The already competitive higher-ed marketplace is on the cusp of becoming even more challenging for colleges as they fight to pull from a dwindling pool of eligible students. With the number of traditional college-age students on the decline, schools are in a frenzy to maintain a competitive edge. As the Martin Center has detailed in our Blueprint for Reform Surviving the Demographic Cliff, colleges are facing current and predicted declines in enrollment. While the cause of this issue is multifaceted, it stems largely from a nationwide drop in birth rates that has only been exacerbated by the Covid pandemic.
As Inside Higher Ed recently reported, the 2025 Outlook Report from big-three credit rater Fitch noted that “rising pressures, including ‘uneven’ enrollment trends, growing costs and flat state funding, are likely to financially hurt U.S. higher ed institutions—especially those with already tight budgets that heavily depend on tuition dollars.” In light of the strain caused by Covid-era disruptions, colleges and universities are feeling the pinch, as previously existing issues—such as deferred maintenance—have only worsened. In short, countless schools face major financial challenges.
Schools today must juggle their financial appeal and the costs of remaining solvent.An earlier 2024 report from S&P Global Ratings brought similar news, that effects of the pandemic such as college campus closings, delayed enrollment, freezes (hiring, pension, salary), and declines in international student enrollment continue to impact higher ed’s financial landscape. Additionally, increased expenses for student services such as tutoring and mental-health care have followed the pandemic.
To remain competitive, some colleges will respond to the changing landscape by offering lower tuition rates, but this becomes increasingly challenging when such discounts are coupled with lower-than-typical enrollment. There is a reason why tuition prices have actually been increasing over the past decades. It’s all fun and games to compete for the lowest tuition until it comes to keeping the lights on. Schools today must juggle their financial appeal and the costs of remaining solvent.
S&P predicts that operational constraints, as well as the aforementioned competition between institutions, may well be the “new normal” for colleges and universities. The ratings firm points to the obvious and necessary solution, with which the Martin Center is largely in agreement: making cuts. Across the board, sparing neither faculty and staff nor programs and majors from scrutiny, institutions’ best course of action is to cut costs, as it is much easier to reduce expenses than to increase income.
The analysts at S&P give a word of caution here, however, stating that institutions should be careful to avoid the kind of backlash seen at Columbia College Chicago at the end of 2023, when adjunct faculty went on strike for 49 days, the longest faculty strike in U.S. history. Once again, colleges will find themselves in a balancing act, as the priorities of university leadership (budgets) and those of faculty and staff (increased job-security and pay) are often at odds with one another—at least from a bird’s-eye view.
Columbia’s financial situation was not unique. The $20-million budget deficit cited as the motivating factor behind the proposed cuts is the current reality for many other institutions, with more likely to follow. Normalizing the process of conducting program reviews, as the UNC System does regularly, is a step in the right direction.
The outlook for higher education may seem bleak, but if university leaders are proactive and bold in the steps they take to reduce costs and maintain a competitive edge, they will be better able to weather the coming storm.
Ashlynn Warta is the state reporter for the James G. Martin Center for Academic Renewal.