The “Demographic Cliff”
Earlier in the week, I wrote about the effective merger of two higher education institutions. Expect transactions like this to rise, and several colleges to shutter, in the coming years. That’s because higher education is facing serious headwinds. A new report from the Federal Reserve predicts that college-going rates will decrease (in what some have termed the “demographic cliff), and because colleges are tuition dependent, many will be forced to make tough decisions about continuing their operations.
In the last three decades, more than 1,600 higher education institutions closed. Most of them were for-profit institutions, but a sizeable percentage of them were four-year, private nonprofit institutions. Among these latter institutions, which may already be struggling financially, a 15 percent decrement in enrollment (something that the Fed’s research report predicts) would put their economic viability in peril. Perhaps the most vulnerable of these institutions are those that control valuable holdings but operate in niche higher education fields.
Take, for example, the recent bankruptcy filing of Philadelphia’s University of the Arts—a private nonprofit university which offered degrees in visual and performing arts until 2024. The school held over $93 million in assets, most of which came from its downtown campus buildings, against more than $74 million in liabilities. Closures like the University of the Arts are surely a harbinger of things to come.
Maybe this the market sorting itself out, but it comes at a cost. An increase in college closures poses significant social and economic risks, potentially disrupting the academic progress of enrolled students and impacting local economies where colleges serve as major employers. According to the Federal Reserve paper, the American higher education sector generates approximately $700 billion in annual expenditures, supports nearly 25 million students, and provides employment for about 3 million individuals. That the vast majority of higher education institutions are nonprofits, generating this economic engine, and that they face significant challenges in the very near future is a cause for concern.
Christopher J. Ryan, Jr.
Indiana University Maurer School of Law