with (think Ivy League, Stanford, etc.). We can expect a similar outcome for large, flagship state universities with political advocacy and robust alternative revenue streams. Many community colleges will persevere as long as they continue to receive taxpayer funding and serve a broad-based community mission, but they will have to solve their current graduation problem. A material number of four-year state institutions will also survive in some form as long as they are perceived to offer a reasonable return on investment for their students and students’ families. A smaller, but likely very robust career college sector will survive and likely thrive because it is structured to provide value to students and employers with job-focused, generally shorter-term programs. The biggest losers over the next few decades will be small to medium size, less exclusive liberal arts colleges, many of whom will simply close. We will also see many fewer humanities programs across all sectors of higher education simply because financial models in most institutions will no longer support programs that are net revenue consumers rather than producers. Ph.D. programs in the humanities or arcane fields will also close in large numbers. Most institutions that survive will shift to market driven professional programs and even more “contingent” faculty (adjuncts). Anachronisms such as faculty rank and tenure will still exist, but in a continually contracting number of institutions.

The biggest winners may be institutions that don’t even exist in any material sense now—those that can provide affordable (mostly non-degree) credentials that lead directly to employment, followed by “re-credentialing” and back to employment as a repeated cycle over professional lifetimes. These institutions are likely to be much less dependent or completely non-dependent on Title IV financial aid than mainstream higher education institutions.

While it is difficult to know exactly how much “traditional” higher education will contract overall, if we extrapolate recent trends and assume a slight increase in those trends based on lower demand, it is not unreasonable to think that upwards of a third of all higher education institutions could consolidate or close in the next 20 years—and a potentially larger percentage among private liberal arts institutions. The situation would be even worse for for-profit career colleges except that the sector has already contracted so dramatically that it is reaching a new equilibrium. It may end up providing the best return on investment for students who complete career focused programs in high demand fields.

In short, some parts of the American higher education system will survive and look remarkably similar over the next few decades, but that will occur in the midst of an overall contraction, a continued move toward more market driven programs, more contingent labor, and more retail-like business and customer models. One can debate the overall plusses and minuses of such a future, but the current reality will no longer support the higher education model of the last century at anywhere near its historical scale.