How colleges can respond to market risks

Last week, the American Council on Education released a brief white paper sponsored by the TIAA Institute titled “Too important to fail, too big to be complacent: An analysis of higher education market risks and stressors.” The report was co-authored by Robert Zemsky of the University of Pennsylvania and Philip Rogers of the American Council on Education.

Since 2016, twenty private, nonprofit colleges have closed, and others merged with other institutions. The pressures of declining enrollment for first-year classes and increasing tuition discounts, combined with poor retention rates, have led some pundits, such as Clay Christensen, to predict that 50 percent or more of colleges will eventually fail.

Zemsky and Rogers dispute these predictions. Their data shows that less than 10 percent of over 2,300 institutions of higher education nationwide are in serious risk of closing or merging. Another 20 percent of institutions are genuinely struggling but are not in immediate danger of closing. Of the 13 million undergraduates represented by these institutions, “just over half attended institutions facing no more than minimal market risk, roughly a third attended institutions experiencing moderate risk, and fewer than 7 percent attended institutions facing the threat of near-term closure” (p. 2). However, the greatest impact of closures would fall on students of color, Pell-eligible students, and adult learners.

Institutions have responded to market pressures primarily in two ways: (1) tuition reset where the sticker price is lowered and less student aid is provided; and (2) reducing instructional expenditures per student by at least 20 percent, usually by increasing the student-to-faculty ratio. Both of these strategies have had mixed, unclear results.

Zemsky and Rogers propose another strategy: redesigning the general education curriculum to promote higher retention of students. They suggest that, in the first year, students should take an introductory class in their preferred major and classes in practical learning skills that have a post-graduation payoff in the marketplace, such as writing, statistics, and problem solving. In the junior and senior years, students can engage in a broad exploration of topics outside, but ideally connected in meaningful ways to, their majors.

The key with these initiatives is working to overcome the growing (mis)perception that higher education does not provide value, in spite of the abundant evidence to the contrary.