The Great Die-Off

Posted: May 22, 2024

Darron Bunt Senior Marketing Insights Analyst

In the last several weeks, we’ve seen two more U.S. colleges announce their closure. On April 26, California’s University of Saint Katherine shared the news it would cease operations on May 18, while on April 29, New York’s Wells College announced it will cease operations at the end of this semester. These two schools join at least 17 other public or private nonprofit colleges that will either close or merge over the course of 2024 and 16 others that did so in 2023. 

In the wake of these announcements, the Hechinger Report correctly mathed that colleges are now closing at a pace of one per week. And each week, as new schools release their statements, we can see remarkable overlap in the factors that have ultimately led them to this outcome. Nearly all cite inflation and debt, the pandemic, a shrinking pool of high school graduates, and fewer prospective students interested in attending college

The other commonality referenced by many colleges facing closure has been the assertion that small, private colleges have been hit especially hard by these types of challenges. And it does, indeed, seem like small, private nonprofit schools have borne the brunt of recent closures. 43 of the 45 most recently announced closures are private nonprofits, and on average, those 45 schools had 852 enrolled students.

The challenges these schools have cited are valid. The pandemic did have a notable impact on enrollment. In fact, Fall 2023 is the first time since the pandemic began in 2020 that undergraduate enrollment has increased. Birth rates in the United States have declined, and by 2025, there will be fewer students graduating from high school

But there’s more to this story. While 96% of recent closures have been private nonprofit schools, size and sector are not the only similarities among these colleges; we see other similarities related to how they serve the students they enroll.

With this in mind, let’s apply some concepts related to supply and demand to this problem of school closures.

The Impact of Supply and Demand

The law of supply and demand combines two fundamental economic concepts: the law of supply, which asserts increases in the price of goods or services result in increases in the quantity of those goods or services available, and the law of demand, which states that the higher the price, the less people will demand the good or service. 

Let’s talk supply. While America doesn’t top the worldwide list for the highest number of universities per capita, with one school for every 104,811 people, the U.S. does rank sixth – and that’s without the inclusion of over 2,000 private for-profit schools across the country. 

Supply is high. What about demand? 

One way we can measure demand is by the number of Americans who pursue higher education. In 2022, over half of Americans aged 18-64 reported having a college degree (54%), a number that has climbed just over 16 percentage points since 2009. In 2021, even more Americans – 63% – reported having started college, up 5.8 percentage points since 2011. 

So demand has also increased steadily. 

But demand is supposed to vary inversely with price. And this is where America really sets itself apart from other countries with a similar college supply. On average, attendance is going to cost roughly $20K more per year than in the ten countries with the most similar college density. 

In economics, this is where we would start to talk about market equilibrium – the place where demand and supply intersect. But in higher education, this intersection starts to get sticky. 

Americans have increased their demand for higher education – nearly two-thirds of Americans have at least started a degree. And while some schools have experienced enrollment declines, overall undergraduate enrollment increased by 2% in 2023. Attending a four-year public college also costs 57% more than it did 20 years ago, so this increase in demand hasn’t been tempered by price … yet. Which leads us to return on investment (ROI), both perceived and quantifiable. 

The ROI Wrench 

We’ve all heard someone ask if college is “worth it.” If you ask Google, you’ll definitely get opinions.

It makes sense people – especially prospective students – would ask this question. The average cost of tuition alone at a four-year institution is $19,806, and the 30 most expensive U.S. colleges each charge more than $65,000 per year. All in, the ultimate cost of a bachelor’s degree can exceed $500,000. 

With this price tag, it’s not particularly surprising that an estimated 43.5 million Americans have student loan debt at an average of $37,787 per borrower. 

However, what one considers to be “worth it” is a personal question. The response will vary depending on who you ask. But it’s hard to believe the answer to “Did this decision cripple me financially?” wouldn’t be part of the “worth it” equation for most when assessing their college experience. And a lot of the answers to this question will come down to the ultimate return on the investment made.

In 2021, the Foundation for Research on Equal Opportunity (FREOPP) published a comprehensive ROI analysis aimed at answering the “Is college worth it?” question. In their study, they defined the ROI of a college degree as “the increase in lifetime earnings a student can expect from that degree, minus the direct and indirect costs of college.” They found that for a student who graduates on time – i.e., within four years – the median bachelor’s degree is worth $306K

The caveat? There was considerable variation – 12% of programs had a substantially higher ROI of $1 million or more, while another 16% of programs had a negative ROI. Economically, the students with degrees that had a negative ROI would have fared better had they not attended college at all.

Remember above when I mentioned graduating on time? 22% of students don’t

2022 data from the Integrated Postsecondary Education Data System (IPEDS) indicates, on average, only 55% of students complete their degrees within eight years of starting.

Once the FREOPP study accounted for the risk that students would take longer than for years to finish college – or would drop out entirely:

  • The median ROI of an undergraduate degree dropped to $129K.
  • The number of bachelor’s degree programs with a negative ROI jumped 12 percentage points to 28%.
  • The number of programs with negative ROI jumped another nine percentage points to 37% when costs related to education beyond tuition were factored in.

What does all this mean? It means prospective students are out there weighing taking on a heck of a lot of financial risk that could potentially not pay off for them in the long run. 

School Closures and the “Worth It” Question

With this in mind, let’s turn our attention back to institutions that have closed in the last three years. When compared to the rest of the public and private nonprofit colleges in America, on average these schools have: 

  • An admissions rate that’s eight percentage points higher. 
  • A retention rate retention that’s six percentage points lower. 
  • An eight-year graduation rate that’s four percentage points lower.

So these were schools at which prospective students were more likely to be admitted but then also more likely to drop out and less likely to graduate from.

Schools at risk? Other universities with similar characteristics to those that have already closed

In the fitness industry, there’s a saying: “You can’t outrun a bad diet.” For the majority of people, this rings true. In a similar way, you can’t out-market a school with poor outcomes. In these times when the market is moving toward some sort of equilibrium, the best you might achieve is to delay the inevitable.

Are the pandemic and the enrollment cliff part of the reasons colleges close? Sure. But we can’t ignore the reality that America is in a place where supply is high, price is higher, demand is peaking, and the market is perceiving a lower return on investment.

This is also why it’s important for all schools to carefully examine this situation and take away some important lessons from school closures. In a turbulent market, even great schools with fantastic outcomes can – and likely will – struggle and fail.

Colleges are not owed students. In the coming years, the schools that survive and thrive will be those that adapt to this market reality, the ones that recognize prospective students do not lack choices and want to spend their money where they believe they have the best opportunity to see returns from the significant financial investment they’re making. 

This will require schools to strongly articulate their value proposition. Schools need to be able to tell prospective students they should come to their school and explain both why and how a degree from their institution will be worth the investment.

Articulating Your Value

The real power of marketing lies in articulating value – in connecting the dots between what you offer and why it’s valuable to the consumer. Yet advertising and promotional materials for many schools don’t even begin to effectively answer these questions. 

The real power of marketing lies in articulating value – in connecting the dots between what you offer and why it’s valuable to the consumer.

It’s not enough to tell prospective students you’ve been ranked in the top five public schools in your region for six years running. That’s great, but it’s not what students need to know. And in a market with more supply than demand, this type of marketing simply isn’t good enough anymore. 

In this era of higher education marketing, we need to put ourselves in the shoes of our prospective students and start articulating answers to these types of questions: 

  • “How will attending your college pay off for me?
  • “Will I be able to successfully complete my education? How will you help me?
  • “Am I going to get a job at the end of this where I make enough to afford basic necessities and my student loans? Will you be there with me?

Our work with Walters State Community College focused on articulating value via program pages. We aimed to provide a holistic view of each program through brief descriptions, career outcomes, faculty profiles, and success stories. With these pages, prospects can understand the value of each program at a glance.

Prospective students are coming to you questioning whether college is a worthwhile investment. You need to demonstrate why and how your school will be worth it to them. 

A school with great outcomes? Now that’s a story to tell.

No Pressure, No Diamonds

Maybe you’ve heard the saying “No pressure, no diamonds.” Scottish philosopher Thomas Carlyle first said it roughly 300 years ago, and it’s the first thing that comes to mind when I think about the future of higher education in this country. 

Yes, external factors are proving to be incredibly challenging to the current state of higher education. Yes, the impact of these factors can and will be felt and weathered differently by schools of different sizes and financial standing. But the reality still is we’re all experiencing them.

The question on the table is how you’ll respond. 

It’s sad when schools close. Every single one has history, passionate alumni, and a story that abruptly comes to an end. But it’s even more tragic when schools with fantastic outcomes for their students close because they’ve fallen short on articulating that value.

Pressure catalyzes change. This particular pressure in higher ed needs to be the catalyst to changing how we market our institutions.