Harvard Business School Professor Clayton Christensen is not optimistic about the future of higher education in the United States. In a lecture posted in Extension Engine, the Cambridge resident makes a bold prediction on the topic.
“50 percent of the 4,000 colleges and universities in the US will be bankrupt in 10-15 years.”
The reason for this, highlighted in another article in Inside Higher Ed is that Christensen believes that the “business model” of universities is fundamentally broken, as high operating costs mean a majority of students require scholarships.
“The real challenge facing many colleges and universities at the moment is that their business model is fundamentally broken.”
Along with co-writer Michael Horn, the pair argues that the average first-year, full-time student at a private college in 2017-2018 paid less than 50 percent of the sticker price of tuition, per the National Association of College and University Business Officers. This means that colleges and universities are only charging students half of what they need to operate.
Christensen and Horn argue that a student body that pays less than 65 percent of the price of tuition will be in financial danger. The fact that it is 50 percent, and less in many places, will lead to disaster.
“Many colleges and universities are increasingly unable to bring in enough revenue to cover their costs.”
In addition, alumni giving is down, especially since fewer recent graduates donate. Eighteen percent of private university alums donate to their alma maters; with public universities, the number is even lower at a dismal 5 percent.
The pair also point out that according to Moody’s, at least 25 percent of private colleges are currently running shortfalls. Even at public colleges during a bull market, costs have exceeded revenues for the past three years.
Moody’s has also found that private college closures are currently twice the historic rate, and likely to keep rising. In addition, college mergers have doubled in the past decade.
Also, the rise of online education is likely going to be a disruption to traditional higher education. Though Christensen and Horn do not believe that online learning is the primary cause of their predicted college failure, it simply adds to the number of problems facing higher ed.
“Nearly 20 percent of students are now enrolled in a mostly online program.”
This does not include the unaccredited programs, like popular coding boot camps, which would make the number even higher.
Christensen and Horn believe that colleges and universities need to reevaluate their current model. Operating costs are too bloated, revenue must come in, and universities need to start justifying their high tuition.
But, at present, the pair maintains that “many colleges are in trouble.”