I have written many articles on the current state of U.S. higher education, with a focus on the nearly decade long contraction in enrollment and the related downsizing in the number of colleges, particularly private institutions, in the United States. While there are opportunities for powerful innovation within higher education and many institutions will survive in one form or another, the golden era of U.S. higher education as we understood it is simply over. The financial model is broken in a majority of institutions, public sentiment in general about higher education has turned negative, state funding continues to decline, and students themselves have determined en mass that the value proposition of five or six figures of debt is no longer viable. It’s not necessarily that the future of higher education is bleak per se, but that post secondary education will be markedly different, with clear winners and losers. As a result, if nothing fundamentally changes, the outlook for higher education will include:

• Many fewer colleges and universities (and traditional degree programs)
• Chronically underfunded and downsized “mid-tier” public institutions
• A growing disparity between a small minority of super wealthy elite institutions and everyone else
• The rise of several mega universities with six figure enrollments.

Of course, there will continue to be colleges and universities that look familiar and operate in largely traditional ways, but there is a finite and shrinking space in the higher education ecosystem for those institutions (and the degree programs that sustain them). Part of what is driving the “shrinking space” is what the Education Design Lab refers to as the Learner Revolution, which is the shift away from degrees and toward skills based competencies, combined with a decreasing tolerance for debt and inability to fit a degree into the constraints of life. As an example, research by the Education Advisory Board (EAB) found that graduate certificates have been growing at six times the rate of master’s degrees. There are similar examples within undergraduate education as well. And, in a paradigm-shifting trend, some industries are also beginning to invest substantial resources in ab-initio training, thereby circumventing post secondary institutions as the go-to source for employees. This is impacting career and community colleges now, but will move into more traditional higher ed space soon, materially affecting institutions delivering bachelors and graduate degrees in the near future. As Bill Conley, Head of Admissions for Bucknell University noted in a recent Chronicle of Higher Education article, “For too long, colleges — public and private, liberal arts and research-driven, rural and urban — have operated as if they’re solely in the higher-education business rather than in the broader postsecondary-education sector.” Industry

The simple reality is that there are not enough students who can or will pay enough tuition to support the actual costs of operating all of the college campuses in the country  as they function today. The average tuition discount rate in private institutions is now over fifty percent (meaning colleges are collecting less than half the published tuition rates from students)! This reality is particularly acute in small, tuition dependent liberal arts institutions with less than 1,000 enrollments. There is a baseline overhead of direct and indirect costs below which, regardless of efficiency, colleges cannot operate as colleges. The smallest enrollment institutions, without material endowments or other revenue streams, cannot spread all of their fixed costs across such a small number of tuition paying students.

On the public side of higher education, we are at a point in many states where it probably is not correct to even use the term “public” as it relates to how those institutions are supported financially. Across all state, 4-year institutions in general, a minority of funding now comes from taxpayer appropriations and funding overall has decreased by $9 billion dollars since 2008. In some cases, state appropriations comprise less than 10% of public university revenue. Under the circumstances, there is a minority of public institutions that have developed robust, non-taxpayer revenue sources and, in effect, operate as private universities, despite their governance obligations to state oversight. At the other extreme are some second tier publics that are technically insolvent and are only functioning due to borrowing, downsizing, deferred maintenance, and delayed accounts payable, among other unsustainable tactics. Some institutions in the middle will maintain enough enrollment and other funding to continue operating, but stuck in a sort of higher ed purgatory, without the political support, reputation and alternative revenue streams necessary to thrive.

So, where do we go from here?

First, we must accept that, like any other industry, higher education has finally succumbed to actual market forces. For decades U.S. colleges and universities broadly avoided the realities faced by organizations in the “real world,” evading the imperative to innovate, relying on borrowed money (by students and the institutions themselves), and assuming that faith in the value of higher education would sustain the unsustainable. The good news is that, as happens in other industries, market forces ultimately reward those who do, in fact, innovate and who present a compelling value proposition to consumers. Outside of the most exclusive and elite institutions, there will be a group of more nimble, customer focused, and relevant post-secondary education players, unencumbered by much of the anachronistic thinking that has kept the bulk of American higher education stuck in the last century. Those institutions will thrive despite, or perhaps because of, the hard realities in contemporary higher education, but only if they are purposeful about being different in ways that address the “learner revolution.”

In addition to the scenario described above, we will likely see

• A few cataclysmic situations with public institutions (see the University of Alaska, North Dakota, and Chicago State) and overall downsizing of mid-tier public institutions
• The end of “public” universities as tax payer funded entities
• New, less-tuition dependent financial models (and more private sector-like practices)
• Improving equilibrium between supply and demand
• A smaller private college sector, both for profit and not for profit
• Significant contraction and disappearance of many vocational programs in both career colleges and community colleges (as industry assumes entry-level training)
• Fewer liberal arts colleges, particularly those with enrollments below 1,000 students
• Fewer four year degree enrollments as a percentage of post-secondary students
• Growing obsolescence of the “degree” as the gold standard credential
• A shift to “professional” programs, even in liberal arts institutions
• A shift to competency based and other more relevant and efficient delivery models
• Increased applications of technology and “big data” in everything from enrollment to services to instruction
• Partnerships that re-define higher education
• Expanded, non-university post-secondary options

While the future is, in some ways sobering, it also reflects a significant opportunity for higher education to embrace imperatives that it has long avoided relative to innovation, value proposition, access, accountability, and sustainability that will strengthen the institutions that have the foresight to act. In fact, those institutions have an opportunity to thrive while re-inventing higher education for the reality of today rather than the increasingly irrelevant thinking of the past. We can choose to see the current situation as a glass half empty or half full, but what is clear is that higher education as an industry is in the midst of a forced reckoning that will result in something that looks much different going forward.